RESTRICTIONS ON BONDS USED TO PROVIDE RESIDENTIAL RENTAL PROPERTY FOR FAMILY UNITS.

SEC. 5053. RESTRICTIONS ON BONDS USED TO PROVIDE RESIDENTIAL RENTAL PROPERTY FOR FAMILY UNITS. (a) 501(c)(3) Bonds Used To Provide Residential Rental Housing for Family Units Must Meet Targeting Requirements.— Section 145 of the 1986 Code (defining qualified 501(c)(3) bond) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: 102 STAT. 3678 “(d) Restrictions on Bonds Used To Provide Residential Rental Housing for Family Units.— “(1) In general.— Except as otherwise provided in this subsection, a bond which is part of an issue shall not be a qualified 501(c)(3) bond if any portion of the net proceeds of the issue are to be used directly or indirectly to provide residential rental property for family units. “(2) Exception for bonds used to provide qualified residential rental projects.— Paragraph (1) shall not apply to any bond issued as part of an issue if the portion of such issue which is to be used as described in paragraph (1) is to be used to provide— “(A) a residential rental property for family units if the first use of such property is pursuant to such issue, “(B) qualified residential rental projects (as defined in section 142(d)), or “(C) property which is to be substantially rehabilitated in a rehabilitation beginning within the 2-year period ending 1 year after the date of the acquisition of such property “(3) Substantial rehabilitation.— “(A) In general.— Except as provided in subparagraph (B), rules similar to the rules of section 48(g)(1)(C) shall apply in determining for purposes of paragraph (2)(C) whether property is substantially rehabilitated. “(B) Exception.— For purposes of subparagraph (A), clause (ii) of section 48(g)(1)(C) shall not apply, but the Secretary may extend the 24-month period in section 48(g)(1)(C)(i) where appropriate due to circumstances not within the control of the owner.” (b) Residential Rental Project Not Located Within Jurisdiction of Issuer Treated as Investment Property.— Paragraph (2) of section 148(b) of the 1986 Code (defining investment property) is amended by striking out “or” at the end of subparagraph (C), by striking out the period at the end of subparagraph (D) and inserting in lieu thereof “, or”, and by adding at the end thereof the following new subparagraph: “(E) in the case of a bond other than a private activity bond, any residential rental property for family units which is not located within the jurisdiction of the issuer and which is not acquired to implement a court ordered or approved housing desegregation plan.” (c) Effective Date.— (1) In general.— The amendments made by this section shall apply to obligations issued after October 21, 1988. (2) Exception for construction or binding agreement.— (A) The amendments made by this section shall not apply to bonds (other than refunding bonds) with respect to a facility— (i) (I) the original use of which begins with the tax-payer, and the construction, reconstruction, or rehabilitation of which began before July 14, 1988, and was completed on or after such date, or (II) the original use of which begins with the tax-payer and with respect to which a binding contract to incur significant expenditures for construction, reconstruction, or rehabilitation was entered into before102 STAT. 3679 July 14, 1988, and some of such expenditures are incurred on or after such date, and (ii) described in an inducement resolution or other comparable preliminary approval adopted by an issuing authority (or by a voter referendum) before July 14, 1988. For purposes of the preceding sentence, the term “significant expenditures” means expenditures greater than 10 percent of the reasonably anticipated cost of the construction, reconstruction, or rehabilitation of the facility involved. (B) Subparagraph (A) shall not apply to any bond issued after December 31, 1989, and shall not apply unless it is reasonably expected (at the time of issuance of the bond) that the facility will be placed in service before January 1, 1990. (3) Refundings.— The amendments made by this section shall not apply to any bond issued to refund (or which is part of a series of bonds issued to refund) a bond issued before July 15, 1988, if— (A) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue, (B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and (C) the proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond. For purposes of subparagraph (A), average maturity shall be determined in accordance with section 147(b) of the 1986 Code.