S. 2224 - Stop Predatory Investing Act

118TH CONGRESS
1ST SESSION

S. 2224

To amend the Internal Revenue Code of 1986 to deny interest and depreciation
deductions for taxpayers owning 50 or more single family properties.

IN THE SENATE OF THE UNITED STATES

JULY 11, 2023

Mr. BROWN (for himself, Mr. WYDEN, Mr. REED, Ms. SMITH, Mr. MERKLEY,
Mr. FETTERMAN, Ms. WARREN, and Ms. BALDWIN) introduced the following bill;
which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to deny interest and depreciation deductions for taxpayers owning 50 or more single family properties.

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 "Stop Predatory Investing Act".

SEC. 2. DISALLOWANCE OF INTEREST DEDUCTION FOR DISQUALIFIED SINGLE FAMILY PROPERTY OWNERS.

(a) IN GENERAL. — 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:

“(n) INTEREST PAID BY CERTAIN DISQUALIFIED SINGLE FAMILY PROPERTY OWNERS. —

“(1) IN GENERAL. — In the case of a disqualified single family property owner, no deduction shall be allowed under this chapter for any interest paid or accrued in connection with any single family residential rental property owned (directly or indirectly) by such disqualified single family property owner.

“(2) EXCEPTION. —

“(A) IN GENERAL. — Paragraph (1) shall not apply with respect to interest paid or accrued in the taxable year in which such single family residential rental property is sold.

“(B) EXCEPTION. — Subparagraph (A) shall not apply unless the sale described in such subparagraph is —

“(i) a sale to an individual for use as the principle residence of the individual (within the meaning of section 121), or

“(ii) a sale to any qualified nonprofit organization.

“(C) QUALIFIED NONPROFIT ORGANIZATION. —

“(i) IN GENERAL. — For purposes of this paragraph, the term 'qualified nonprofit organization' means any organization which —

“(I) is not organized for profit, and

“(II) has a principal purpose the creation, development, or preservation of affordable housing.

“(ii) CERTAIN ORGANIZATIONS INCLUDED. — The term 'qualified nonprofit organization' shall include —

“(I) 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)),

“(II) any community housing development organization (as defined in section 104 of the Cranston-Gonzales National Affordable Housing Act (42 U.S.C. 12704),

“(III) 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,

“(IV) any land bank,

“(V) any resident-owned cooperative or community land trust, and

“(VI) 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)).

“(iii) LAND BANK. — 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.

“(iv) COMMUNITY LAND TRUST. — For purposes of this subparagraph, the term 'community land trust' means a nonprofit organization or State or local government or instrumentality that —

“(I) use a ground lease or deed covenant with an affordability period of at least 30 years or more to —

“(aa) make rental and homeownership units affordable to households; and

“(bb) stipulate a preemptive option to purchase the affordable rentals or homeownership units so that the affordability of the units is preserved for successive income-eligible households; and "(II) monitors properties to ensure affordability is preserved.

“(3) DISQUALIFIED SINGLE FAMILY PROPERTY OWNER. — For purposes of this subsection —

“(A) IN GENERAL. — The term 'disqualified single family property owner' means, with respect to any taxable year, any taxpayer who owns (directly or indirectly) 50 or more single family residential rental properties.

“(B) AGGREGATION RULES. — 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.

“(C) MODIFICATIONS. —

“(i) IN GENERAL. — For purposes of applying subparagraph (B) —

“(I) section 52(a) shall be applied by substituting 'component members' for 'members', and

“(II) 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)).

“(ii) COMPONENT MEMBER. — For purposes of this paragraph, the term 'component member' has the meaning given such term by section 1563(b), except that the determination shall be made without regard to section 1563(b)(2).

“(iii) NO INFERENCE. — The modifications made by clause (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.

“(4) SINGLE FAMILY RESIDENTIAL RENTAL PROPERTY. — For purposes of this subsection —

“(A) IN GENERAL. — The term 'single family residential rental property' means —

“(i) any residential rental property (as defined in section 168(e)(2)(A)(i)) which contains 4 or fewer dwelling units (as defined in section 168(e)(2)(A)(ii)(I)), and

“(ii) improvements to real property directly related to such dwelling units located on the site of such dwelling units.

For purposes of clause (i), each townhouse or rowhouse shall be treated as a separate building.

“(B) EXCEPTION FOR CERTAIN PROPERTIES. — Such term shall not include any residential rental property (as so defined) —

“(i) with respect to which a credit is allowed under section 42 for such taxable year or any property, or

“(ii) which —

“(I) was constructed by the taxpayer, or

“(II) acquired by the taxpayer after its construction but before the first date on which any dwelling unit in such property was occupied by a resident.

“(5) REGULATIONS. — The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations to prevent the avoidance of the purposes of this subsection.".

(b) APPLICATION TO CAPITALIZED AMOUNTS. —

(1) IN GENERAL. — Section 263A(f)(2) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

“(D) EXCEPTION FOR CERTAIN INTEREST OF DISQUALIFIED SINGLE FAMILY PROPERTY OWNERS. — Subparagraph (A) shall not apply to any interest for which a deduction would be disallowed under section 163(n).".

(2) CARRYING CHARGES. — Section 266 of such Code is amended —

(A) by striking "No deduction" and inserting the following:

“(a) IN GENERAL. — No deduction", and

(B) by adding at the end the following new subsection:

“(b) SPECIAL RULE FOR CERTAIN INTEREST OF DISQUALIFIED SINGLE FAMILY PROPERTY OWNERS. — 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).".

(c) EFFECTIVE DATE. — The amendments made by this section shall apply to indebtedness incurred in taxable years beginning after the date of the enactment of this Act.

SEC. 3. DISALLOWANCE OF DEPRECIATION IN CONNECTION WITH PROPERTY USED BY DISQUALIFIED SINGLE FAMILY PROPERTY OWNERS.

(a) IN GENERAL. — Section 167 of the Internal Revenue Code of 1986 is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:

“(i) DEDUCTION DISALLOWED FOR DISQUALIFIED SINGLE FAMILY PROPERTY OWNERS. —

“(1) IN GENERAL. — In the case of a disqualified single family property owner, no deduction shall be allowed under this section for any single family residential rental property owned by such disqualified single family property owner.

“(2) EXCEPTION. —

“(A) IN GENERAL. — Paragraph (1) shall not apply with respect to depreciation deduction which is allowable —

“(i) in connection with a single family residential rental property, and

“(ii) in the taxable year in which such single family residential rental property is sold.

“(B) EXCEPTION. — Subparagraph (A) shall not apply unless the sale described in clause (ii) thereof is —

“(i) a sale to an individual for use as the principle residence of the individual (within the meaning of section 121), or

“(ii) a sale to any qualified nonprofit organization (as defined in section 163(n)(2)(C)).

“(3) DEFINITIONS. — For purposes of this subsection, the terms 'disqualified single family property owner' and 'single family residential rental property' have the respective meanings given such terms under section 163(n).

“(4) REGULATIONS. — The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations to prevent the avoidance of the purposes of this subsection.".

(b) EFFECTIVE DATE. — The amendments made by this section shall apply to property placed in service in taxable years beginning after the date of the enactment of this Act.