42 USC 1408. 26 USC 1250. 12 USC 17151, 1715z-1. "(ii) in the case of dwelling units which, on the average, were held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of State or local law authorizing similar levels of subsidy for lower-income families, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; "(iii) in the case of section 1250 property with respect to which a depreciation deduction for rehabilitation expenditures was allowed under section 167(k), 100 percent minus 1 percentage point for each full month in excess of 100 full months after the date on which such property was placed in service; (iv) in the case of section 1250 property with respect to which a loan is made or insured under title V of the Housing Act of 1949, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months; and "(v) in the case of all other section 1250 property, 100 percent. In the case of a building (or a portion of a building devoted to dwelling units), if, on the average, 85 percent or more of the dwelling units contained in such building (or portion thereof) are units described in clause (ii), such building (or portion thereof) shall be treated as property described in clause (ii). Clauses (i), (ii), and (iv) shall not apply with respect to the additional depreciation described in subsection (b) (4). "(2) ADDITIONAL DEPRECIATION AFTER DECEMBER 31, 1969, AND BEFORE JANUARY 1, 1976. "(A) IN GENERAL.-If section 1250 property is disposed of after December 31, 1969, and the amount determined under paragraph (1)(A) (ii) exceeds the amount determined under paragraph (1)(A) (i), then the applicable percentage of the lower of "(i) that portion of the additional depreciation attributable to periods after December 31, 1969, and before January 1, 1976, in respect of the property, or "(ii) the excess of the amount determined under paragraph (1)(A)(ii) over the amount determined under paragraph (1)(A)(i), shall also be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. "(B) APPLICABLE PERCENTAGE.-For purposes of subparagraph (A), the term 'applicable percentage' means— (i) in the case of section 1250 property disposed of pursuant to a written contract which was, on July 24, 1969, and at all times thereafter, binding on the owner of the property, 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 20 full months; "ii) in the case of section 1250 property with respect to which a mortgage is insured under section 221(d) (3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar "(iii) in the case of residential rental property (as "(iv) in the case of section 1250 property with respect to which a depreciation deduction for rehabilitation expenditures was allowed under section 167 (k), 100 percent minus 1 percentage point for each full month in excess of 100 full months after the date on which such property was placed in service; and "(v) in the case of all other section 1250 property, 100 percent. Clauses (i), (ii), and (iii) shall not apply with respect to the additional depreciation described in subsection (b)(4). “(3) ADDITIONAL DEPRECIATION BEFORE JANUARY 1, 1970.— "(A) IN GENERAL.-If section 1250 property is disposed of after December 31, 1963, and the amount determined under paragraph (1)(A) (ii) exceeds the sum of the amounts determined under paragraphs (1) (A)(i) and (2)(A)(i), then the applicable percentage of the lower of "(i) that portion of the additional depreciation attributable to periods before January 1, 1970, in respect of the property, or "(ii) the excess of the amount determined under paragraph (1)(A)(ii) over the sum of the amounts determined under paragraphs (1) (A) (i) and (2) (A) (i), shall also be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. "(B) APPLICABLE PERCENTAGE.-For purposes of subpara- "Applicable graph (A), the term 'applicable percentage' means 100 per- percentage." cent minus 1 percentage point for each full month the property was held after the date on which the property was held for 20 full months." (b) PROPERTY DISPOSED OF PURSUANT TO FORECLOSURE PROCEED- 26 USC 1250. INGS.-Subsection (d) of section 1250 (relating to exceptions and limitations) is amended by adding at the end thereof the following new paragraph: "(10) FORECLOSURE DISPOSITIONS.-If any section 1250 property is disposed of by the taxpayer pursuant to a bid for such property at foreclosure or by operation of an agreement or of process of law after there was a default on indebtedness which such property secured, the applicable percentage referred to in paragraph (1) (B), (2) (B), or (3) (B) of subsection (a), as the case may be, shall be determined as if the taxpayer ceased to hold such property on the date of the beginning of the proceedings pursuant to which the disposition occurred, or, in the event there are no proceedings, such percentage shall be determined as if the taxpayer ceased to hold such property on the date, determined under regulations prescribed by the Secretary, on which 26 USC 1250. 