article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Low-Income Housing Preservation Act of 1995''. SEC. 2. 15-YEAR RECOVERY PERIOD. (a) General Rule.--Subsection (c) of section 168 of the Internal Revenue Code of 1986 (relating to applicable recovery period) is amended-- (1) by striking ``as provided in paragraph (2)'' in paragraph (1) and inserting ``as otherwise provided in this subsection'', (2) by redesignating paragraph (2) as paragraph (3), and (3) by inserting after paragraph (1) the following new paragraph: ``(2) Low-income housing.--In the case of any residential rental property which is part of a qualified low-income housing project (as defined in subsection (i)(14)), the applicable recovery period shall be 15 years.'' (b) Qualified Low-Income Housing Project.--Subsection (i) of section 168 of such Code is amended by adding at the end the following new paragraph: ``(14) Qualified low-income housing project.-- ``(A) In general.--For purposes of this section, the term `qualified low-income housing project' means any project for residential rental property if-- ``(i) such project is assisted under a specified HUD program, ``(ii) 50 percent or more of the residential units in such project-- ``(I) in the case of a project described in clause (i) or (ii) of subparagraph (C), are occupied by individuals whose income (at the time of their initial occupancy in such project) was less than 80 percent of the area median gross income (as of such time), or ``(II) in the case of a project described in clause (iii) or (iv) of subparagraph (C), are units with respect to which rental assistance is provided under section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f), ``(iii) such project was originally placed in service at least 10 years before the taxpayer acquired an interest in such project, ``(iv) such project is substantially rehabilitated, ``(v) the taxpayer acquired such taxpayer's interest in such project by purchase, and ``(vi) such project was not previously placed in service by the taxpayer or by any person who was a related person (as defined in section 42(d)(2)(D)(iii)) with respect to the taxpayer as of the time previously placed in service. ``(B) Denial of double benefit.--A project shall not be treated as a qualified low-income housing project if the taxpayer (or any other person holding an interest in such project) claims any benefits with respect to such project under-- ``(i) section 42 (relating to low-income housing credit), ``(ii) section 47 (relating to rehabilitation credit), ``(iii) the Low-Income Housing Preservation and Resident Homeownership Act of 1990 (12 U.S.C. 4101 et seq.), or ``(iv) the Emergency Low-Income Housing Preservation Act of 1987 pursuant to section 604 of the Cranston-Gonzalez National Affordable Housing Act (12 U.S.C. 4101 note). ``(C) Specified hud programs.--For purposes of subparagraph (A), a project is assisted under a specified HUD program if such project was financed by a loan or mortgage which-- ``(i) is insured or held by the Secretary of Housing and Urban Development under section 221(d)(3) of the National Housing Act (12 U.S.C. 1715l(d)(3)) and bears interest at a rate determined under the proviso of section 221(d)(5) of such Act, ``(ii) is insured, assisted, or held by such Secretary or a State or State agency under section 236 of such Act (12 U.S.C. 1715z-1), ``(iii) is insured or held by such Secretary under section 221(d)(3) of such Act and receiving assistance under section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f), or ``(iv) is insured or held by such Secretary under section 221(d)(4) of the National Housing Act. ``(D) Substantially rehabilitated.-- ``(i) In general.--For purposes of subparagraph (A), a project is substantially rehabilitated if the amount of the rehabilitation expenditures with respect to such project during the 24-month period beginning on the date the taxpayer acquired his interest in such project equals or exceeds 10 percent of the aggregate adjusted bases (as of the beginning of such 24-month period) of the residential rental property which is part of such project. ``(ii) Rehabilitation expenditures.-- ``(I) In general.--For purposes of clause (i), the term `rehabilitation expenditures' means amounts chargeable to capital account and incurred for property (or additions or improvements to property) of a character subject to the allowance for depreciation in connection with the rehabilitation of a building. Such term shall not include the cost of acquiring the building (or any interest therein). ``(II) Special rule.--An expenditure may be taken into account only if it benefits the low-income units in the project at least in proportion to the total number of units in such project which are low-income units. For purposes of the preceding sentence, the term `low-income units' means units with respect to which the requirements of subparagraph (A)(ii) are met. ``(E) Income determinations.--For purposes of subparagraph (A), income of individuals and area median gross income shall be determined as provided in section 142(d)(2)(B). ``(F) Purchase.