[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1147 Introduced in House (IH)]

112th CONGRESS
  1st Session
                                H. R. 1147

  To amend the Internal Revenue Code of 1986 to allow a deduction for 
   certain payments made to reduce debt on commercial real property.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 17, 2011

Mr. Nunes (for himself and Ms. Berkley) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to allow a deduction for 
   certain payments made to reduce debt on commercial real property.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Community Recovery and Enhancement 
Act of 2011'' or the ``CRE Act of 2011''.

SEC. 2. DEDUCTION FOR CERTAIN PAYMENTS MADE REDUCE DEBT ON COMMERCIAL 
              REAL PROPERTY.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals and corporations) is amended by adding at 
the end the following new section:

``SEC. 199A. DEDUCTION FOR PAYMENTS MADE TO REDUCE DEBT ON COMMERCIAL 
              REAL PROPERTY.

    ``(a) In General.--There shall be allowed as a deduction an amount 
equal to 50 percent of any qualified debt reduction payment made during 
the taxable year by the taxpayer with respect to qualified indebtedness 
on eligible commercial real property held by the taxpayer.
    ``(b) Maximum Deduction.--The deduction allowed by subsection (a) 
for any taxable year shall not exceed, with respect to each eligible 
commercial real property, whichever of the following amounts is the 
least:
            ``(1) The amount equal to 50 percent of the excess (if any) 
        of--
                    ``(A) the amount of the qualified indebtedness 
                secured by such property as of the beginning of such 
                taxable year (reduced by amounts required to be paid 
                under the terms of the loan during such taxable year), 
                over
                    ``(B) 50 percent of the fair market value of such 
                property as of the close of the taxable year.
            ``(2) $10,000,000.
            ``(3) The adjusted basis of such property as of the close 
        of such taxable year (determined without regard to qualified 
        debt reduction payments made during the taxable year and 
        depreciation for such year).
    ``(c) Eligible Commercial Real Property.--For purposes of this 
section, the term `eligible commercial real property' means any 
commercial real property if--
            ``(1) as of the beginning of the taxable year, the amount 
        of the qualified indebtedness secured by such property is at 
        least equal to 85 percent of the fair market value of the 
        property, or
            ``(2) such property is, or is reasonably expected to be, 
        treated as being in an in-substance foreclosure by the 
        Comptroller of the Currency.
    ``(d) Qualified Debt Reduction Payment.--For purposes of this 
section, the term `qualified debt reduction payment' means the amount 
of cash paid by the taxpayer during the taxable year to reduce the 
principal amount of qualified indebtedness of the taxpayer but only to 
the extent such amount exceeds the amounts required to be paid under 
the terms of the loan during such taxable year.
    ``(e) Property Held by a Partnership.--
            ``(1) In general.--In the case of property held by a 
        partnership, a qualified debt reduction payment by the 
        partnership may be taken into account under this section only 
        if--
                    ``(A) such payment is attributable to a qualified 
                equity investment made by a partner in such 
                partnership, and
                    ``(B) any deduction under this section which is 
                attributable to such investment is properly allocated 
                to such partner under section 704(b).
            ``(2) Qualified equity investment.--For purposes of this 
        section--
                    ``(A) In general.--The term `qualified equity 
                investment' means any equity investment (as defined in 
                section 45D(b)(6)) in a partnership if--
                            ``(i) such investment is acquired by the 
                        partner at its original issue (directly or 
                        through an underwriter) solely in exchange for 
                        cash,
                            ``(ii) at least 80 percent of such cash is 
                        used by the partnership to reduce the principal 
                        amount of qualified indebtedness of the 
                        partnership,
                            ``(iii) the portion of such cash not so 
                        used is used by the partnership for 
                        improvements to commercial real property held 
                        by the partnership, and
                            ``(iv) the person or persons otherwise 
                        entitled to depreciation with respect to the 
                        portion of the basis of the property being 
                        reduced under subsection (g)(1) consent to such 
                        reduction.
                    ``(B) Redemptions.--A rule similar to the rule of 
                section 1202(c)(3) shall apply for purposes of this 
                paragraph.
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Qualified indebtedness.--The term `qualified 
        indebtedness' means any indebtedness--
                    ``(A) which is incurred or assumed by the taxpayer 
                on or before January 1, 2009, and
                    ``(B) which is secured by commercial real property 
                held by the taxpayer at the time the qualified debt 
                reduction equity payment is made by the taxpayer.
            ``(2) Commercial real property.--The term `commercial real 
        property' means section 1250 property (as defined in section 
        1250(c)); except that such term shall not include residential 
        rental property (as defined in section 168(e)(2)) unless the 
        building contains at least 3 dwelling units.
    ``(g) Application of Section 1250.--For purposes of determining the 
depreciation adjustments under section 1250 with respect to any 
property--
            ``(1) the deduction allowed by this section shall be 
        treated as a deduction for depreciation, and
            ``(2) the depreciation adjustments in respect of such 
        property shall include all deductions allowed by this section 
        to all taxpayers by reason of reducing the debt secured by such 
        property.
    ``(h) Special Rules.--
            ``(1) Basis reduction.--The basis of any property with 
        respect to which any qualified debt reduction payment is made 
        shall be reduced by the amount of the deduction allowed by this 
        section by reason of such payment.
            ``(2) Refinancings.--The indebtedness described in 
        subsection (f)(1)(A) shall include indebtedness resulting from 
        the refinancing of indebtedness described in such subsection 
        (or this sentence), but only to the extent it does not exceed 
        the amount of the indebtedness being refinanced.
            ``(3) Denial of deduction for debt-financed payments.--No 
        deduction shall be allowed by this section for any qualified 
        debt reduction payment--
                    ``(A) to the extent indebtedness is incurred or 
                continued by the taxpayer to make such payment, and
                    ``(B) in the case of a qualified debt reduction 
                payment made by a partnership on qualified indebtedness 
                on commercial real property held by the partnership, to 
                the extent of indebtedness--
                            ``(i) which is incurred or continued by any 
                        partner to whom such payment is allocable, and
                            ``(ii) which is secured by such partner's 
                        interest in the partnership or by such 
                        commercial real property.
            ``(4) Treatment of amounts required to be paid by reason of 
        loan default.--For purposes of subsections (b)(1)(A) and (d), 
        accelerated payments required to be made under the terms of a 
        loan solely by reason of a default on the loan shall not be 
        taken into account.
            ``(5) Recapture of deduction if additional debt within 3 
        years.--
                    ``(A) In general.--If a taxpayer incurs any 
                additional debt within 3 years after the date that the 
                taxpayer made a qualified debt reduction payment, the 
                ordinary income of the taxpayer making such payment 
                shall be increased by the applicable percentage of the 
                recaptured deduction.
                    ``(B) Recaptured deduction.--For purposed of this 
                paragraph, the recaptured deduction is the excess of--
                            ``(i) the deduction allowed by subsection 
                        (a) on account of a qualified debt reduction 
                        payment, over
                            ``(ii) the deduction which would have been 
                        so allowed if such payment had been reduced by 
                        the additional debt.
                    ``(C) Applicable percentage.--The applicable 
                percentage shall be determined in accordance with the 
                following table:

