SALES OF CERTAIN LOW-INCOME HOUSING PROJECTS.

SEC. 910. SALES OF CERTAIN LOW-INCOME HOUSING PROJECTS. (a) Nonrecognition of Gain in Case of Approved Dispositions.— Part III of Subchapter O of chapter 1 (relating to common nontaxable exchanges) is amended by adding at the end thereof the following new section: “SEC. 1039. CERTAIN SALES OF LOW-INCOME HOUSING PROJECTS. “(a) Nonrecognition of Gain.—If— “(1) a qualified housing project is sold or disposed of by the taxpayer in an approved disposition, and “(2) within the reinvestment period the taxpayer constructs, reconstructs, or acquires another qualified housing project, then, at the election of the taxpayer, gain from such approved disposition shall be recognized only to the extent that the net amount realized on such approved disposition exceeds the cost of such other qualified housing project. An election under this subsection shall be made at such time and in such manner as the Secretary or his delegate prescribes by regulations. 83 Stat. 719 “(b) Definitions.—For purposes of this section— “(1) Qualified housing project.—The term ‘qualified housing project’ means a project to provide rental or cooperative housing for lower income families— “(A) with respect to which a mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, and “(B) with respect to which the owner is, under such sections or regulations issued thereunder— “(i) limited as to the rate of return on his investment in the project, and “(ii) limited as to rentals or occupancy charges for units in the project. “(2) Approved disposition.—The term ‘approved disposition’ means a sale or other disposition of a qualified housing project to the tenants or occupants of units in such project, or to a cooperative or other nonprofit organization formed solely for the benefit of such tenants or occupants, which sale or disposition is approved by the Secretary of Housing and Urban Development under section 221(d)(3) or 236 of the National Housing Act or regulations issued under such sections. “(3) Reinvestment period.—The reinvestment period, with respect to an approved disposition of a qualified housing project, is the period beginning one year before the date of such approved disposition and ending— “(A) one year after the close of the first taxable year in which any part of the gain from such approved disposition is realized, or “(B) subject to such terms and conditions as may be specified by the Secretary or his delegate, at the close of such later date as the Secretary or his delegate may designate on application by the taxpayer. Such application shall be made at such time and in such manner as the Secretary or his delegate prescribes by regulations. “(4) Net amount realized.—The net amount realized on an approved disposition of a qualified housing project is the amount realized reduced by— “(A) the expenses paid or incurred which are directly connected with such approved disposition, and “(B) the amount of taxes (other than income taxes) paid or incurred which are attributable to such approved disposition. “(c) Special Rules.—For purposes of applying subsection (a)(2) with respect to an approved disposition— “(1) no property acquired by the taxpayer before the date of the approved disposition shall be taken into account unless such property is held by the taxpayer on such date, and “(2) no property acquired by the taxpayer shall be taken into account unless, except as provided in subsection (d), the unadjusted basis of such property is its cost within the meaning of section 1012. “(d) Basis of Other Qualified Housing Project.—If the taxpayer makes an election under subsection (a) with respect to an approved disposition, the basis of the qualified housing project described in subsection (a)(2) shall be its cost reduced by an amount equal to the amount of gain not recognized by reason of the application of subsection (a). 83 Stat. 720 “(e) Assessment of Deficiencies.— “(1) Deficiency attributable to gain.—If the taxpayer has made an election under subsection (a) with respect to an approved disposition— “(A) the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on such approved disposition is realized, attributable to the gain on such approved disposition shall not expire prior to the expiration of 3 years from the date the Secretary or his delegate is notified by the taxpayer (in such manner as the Secretary or his delegate may by regulations prescribe) of the construction, reconstruction, or acquisition of another qualified housing project or of the failure to construct, reconstruct, or acquire another qualified housing project, and “(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of section 6212(c) or the provision of any other law or rule of law which would otherwise prevent such assessment. “(2) Time for assessment of other deficiencies attributable to election.—If a taxpayer has made an election under subsection (a) with respect to an approved disposition and another qualified housing project is constructed, reconstructed, or acquired before the beginning of the last taxable year in which any part of the gain upon such approved disposition is realized, any deficiency, to the extent resulting from such election, for any taxable year ending before such last taxable year may be assessed (notwithstanding the provisions of section 6212(c) or 6501 or the provisions of any other law or rule of law which would otherwise prevent such assessment) at any time before the expiration of the period within which a deficiency for such last taxable year may be assessed.” (b) Amendments to Section 1250.