EXCESS INVESTMENT INTEREST.

SEC. 304. EXCESS INVESTMENT INTEREST. (a) Definition of Net Lease— (1) Section 57(c) (relating to definition of net lease) is amended to read as follows: “(c) Net Leases— “(1) In general—For purposes of this section, property shall be considered to be subject to a net lease for a taxable year if— “(A) for such taxable year the sum of the deductions of the lessor with respect to such property which are allowable solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) is less than 15 percent of the rental income produced by such property, or “(B) the lessor is either guaranteed a specified return or is guaranteed in whole or in part against loss of income. “(2) Multiple leases of single parcel of real property—If a parcel of real property of the taxpayer is leased under two or more leases, paragraph (1) (A) shall, at the election of the tax-payer, be applied by treating all leased portions of such property as subject to a single lease. 85 Stat. 523 “(3) Elimination of 15-percent test after 5 years in case of real property—At the election of the taxpayer, paragraph (1) (A) shall not apply with respect to real property of the tax-payer which has been in use for more than 5 years. “(4) Elections—An election under paragraph (2) or (3) shall be made at such time and in such manner as the Secretary or his delegate prescribes by regulations.” (2) Section 163(d) (relating to limitation on interest on investment indebtedness) is amended— (A) by striking out clause (i) of paragraph (4) (A) and inserting in lieu thereof the following: “(i) for such taxable year the sum of the deductions of the lessor with respect to such property which are allowable solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) is less than 15 percent of the rental income produced by such property, or”, and (B) by adding at the end thereof the following new paragraph: “(7) Real property leases—For purposes of paragraph (4) (A)— “(A) if a parcel of real property of the taxpayer is leased under two or more leases, paragraph (4) (A) (i) shall, at the election of the taxpayer, be applied by treating all leased portions of such property as subject to a single lease; and “(B) at the election of the taxpayer, paragraph (4)(A)(i) shall not apply with respect to real property of the taxpayer which has been in use for more than 5 years. An election under subparagraph (A) or (B) shall be made at such time and in such manner as the Secretary or his delegate prescribes by regulations.” (b) Definition of Excess Investment Interest — (1) Section 57(b)(1) (relating to definition of excess investment interest) is amended by striking out “exceeds the net investment income for the taxable year” and inserting in lieu thereof “exceeds the sum of— “(A) the net investment income for the taxable year, and “(B) the amount (if any) by which the deductions allowable under sections 162,163,164(a) (1) or 2, and 212 attributable to property of the taxpayer subject to a net lease exceeds the gross rental income produced by such property for the taxable year”. (2) Section 163(d)(1)(B) (relating to limitation on interest on investment indebtedness) is amended to read as follows: “(B) the amount of the net investment income (as defined in paragraph (31(A)), plus the amount (if any) by which the deductions allowable under this section (determined with-out regard to this subsection) and sections 162,164(a) (1) or (2), or 212 attributable to property of the taxpayer subject to a net lease exceeds the rental income produced by such property for the taxable year, plus”. (c) Election by Members of Partnership—Section 703(b) (relating to elections of a partnership) is amended by— (1) striking out “or” after “(relating to pre–1970 exploration expenditures)” and inserting in lieu thereof a comma; and (2) inserting after “(relating to deduction and recapture of certain mining exploration expenditures)” the following: “under section 57(c) (relating to definition of net lease), or under section 163(d) (relating to limitation on interest on investment indebtedness)”, 85 Stat. 524 (d) Electing Small Business Corporations—Section 57 (b) (2) (C) (relating to items of tax preference) and section 163(d) (3) (C) . (relating to interest on investment indebtedness) are each amended by striking out “sections 164(a)(1) or (2)” and inserting in lieu thereof “sections 162,164(a) (1) or (2)”. (e) Effective Dates—The amendments made by this section to section 57 of the Internal Revenue Code of 1954 shall apply to taxable years beginning after December 31, 1969. The amendments made by this section to section 163 of such Code shall apply to taxable years beginning after December 31, 1971.