26 USC 167. 26 USC 1250 note. 26 USC 167. such operation of an agreement or process of law, pursuant to which the disposition occurred, began.' (c) CONFORMING AMENDMENTS.— (1) AMENDMENT OF SECTION 1250 (f) (2).-Paragraph (2) of section 1250 (f) (relating to special rule for property which is substantially improved) is amended to read as follows: "(2) ŎRDINARY INCOME ATTRIBUTABLE TO AN ELEMENT.-For purposes of paragraph (1), the amount taken into account for any element shall be the sum of a series of amounts determined for the periods set forth in subsection (a), with the amount for any such period being determined by multiplying "(A) the amount which bears the same ratio to the lower of the amounts specified in clause (i) or (ii) of subsection (a) (1) (A), in clause (i) or (ii) of subsection (a) (2) (A), or in clause (i) or (ii) of subsection (a) (3) (A), as the case may be, for the section 1250 property as the additional depreciation for such element attributable to such period pears to the sum of the additional depreciation for all elements attributable to such period, by "(B) the applicable percentage for such element for such period. For purposes of this paragraph, determinations with respect to any element shall be made as if it were a separate property." (2) AMENDMENT OF SECTION 1250 (g) (2)-Paragraph (2) of section 1250 (g) (relating to special rules for qualified low-income housing) is amended to read as follows: "(2) ORDINARY INCOME ATTRIBUTABLE TO AN ELEMENT.-For purposes of paragraph (1), the amount taken into account for any element shall be determined in a manner similar to that provided by subsection (f) (2).” (3) AMENDMENT OF SECTION 167 (e) (3). Paragraph (3) of section 167 (e) (relating to change in depreciation method with respect to section 1250 property) is amended by striking out "beginning after July 24, 1969," and inserting in lieu thereof "beginning after December 31, 1975,". (d) EFFECTIVE DATE.-The amendments made by this section (other than subsection (b)) shall apply for taxable years ending after December 31, 1975. The amendment made by subsection (b) shall apply with respect to proceedings (and to operations of law) referred to in section 1250 (d) (10) of the Internal Revenue Code of 1954 which begin after December 31, 1975. SEC. 203. AMENDMENT OF SECTION 167(k). (a) GENERAL RULE.-Section 167 (k) (relating to depreciation of expenditures to rehabilitate low-income rental housing) is amended— (1) by striking out "January 1, 1976," in paragraph (1) and inserting in lieu thereof "January 1, 1978"; (2) by striking out "$15,000" in paragraph (2) (A) and inserting in lieu thereof "$20,000"; (3) by striking out "the policies of the Housing and Urban Development Act of 1968" in paragraph (3) (B) and inserting in lieu thereof "the Leased Housing Program under section 8 of the United States Housing Act of 1937"; and (4) by adding the following new subparagraph at the end of paragraph (3): "(D) REHABILITATION EXPENDITURES INCURRED.-Rehabilitation expenditures incurred pursuant to a binding con tract entered into before January 1, 1978, and rehabilitation expenditures incurred with respect to low-income rental housing the rehabilitation of which has begun before January 1, 1978, shall be deemed incurred before January 1, 1978." (b) EFFECTIVE DATE.-The amendments made by paragraphs (1), (3), and (4) of subsection (a) shall apply to expenditures paid or incurred after December 31, 1975, and before January 1, 1978, and expenditures made pursuant to a binding contract entered into before January 1, 1978. The amendment made by paragraph (2) of subsection (a) shall apply to expenditures incurred after December 31, 1975. SEC. 204. LIMITATIONS ON DEDUCTIONS FOR EXPENSES. (a) IN GENERAL.-Subpart C of part II of subchapter E of chapter 1 (relating to taxable year for which deduction is taken) is amended by adding at the end thereof the following new section: "SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK IN CASE OF CERTAIN ACTIVITIES. '(a) GENERAL RULE.