--For purposes of subparagraph (A), the term `purchase' has the meaning given to such term by section 179(d)(2); except that such term shall not include any acquisition where the basis of the property acquired is determined in whole or in part by reference to the basis of other property held at any time by the person acquiring the property. ``(G) Treatment of units occupied by individuals whose incomes rise above limit.-- ``(i) In general.--Except as provided in clause (ii), notwithstanding an increase in the income of the occupants of a low-income unit above the income limitation applicable under subparagraph (A)(ii), such unit shall continue to be treated as a low-income unit if the income of such occupants initially met such income limitation. ``(ii) Next available unit must be rented to low-income tenant if income rises above 140 percent of income limit.--If the income of the occupants of the unit increases above 140 percent of the income limitation applicable under subparagraph (A)(ii), clause (i) shall cease to apply to any such unit if any residential unit in the project (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation. In the case of a project described in section 142(d)(4)(B), the preceding sentence shall be applied by substituting `170 percent' for `140 percent' and by substituting `any low-income unit in the project is occupied by a new resident whose income exceeds 40 percent of area median gross income' for `any residential unit in the project (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation'. ``(H) Recapture rules.-- ``(i) Substantially rehabilitation requirements.--If the requirements of subparagraph (D) are not satisfied with respect to any project-- ``(I) such project shall not be treated as a qualified low-income housing project for any period (including periods before the close of the 24-month period set forth in subparagraph (D)(i)), and ``(II) the statutory period for the assessment of any deficiency attributable to the failure of the project to meet such requirements shall not expire before the date prescribed by section 6501 for the assessment of a deficiency for the taxable year in which the 24-month period set forth in subparagraph (D)(i) ends. ``(ii) Cross Reference.-- ``For treatment of subsequent failure to meet other requirements after initial qualification, see paragraph (5) of this subsection.'' SEC. 3. EXEMPTION FROM PASSIVE LOSS LIMITATIONS. Section 469 of the Internal Revenue Code of 1986 (relating to limitation on passive activity losses and credits) is amended-- (1) by redesignating subsections (j), (k), (l), and (m) as subsections (k), (l), (m), and (n), respectively, and (2) by inserting after subsection (i) the following new subsection: ``(j) $50,000 Offset for Certain Low-Income Housing Activities.-- ``(1) In general.--Subsection (a) shall not apply to that portion of the passive activity loss for any taxable year which is attributable to rental activities with respect to residential rental property which is part of a qualified low- income housing project (as defined in section 168(i)(14)). ``(2) Dollar limitation.--The aggregate amount to which paragraph (1) applies for any taxable year shall not exceed $50,000 ($25,000 in the case of a separate return by a married individual). ``(3) Coordination with subsection (i).--This subsection shall be applied before the application of subsection (i).'' SEC. 4. MINIMUM TAX TREATMENT. (a) General Rule.--Paragraph (1) of section 56(a) of the Internal Revenue Code of 1986 (relating to depreciation deduction) is amended-- (1) by redesignating subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively, and (2) by inserting after subparagraph (B) the following new subparagraph: ``(C) Special rule for certain low-income housing projects.--In the case of residential rental property which is part of a qualified low-income housing project (as defined in section 168(i)(14))-- ``(i) the depreciation deduction with respect to 50 percent of the adjusted basis of such property shall be determined as provided in subparagraph (A), and ``(ii) the depreciation deduction with respect to the other 50 percent of such adjusted basis shall be determined under the method applicable in computing the regular tax.'' (b) Conforming Amendment.--Clause (i) of section 56(g)(4)(A) of such Code is amended by inserting before the period at the end the following: ``or, if applicable, the rules of subsection (a)(1)(C)''. SEC. 5. EFFECTIVE DATE. The amendments made by this section shall apply to property placed in service after December 31, 1995.
summary: Low-Income Housing Preservation Act of 1995 - Amends the Internal Revenue Code to provide a 15-year recovery period for the depreciation deduction for new investments to rehabilitate qualified low-income housing projects. Exempts $50,000 ($25,000 in the case of a separate return by a married individual) of such rehabilitation costs from the passive loss limitations. Provides a special rule for computing the depreciation deduction for such housing projects.