CAPITALIZATION AND AMORTIZATION OF REAL PROPERTY CONSTRUCTION PERIOD INTEREST AND TAXES.

SEC. 201. CAPITALIZATION AND AMORTIZATION OF REAL PROPERTY CONSTRUCTION PERIOD INTEREST AND TAXES. (a) In General.— Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding at the end thereof the following new section: “SEC. 189. AMORTIZATION OF REAL PROPERTY CONSTRUCTION PERIOD INTEREST AND TAXES. “(a) Capitalization op Construction Period Interest and Taxes.— Except as otherwise provided in this section or in section 266 (relating to carrying charges), in the case of an individual, an electing small business corporation (within the meaning of section 1371(b)), or a personal holding company (within the meaning of section 542), no deduction shall be allowed for real property construction period interest and taxes. “(b) Amortization of Amounts Charged to Capital Account.— Any amount paid or accrued which would (but for subsection (a)) be allowable as a deduction for the taxable year shall be allowable for such taxable year and each subsequent amortization year in accordance with the following table: If the amount is paid or accrued in a taxable year beginning in— The percentage of such amount allowable for each amortization year shall be the following percentage of such amount Nonresidential real property Residential real property (other than low-income housing) Low-income housing 1976 see subsection (f) 1978 1982 25 1977 1979 1983 20 1978 1980 1984 1622 1979 1981 1985 1427 1980 1982 1986 12½ 1981 1983 1987 11¼ after 1981 after 1983 after 1987 10 “(c) Amortization Year.— “(1) In general.— For purposes of this section, the term ‘amortization year’ means the taxable year in which the amount is paid or accrued, and each taxable year thereafter (beginning with the taxable year after the, taxable year in which paid or accrued or, if later, the taxable year in which the real property is ready to be placed in service or is ready to be held for sale) until the full amount has been allowable as a deduction (or until the property is sold or exchanged). 90 STAT. 1526 “(2) Rules for sales and exchanges.— For purposes of paragraph (1)— “(A) Proportion of percentage allowed.—For the amortization year in which the property is sold or exchanged, a proportionate part of the percentage allowable for such year (determined without regard to the sale or exchange) shall be allowable. If the real property is subject to an allowance for depreciation, the proportion shall be determined in accordance with the convention used for depreciation purposes with respect to such property. in the case of all other real property, under regulations prescribed by the Secretary, the proportion shall be Cased on that proportion of the amortization year which elapsed before the sale or exchange. “(B) Unamortized balance.—In the case of a sale or exchange of the property, the portion of the amount not allowable shall be treated as an adjustment to basis under section 1016 for purposes of determining gain or loss. “(C) Certain exchanges.—An exchange or transfer after which the property received has a basis determined in whole or in part by reference to the basis of the property to which the amortizable construction period interest and taxes relate, shall not be treated as an exchange. “(d) Certain Residential Property Excluded.— This section shall not apply to any real property acquired, constructed, or carried if such property is not, and cannot reasonably be expected to be, held in a trade or business or in an activity conducted for profit. “(e) Definitions.— For purposes of this section— “(1) Construction period interest and taxes.— The term ‘construction period interest and taxes’ means all— “(A) interest paid or accrued on indebtedness incurred or continued to acquire, construct, or carry real property, and “(B) real property taxes, to the extent such interest and taxes are attributable to the construction period for such property and would be allowable as a deduction under this chapter for the taxable year in which paid or accrued (determined without regard to this section). “(2) Construction period.— The term ‘construction period’, when used with respect to any real property, means the period— “(A) beginning on the date on which construction of the building or other improvement begins, and “(B) ending on the date on which the item of property is ready to be placed in service or is ready to be held tor sale. “(3) Nonresidential real property.—The term ‘nonresidential real property’ means real property which is neither residential real property nor low-income housing. “(4) Residential real property.— The term ‘residential real property’ means property’ which is or can reasonably be expected to be— “(A) residential rental property as defined in section 167 (j)(2)(B),or “(B) real property described in section 1221(1) held for sale as dwelling units (within the meaning of section 167(k) “(5) Low-income housing.—The term ‘low-income housing’ means property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B). 90 STAT. 1527 “(f) Transitional Rule for 1976.— In the case of amounts paid or accrued by the taxpayer in a taxable year beginning in 1976, the percentage of such amount allowable under this section for— “(1) the taxable year beginning in 1976 shall be 50 percent, and “(2) each amortization year thereafter shall be 16% percent.” (b) Clerical Amendment.— The table of sections for such part VI is amended by adding at the end thereof the following new item: “Sec. 189. Amortization of real property construction period interest and taxes.” (c) Effective Date.— The amendments made, by this section shall apply— (1) in the case of nonresidential real property, if the construction period begins after December 31, 1975, (2) in the case of residential real property (other than low-income housing), to taxable years beginning after December 31, 1977, and (3) in the case of low-income housing, to taxable years beginning after December 31, 1981. For purposes of this subsection, the terms “nonresidential real property’, “residential real property (other than low-income housing)”, “low-income housing”, and “construction period” have the same meaning as when used in section 189 of the Internal Revenue Code of 1954 (as added by subsection (a) of this section).