Sec. 2. Disallowance of deduction for interest paid on real property owned by certain real property owners
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Section 163 of the Internal Revenue Code of 1986 is amended by redesignating subsection
(n)as subsection
(o)and by inserting after subsection
(m)the following new subsection: No deduction shall be allowed under this chapter for any interest paid or accrued in connection with— any applicable residential property in which an institutional investment entity (directly or indirectly) holds a majority interest, or single-family residential property in which a large owner (directly or indirectly) holds a majority interest. Paragraph
(1)shall not apply with respect to interest paid or accrued in the taxable year in which applicable residential property is sold. Subparagraph
(A)shall not apply unless the sale described in such subparagraph is— a sale to an individual for use as the principle residence of the individual (within the meaning of section 121), or a sale to any qualified nonprofit organization. For purposes of this paragraph, the term qualified nonprofit organization means any organization which— is not organized for profit, and has as a principal purpose the creation, development, or preservation of affordable housing. The term qualified nonprofit organization shall include— any community development corporation (as defined in section 204(b) of the Department of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1997 (12 U.S.C. 1715z–11a(b))), any community housing development organization (as defined in section 104 of the Cranston-Gonzalez National Affordable Housing Act ( 42 U.S.C. 12704 )), any community-based development organization qualified under section 570.204 of title 24, Code of Federal Regulations, as in effect on the date of the enactment of this subsection, any land bank, any resident-owned cooperative or community land trust, and any subsidiary of a public housing agency (as defined in section 3(b)(6) of the United States Housing Act of 1937 ( 42 U.S.C. 1437a(b)(6) )). For purposes of this subparagraph, the term land bank means a government entity, agency, or program, or a special purpose nonprofit entity formed by one or more units of government in accordance with State or local land bank enabling law, that has been designated by one or more State or local governments to acquire, steward, and dispose of vacant, abandoned, or other problem properties in accordance with locally determined priorities and goals. For purposes of this subparagraph, the term community land trust means a nonprofit entity, a State, a unit of local government, or an instrumentality of a State or unit of local government that— is not managed by, or an affiliate of, a for-profit organization, has as a primary purpose of acquiring, developing, or holding land to provide housing that is permanently affordable to low- and moderate-income persons, monitors properties to ensure affordability is preserved, provides housing that is permanently affordable to low- and moderate-income persons using a ground lease, deed covenant, or other similar legally enforceable measure, determined acceptable by the Secretary, that— keeps housing affordable to low- and moderate-income persons for not less than 30 years, and enables low- and moderate-income persons to rent or purchase the housing for homeownership, and maintains preemptive purchase options to purchase the property if such purchase would allow the housing to remain affordable to low- and moderate-income persons. In the case of a single-family residential property the original use of which begins with an eligible taxpayer after December 31, 2023, paragraph
(1)shall not apply to interest paid or accrued by such eligible taxpayer with respect to such property in any taxable year during the 5-taxable-year period beginning with the taxable year in which property is placed in service. For purposes of this paragraph, the term eligible taxpayer means the person who constructed the single-family residential property. Paragraph
(1)shall not apply to any multi-family residential property the original use of which begins with an eligible taxpayer after December 31, 2023. For purposes of this paragraph, the term eligible taxpayer means the person who constructed the multi-family residential property. For purposes of this paragraph, the term multi-family residential property means any applicable residential property which has 5 or more dwelling units (as defined in section 168(e)(2)(A)(ii)(I)). In the case of any interest paid or accrued with respect to debt which is incurred for the primary purpose of substantially rehabilitating previously uninhabitable applicable residential property, paragraph
(1)shall not apply to interest paid or accrued in any taxable year during the 5-taxable-year period beginning with taxable year in which such debt is originally paid or accrued. For purposes of this paragraph, the term uninhabitable means, with respect to applicable residential property, property that is not fit for human occupancy, contains serious defects posing risks to health or safety, or does not meet structural or core system elements of local building codes. For purposes of this paragraph, the term substantial rehabilitation means, with respect to applicable residential property, structural repairs or rebuilding, with the cost of rehabilitation generally being a significant portion of the property’s value after the work is completed. Paragraph
(1)shall not apply to any interest paid or accrued with respect to any property— which is Federally assisted housing (as defined in section 579 of the Quality Housing and Work Responsibility Act of 1998), or which— has received an allocation of housing credit dollar amount under section 42(h) for such taxable year or any prior taxable year, or is a building described in section 42(h)(4)(B), and for which an extended low-income housing commitment described in section 42(h)(6) is in effect as of the end of the taxable year. For purposes of this subsection— The term Institutional investment entity means— any issuer that is exempt from registration under section 3(c) of the Investment Company Act of 1940, or any other investment vehicle that pools funds exclusively from accredited investors as defined in section 230.501 of title 17, Code of Federal Regulations (or any successor regulation). For purposes of this subsection, the term large owner means any person who (directly or indirectly) holds a majority interest in single-family residential rental properties which in the aggregate contain 50 or more dwelling units. For purposes of this subparagraph, all persons treated as a single employer under subsection
(a)or
(b)of section 52, or subsection
(m)or
(o)of section 414, shall be treated as one taxpayer for purposes of this section. For purposes of applying clause (ii)— section 52(a) shall be applied by substituting component members for members , and for purposes of applying section 52(b), the term trade or business shall include any activity treated as a trade or business under paragraph
(5)or
(6)of section 469(c) (determined without regard to the phrase To the extent provided in regulations in such paragraph (6)). For purposes of this subparagraph, the term component member has the meaning given such term by section 1563(b), except that the determination shall be made without regard to subparagraphs (B), (C),
(D)or
(E)of paragraph
(2)thereof. The modifications made by subclause
(I)shall not be construed to create any inference with respect to the proper application of section 52 with respect to any other provision of this title. The term applicable residential property means any property which is— residential rental property (as defined in section 168(e)(2)(A)(i)), a manufactured housing community, or a manufactured home (as defined in section 603 of the National Manufactured Housing Construction and Safety Standards Act of 1974 ( 42 U.S.C. 5402 )) which is not residential rental property (as so defined). The term manufactured housing community means a residential real estate development with lots on which factory-built homes, including manufactured homes, are located, together with supporting infrastructure. The term single-family residential property means any applicable residential property which contains 4 or fewer dwelling units (as defined in section 168(e)(2)(A)(ii)(I)). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including— regulations for identifying the amount of interest paid or accrued in connection with applicable residential property and single-family residential property, including any interest paid or accrued through indirect financing arrangements, regulations, in consultation with the Secretary of Housing and Urban Development, for identifying and, to the extent provided by the Secretary, substantiating the amount of interest paid or accrued with respect to debt which is incurred for the primary purpose of substantially rehabilitating previously uninhabitable applicable residential property under paragraph (5), and regulations to prevent the avoidance of the purposes of this subsection. . Section 263A(f)(2) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: Subparagraph
(A)shall not apply to any interest for which a deduction would be disallowed under section 163(n). . Section 266 of such Code is amended— by striking No deduction and inserting the following: No deduction , and by adding at the end the following new subsection: No election may be made under this section to treat as chargeable to capital account any interest for which a deduction would be disallowed under section 163(n). . The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
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- 12 USC 1715z–11a(b)
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Sec. 2
Disallowance of deduction for interest paid on real property owned by certain real property owners
Cite12 USC 1715z–11a(b)
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