``If, of the 3 years referred to in                      The applicable
subparagraph (A), the additional                         percentage is:
debt occurs during the:                                                
        1st such year......................................        100 
        2d such year.......................................     66 2/3 
        3d such year.......................................     33 1/3.
                    ``(D) Partnerships.--
                            ``(i) Allocation of income inclusion.--Any 
                        increase in the ordinary income of a 
                        partnership by reason of this paragraph shall 
                        be allocated (under regulations prescribed by 
                        the Secretary) among the partners receiving a 
                        deduction under this section by reason of 
                        making qualified equity investments in the 
                        partnership.
                            ``(ii) Debt-financed equity investment by 
                        partner.--Rules similar to the rules of the 
                        paragraph shall apply in cases where additional 
                        debt is incurred by a partner making a 
                        qualified equity investment in a partnership.
                    ``(E) Subsequent deprecation.--The deductions under 
                section 168 for periods after a recaptured deduction 
                under this paragraph shall be determined as if the 
                portion of the qualified debt reduction payment 
                allocable to the recaptured deduction had never been 
                made.
            ``(6) Recapture where partner disposes of interest in 
        partnership.--If any partner to whom a deduction under this 
        section is allocable by reason of making a qualified equity 
        investment in a partnership disposes of any portion of such 
        partner's interest in the partnership within 1 year after the 
        date such investment was made, the ordinary income of such 
        partner shall be increased by the amount which bears the same 
        ratio to the deduction allowed on account of such investment as 
        such portion bears to such partner's interest in the 
        partnership immediately before such disposition.
            ``(7) Exemption from passive loss rules.--Section 469 shall 
        not apply to the deduction allowed by this section.
    ``(i) Application of Section.--This section shall apply to 
qualified debt reduction payments made within the 2-year period 
beginning on the day after the date of the enactment of this 
section.''.
    (b) Earnings and Profits.--Subsection (k) of section 312 of such 
Code is amended by adding at the end the following new paragraph:
            ``(6) Treatment of section 199a.--Paragraphs (1) and (3) 
        shall not apply to the deduction allowed by section 199A.''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

``Sec. 199A. Deduction for payments made to reduce debt on commercial 
                            real property.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.
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