ALTERNATIVE TAX IN CASE OF CAPITAL GAINS.

SEC. 1607. ALTERNATIVE TAX IN CASE OF CAPITAL GAINS. (a) Alternative Tax.— Section 857(b)(3)(A) (relating to imposition of tax on capital gain) is amended to read as follows: “(A) Alternative tax in case of capital gains.— If for any taxable year a real estate investment trust has a net capital gain, then, in lieu of the tax imposed by subsection (b)(1), there is hereby imposed a tax (if such tax is less than the tax imposed by such subsection) which shall consist of the sum of— “(i) a tax, computed as provided in subsection (b)(1), on the real estate investment trust taxable income (determined by excluding such net capital gain and by computing the deduction for dividends paid without regard to capital gain dividends), and “(ii) a tax of 30 percent of the excess of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gains dividends only.” (b) Conforming Amendments.— (1) (A) Section 857(b)(2) (relating to method of taxation of real estate investment trust taxable income) is amended by deleting subparagraph (A) and redesignating subparagraphs (B), (C),and (D) as subparagraphs (A), (B),and (C), respectively. (B) Subsection (e)(2) of section 46 (relating to investment credit) is amended— (i) by striking out “857(b)(2)(C)” in subparagraph (B) and inserting in lieu thereof “857(b)(2)(B)”, and (ii) by inserting “determined without regard to any deduction for capital gains dividends (as defined in section 857(b)(3)(C)) and by excluding any net capital gain” immediately before the period at the end of the last sentence thereof. 90 STAT. 1757 (C) Section 443(e)(5) (relating to cross references) is amended by striking out “857(b)(2)(D)” and inserting in lieu thereof “857(b)(2)(C)”. . . (2) Subparagraph (B) of section 857(b)(2) (relating to real estate investment trust taxable income), as redesignated by paragraph (1) of this subsection, is amended by striking out “shall be computed without regard to capital gains dividends and”. (3) Section 857(b)(3)(C) (relating to definition of capital gain dividend) is amended by inserting after the second sentence thereof the following: “For purposes of this subparagraph, the net capital gain shall be deemed not to exceed the real estate investment trust taxable income (determined without regard to the deduction for dividends paid (as defined in section 561) for the taxable year).”