EXCLUSION FROM GROSS INCOME FOR INCOME FROM DISCHARGE OF QUALIFIED REAL PROPERTY BUSINESS INDEBTEDNESS.

SEC. 13160. EXCLUSION FROM GROSS INCOME FOR INCOME FROM DISCHARGE OF QUALIFIED REAL PROPERTY BUSINESS INDEBTEDNESS. (a) In General.— Paragraph (1) of section 108(a) (relating to income from discharge of indebtedness) is amended by striking “or” at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting “, or”, and by adding at the end the following new subparagraph: “(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness.” (b) Qualified Real Property Business Indebtedness.— Section 108 is amended by inserting after subsection (b) the following new subsection: “(c) Treatment of Discharge of Qualified Real Property Business Indebtedness.— “(1) Basis reduction.— “(A) In general.— The amount excluded from gross income under subparagraph (D) of subsection (a)(1) shall be applied to reduce the basis of the depreciable real property of the taxpayer. “(B) Cross reference.— For provisions making the reduction described in subparagraph (A), see section 1017. “(2) Limitations.— “(A) Indebtedness in excess of value.— The amount excluded under subparagraph (D) of subsection (a)(1) with respect to any qualified real property business indebtedness shall not exceed the excess (if any) of— “(i) the outstanding principal amount of such indebtedness (immediately before the discharge), over “(ii) the fair market value of the real property described in paragraph (3)(A) (as of such time), reduced by the outstanding principal amount of any other qualified real property business indebtedness secured by such property (as of such time). “(B) Overall limitation.— The amount excluded under subparagraph (D) of subsection (a)(1) shall not exceed 107 STAT. 447the aggregate adjusted bases of depreciable real property (determined after any reductions under subsections (b) and (g)) held by the taxpayer immediately before the discharge (other than depreciable real property acquired in contemplation of such discharge). “(3) Qualified real property business indebtedness.— The term ‘qualified real property business indebtedness’ means indebtedness which— “(A) was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by such real property, “(B) was incurred or assumed before January 1, 1993, or if incurred or assumed on or after such date, is qualified acquisition indebtedness, and “(C) with respect to which such taxpayer makes an election to have this paragraph apply. Such term shall not include qualified farm indebtedness. Indebtedness under subparagraph (B) shall include indebtedness resulting from the refinancing of indebtedness under subparagraph (B) (or this sentence), but only to the extent it does not exceed the amount of the indebtedness being refinanced. “(4) Qualified acquisition indebtedness.— For purposes of paragraph (3)(B), the term ‘qualified acquisition indebtedness’ means, with respect to any real property described in paragraph (3)(A), indebtedness incurred or assumed to acquire, construct, reconstruct, or substantially improve such property. “(5) Regulations.— The Secretary shall issue such regulations as are necessary to carry out this subsection, including regulations preventing the abuse of this subsection through cross-collateralization or other means.” (c) Technical Amendments.— (1) Subparagraph (A) of section 108(a)(2) is amended by striking “and (C)” and inserting “, (C), and (D)”. (2) Subparagraph (B) of section 108(a)(2) is amended to read as follows: “(B) Insolvency exclusion takes precedence over qualified farm exclusion and qualified real property business exclusion.— Subparagraphs (C) and (D) of paragraph (1) shall not apply to a discharge to the extent the taxpayer is insolvent.” (3) Subsection (d) of section 108 is amended— (A) by striking “subsections (a), (b), and (g)” in paragraphs (6) and (7)(A) and inserting “subsections (a), (b), (c), and (g)”, (B) by striking “Subsections (a), (b), and (g)” in the subsection heading and inserting “Certain Provisions”, and (C) by striking “Subsections (a), (b), and (g)” in the headings of paragraphs (6) and (7)(A) and inserting “Certain Provisions”. (4) Subparagraph (B) of section 108(d)(7) is amended by adding at the end thereof the following new sentence: “The preceding sentence shall not apply to any discharge to the extent that subsection (a)(1)(D) applies to such discharge.” 107 STAT. 448 (5) Subparagraph (A) of section 108(d)(9) is amended by inserting “or under paragraph (3)(B) of subsection (c)” after “subsection (b)”. (6) Paragraph (2) of section 1017(a) is amended by striking “or (b)(5)” and inserting “, (b)(5), or (c)(1)”. (7) Subparagraph (A) of section 1017(b)(3) is amended by inserting “or (c)(1)” after “subsection (b)(5)”. (8) Section 1017(b)(3) is amended by adding at the end the following new subparagraph: “(F) Special rules for qualified real property business indebtedness.— In the case of any amount which under section 108(c)(1) is to be applied to reduce basis— “(i) depreciable property shall only include depreciable real property for purposes of subparagraphs (A) and (C), “(ii) subparagraph (E) shall not apply, and “(iii) in the case of property taken into account under section 108(c)(2)(B), the reduction with respect to such property shall be made as of the time immediately before disposition if earlier than the time under subsection (a).” (9) Paragraph (1) of section 703(b) is amended by striking “subsection (b)(5)” and inserting “subsection (b)(5) or (c)(3)”. (d) Effective Date.— The amendments made by this section shall apply to discharges after December 31, 1992, in taxable years ending after such date.