-In the case of a taxpayer (other than a corporation which is neither an electing small business corporation (as defined in section 1371(b)) nor a personal holding company (as defined in section 542)) engaged in an activity to which this section applies, any loss from such activity for the taxable year shall be allowed only to the extent of the aggregate amount with respect to which the taxpayer is at risk (within the meaning of subsection (b)) for such activity at the close of the taxable year. Any loss from such activity not allowed under this section for the taxable year shall be treated as a deduction allocable to such activity in the first succeeding taxable year. "(b) AMOUNTS CONSIDERED AT RISK. "(1) IN GENERAL.-For purposes of this section, a taxpayer shall be considered at risk for an activity with respect to amounts including "(A) the amount of money and the adjusted basis of other property contributed by the taxpayer to the activity, and แ "(B) amounts borrowed with respect to such activity (as determined under paragraph (2)). "(2) BORROWED AMOUNTS.-For purposes of this section, a taxpayer shall be considered at risk with respect to amounts borrowed for use in an activity to the extent that he "(A) is personally liable for the repayment of such amounts, or "(B) has pledged property, other than property used in such activity, as security for such borrowed amount (to the extent of the net fair market value of the taxpayer's interest in such property). No property shall be taken into account as security if such property is directly or indirectly financed by indebtedness which is secured by property described in paragraph (1). "(3) CERTAIN BORROWED AMOUNTS EXCLUDED.-For purposes of paragraph (1)(B), amounts borrowed shall not be considered to be at risk with respect to an activity if such amounts are borrowed from any person who "(A) has an interest (other than an interest as a creditor) in such activity, or "(B) has a relationship to the taxpayer specified within any one of the paragraphs of section 267 (b). 26 USC 167 note. 26 USC 465. Post, p. 1536. 26 USC 1245. 26 USC 465 note. "(4) EXCEPTION.-Notwithstanding any other provision of this section, a taxpayer shall not be considered at risk with respect to amounts protected against loss through nonrecourse financing, guarantees, stop loss agreements, or other similar arrangements. "(5) AMOUNTS AT RISK IN SUBSEQUENT YEARS.—If in any taxable year the taxpayer has a loss from an activity to which this section applies, the amount with respect to which a taxpayer is considered to be at risk (within the meaning of subsection (b)) in subsequent taxable years with respect to that activity shall be reduced by that portion of the loss which (after the application of subsection (a)) is allowable as a deduction. "(c) ACTIVITIES TO WHICH SECTION APPLIES.— "(1) TYPES OF ACTIVITIES.-This section applies to any taxpayer engaged in the activity of "(A) holding, producing, or distributing motion picture films or video tapes, "(B) farming (as defined in section 464 (e)), "(C) leasing any section 1245 property (as defined in section 1245 (a) (3)), or "(D) exploring for, or exploiting, oil and gas resources as a trade or business or for the production of income. "(2) SEPARATE ACTIVITIES.-For purposes of this section, a taxpayer's activity with respect to each "(A) film or video tape, "(B) section 1245 property which is leased or held for leasing, "(C) farm, or "(D) oil and gas property (as defined under section 614), shall be treated as a separate activity. A partner's interest in a partnership or a shareholder's interest in an electing small business corporation shall be treated as a single activity to the extent that the partnership or an electing small business corporation is engaged in activities described in any subparagraph of this paragraph. "(d) DEFINITION OF Loss.-For purposes of this section, the term 'loss' means the excess of the deductions allowable under this chapter for the taxable year (determined without regard to this section) and allocable to an activity to which this section applies over the income received or accrued by the taxpayer during the taxable year from such activity." (b) CLERICAL AMENDMENT.-The table of sections for subpart C of part II of subchapter E of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 465. Deductions limited to amount at risk in case of certain activities." (c) EFFECTIVE DATES. (1) IN GENERAL.-Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to losses attributable to amounts paid or incurred in taxable years beginning after December 31, 1975. For purposes of this subsection, any amount allowed or allowable for depreciation or amortization for any period shall be treated as an amount paid or incurred in such period. (2) SPECIAL TRANSITIONAL RULES FOR MOVIES AND VIDEO TAPES.— (A) IN GENERAL.-In the case of any activity described in section 465 (c)(1)(A) of the Internal Revenue Code of |