— (1) Section 1250(d) (relating to exceptions and limitations) is amended by adding at the end thereof the following new paragraph: “(8) Disposition of qualified low-income housing.—If section 1250 property is disposed of and gain (determined without regard to this section) is not recognized in whole or in part under section 1039, then— “(A) Recognition limit.—The amount of gain recognized by the transferor under subsection (a) shall not exceed the greater of— “(i) the amount of gain recognized on the disposition (determined without regard to this section), or “(ii) the amount determined under subparagraph (B). “(B) Adjustment where insufficient section 1250 property is acquired.—With respect to any transaction, the amount determined under this subparagraph shall be the excess of— “(i) the amount of gain which would (but for this paragraph) be taken into account under subsection (a), over “(ii) the cost of the section 1250 property acquired in the transaction. “(C) Basis of property acquired.—The basis of property acquired by the taxpayer, determined under section 1039(d), shall be allocated— 83 Stat. 721 “(i) first to the section 1250 property described in subparagraph (E)(i), in the amount determined under such subparagraph, reduced by the amount of gain not recognized attributable to the section 1250 property disposed of, “(ii) then to any property (other than section 1250 property) to which section 1039 applies, in the amount of its cost, reduced by the amount of gain not recognized except to the extent taken into account under clause (i), and “(iii) then to the section 1250 property described in subparagraph (E)(ii), in the amount determined thereunder, reduced by the amount of gain not recognized except to the extent taken into account under clauses (i) and (ii). “(D) Additional depreciation with respect to property disposed of.—The additional depreciation with respect to any property acquired shall include the additional depreciation with respect to the corresponding section 1250 property disposed of, reduced by the amount of gain recognized attributable to such property. “(E) Property consisting of more than one element.—There shall be treated as a separate element of section 1250 property— “(i) that portion of the section 1250 property acquired the cost of which does not exceed the net amount realized (as defined in section 1039(b)) attributable to the section 1250 property disposed of, reduced by the amount of gain recognized (if any) attributable to such property, and “(ii) that portion of the section 1250 property acquired the cost of which exceeds the net amount realized (as defined in section 1039(b)) attributable to the section 1250 property disposed of. “(F) Allocation rules.—For purposes of this paragraph— “(i) the amount of gain recognized attributable to the section 1250 property disposed of shall be the net amount realized with respect to such property, reduced by the greater of the adjusted basis of the section 1250 property disposed of or the cost of the section 1250 property acquired, but shall not exceed the gain recognized in the transaction, and “(ii) if any section 1250 property is treated as consisting of more than one element by reason of the application of subparagraph (E) to a prior transaction, then the amount of gain recognized, the net amount realized, and the additional depreciation, with respect to each such element shall be allocated in accordance with regulations prescribed by the Secretary or his delegate.” (2) Section 1250(e) (relating to holding period) is amended by adding at the end thereof the following new paragraph: “(4) Qualified low-income housing.—The holding period of any section 1250 property acquired which is described in subsection (d)(8)(E)(i) shall include the holding period of the corresponding element of section 1250 property disposed of.” 83 Stat. 722 (3) Section 1250 (relating to gain from dispositions of certain depreciable realty) is amended by redesignating subsections (g) and (h) as subsections (h) and (i) and by inserting after subsection (f) the following new subsection: “(g) Special Rules for Qualified Low-Income Housing.— “(1) Amount treated as ordinary income.—If, in the case of a disposition of section 1250 property, the property is treated as consisting of more than one element by reason of the application of subsection (d)(8)(E), and gain is recognized in whole or in part, then the amount taken into account under subsection (a) as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231 shall be the sum of the amounts determined under paragraph (2). “(2) Ordinary income attributable to an element.—For purposes of paragraph (1), the amount taken into account for any element shall be the amount determined by multiplying— “(A) the amount which bears the same ratio to the lower of the additional depreciation or the gain recognized for the section 1250 property disposed of as the additional depreciation for such element bears to the sum of the additional depreciation for all elements disposed of, by “(B) the applicable percentage for such element. For purposes of this paragraph, determinations with respect to any element shall be made as if it were a separate property.” (c) Clerical Amendment.—The table of sections for part III of subchapter O of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 1039. Certain sales of low-income housing projects.” (d) Effective Date.—The amendments made by this section shall apply to approved dispositions of qualified housing projects (within the meaning of section 1039 of the Internal Revenue Code of 1954, as added by subsection (a)) after October 9, 1969.