RECAPTURE OF DEPRECIATION ON REAL PROPERTY.

SEC. 202. RECAPTURE OF DEPRECIATION ON REAL PROPERTY. (a) In General.— Subsection (a) of section 1250 (relating to gain from dispositions of certain depreciable realty) is amended to read as follows: “(a) General Rule.— Except as otherwise provided in this section— “(1) Additional depreciation after December 31, 1975.— “(A) In general.— If section 1250 property is disposed of after December 31, 1975, then the applicable percentage of the lower of— “(i) that portion of the additional depreciation (as defined in subsection (b)(1) or (4)) attributable to periods after December 31, 1975, in respect of the property, or “(ii) the excess of the amount realized (in the case, of a sale, exchange, or involuntary conversion), or the fair market value of such property (in the case of any other disposition), over the adjusted basis of such property. shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. “(B) Applicable percentage.— For purposes of subparagraph (A), the term ‘applicable percentage.’ means— “(i) in the case of section 1250 property with respect to which a mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of State or local laws and with respect to which the owner is subject to the restrictions described in section 1039(b)(1)(B), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; 90 STAT. 1528 “(ii) in the case of dwelling units which, on the average, were held tor occupancy by families or individuals eligible to receive .subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of State or local law authorizing similar levels of subsidy for lower-income families, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; “(iii) in the case of section 1250 property with respect to which a depreciation deduction for rehabilitation expenditures was allowed under section 167(k), 100 percent minus 1 percentage point for each full month in excess of 100 full months after the date on which such property was placed in service; “(iv) in the case of section 1250 property with respect to which a loan is made or insured under title V of the Housing Act of 19+9, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; and “(v) in the case of all other section 1250 property, 100 percent. In the case of a building (or a portion of a building devoted to dwelling units), if, on the average, 85 percent or more of the dwelling .units contained in such building (or portion thereof) are units described in clause (ii), such building (or portion thereof) shall be treated as property described in clause (ii). Clauses (i), (ii), and (iv) shall not apply with respect to the additional depreciation described in subsection (b)(4). “(2) Additional depreciation after December 31, isos, and before january 1, 1978.— “(A) In general.— If section 1250 property is disposed of after December 31, 1969, and the amount determined under paragraph (1)(A)(ii) exceeds the amount determined under paragraph (1)(A)(i), then the applicable percentage of the lower or— “(i) that portion of the additional depreciation attributable to periods after December 31, 1969, and before January 1, 1976, in respect of the property, or “(ii) the excess of the amount determined under paragraph (1)(A)(ii) over the amount determined under paragraph (1)(A)(i), shall also be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. “(B) Applicable percentage.— For purposes of subparagraph (A), the term ‘applicable percentage’ means— “(i) in the case of section 1250 property disposed of pursuant to a written contract which was, on July 24, 1969, and at all times thereafter, binding on the owner of the property, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 20 full months; “(ii) in the case of section 1250 property with respect to which a mortgage is insured under section 221 (d)(3) or 236 of the National Housing Act, or housing financed 90 STAT. 1529or assisted by direct loan or tax abatement under similar provisions of State or local laws, and with respect to which the owner is subject to the restrictions described in section 1039(b)(1)(B), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 20 full months; “(iii) in the case of residential rental property (as defined in section 167(j)(2)(B)) other than that covered by clauses (i) and (ii), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; “(iv) in the ease of section 1250 property with respect to which a depreciation deduction for rehabilitation expenditures was allowed under section 167(k), 100 percent minus 1 percentage point for each full month in excess of 100 full months after the date on which such property was placed in service; and “(v) in the case of all other section 1250 property, 100 percent. Clauses (i), (ii). and (iii) shall not apply with respect to the additional depreciation described in subsection (b)(4). “(3) Additional depreciation before January 1, 1970.— “(A) In general.— If section 1250 property is disposed of after December 31, 1963, and the amount determined under paragraph (1)(A)(ii) exceeds the sum of the amounts determined under paragraphs (1)(A)(i) and (2)(A)(i), then the applicable percentage of the lower of— “(i) that portion of the additional depreciation attributable to periods before January 1, 1970, in respect of the property, or “(ii) the excess of the amount determined under paragraph (1)(A)(ii) over the sum of the amounts determined under paragraphs (1)(A)(i) and (2)(A)(i), shall also be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. “(B) Applicable percentage.— For purposes of subparagraph (A), the term ‘applicable percentage’ means 100 percent minus 1 percentage point for each full month the property was held after the date on which the property was held for 20 full months.” (b) Property Disposed of Pursuant to Foreclosure Proceedings.— Subsection (d) of section 1250 (relating to exceptions and limitations) is amended by adding at the end thereof the following new paragraph: “(10) Foreclosure dispositions.— If any section 1250 property is disposed of by the taxpayer pursuant to a bid for such property at foreclosure or by operation of an agreement or of process of law after there was a default on indebtedness which such property secured. the applicable percentage referred to in paragraph (1)(B), (2)(B), or (3)(B) of subsection (a), as the case may be, shall be determined as if the taxpayer ceased to hold such property on the date of the beginning of the proceedings pursuant to which the disposition occurred, or, in the event there are no proceedings, such percentage shall he determined as if the taxpayer ceased to hold such property on the date, determined under regulations prescribed by the Secretary, on which 90 STAT. 1530such operation of an agreement or process of law, pursuant to which the disposition occurred, began,” (c) Conforming Amendments.— (1) Amendment of section 1250(f)(2).— Paragraph (2) of section 1250(f) (relating to special rule for property which is substantially improved) is amended to read as follows: “(2) Ordinary income attributable to an element.— For purposes of paragraph (1), the amount taken into account for any element shall be the sum of a series of amounts determined for the periods set forth in subsection (a), with the amount for any such period being determined by multiplying— “(A) the amount which bears the same ratio to the lower of the amounts specified in clause (i) or (ii) of subsection (a)(1)(A), in clause (i) or (ii) of subsection (a)(2)(A), or in clause (i) or (ii) of subsection (a)(3)(A), as the case may be, for the section 1250 property as the additional depreciation for such element attributable to such period bears to the sum of the additional depreciation for all elements attributable to such period, by “(B) the applicable percentage for such element for such period. For purposes of this paragraph, determinations with respect to any element shall be made as if it were a separate property.” (2) Amendment of section 1250 (g)(2).— Paragraph (2) of section 1250(g) (relating to special rules for qualified low-income housing) is amended to read as follows: “(2) Ordinary income attributable to an element.— For purposes of paragraph (1), the amount taken into account for any element shall be determined in a manner similar to that provided by subsection (f)(2).” (3) Amendment of section 167 (e)(3).— Paragraph (3) of section 167(e) (relating to change in depreciation method with respect to section 1250 property) is amended by striking out “beginning after July 24, 1969,” and inserting in lieu thereof “beginning after December 31, 1975,”. (d) Effective Date.— The amendments made by this section (other than subsection (b)) shall apply for taxable years ending after December 31, 1975. The amendment made by subsection (b) shall apply with respect to proceedings (and to operations of law) referred to in section 1250(d)(10) of the Internal Revenue Code of 1954 which begin after December 31, 1975.