26 U.S.C. § 49 — At-risk rules

Page 378 TITLE 26—INTERNAL REVENUE CODE § 49 Health and Welfare. For complete classification of this Act to the Code, see Short Title note set out under sec- tion 1441 of Title 42 and Tables. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Pub. L. 117–169, title I, § 13702(c), Aug. 16, 2022, 136 Stat. 1997, provided that: ‘‘The amendments made by this section [enacting this section and amending sec- tions 46, 49, and 50 of this title] shall apply to property placed in service after December 31, 2024.’’ § 49. At-risk rules (a) General rule (1) Certain nonrecourse financing excluded from credit base (A) Limitation The credit base of any property to which this paragraph applies shall be reduced by the nonqualified nonrecourse financing with respect to such credit base (as of the close of the taxable year in which placed in service). (B) Property to which paragraph applies This paragraph applies to any property which— (i) is placed in service during the taxable year by a taxpayer described in section 465(a)(1), and (ii) is used in connection with an activ- ity with respect to which any loss is sub- ject to limitation under section 465. (C) Credit base defined For purposes of this paragraph, the term ‘‘credit base’’ means— (i) the portion of the basis of any quali- fied rehabilitated building attributable to qualified rehabilitation expenditures, (ii) the basis of any energy property, (iii) the basis of any property which is part of a qualifying advanced coal project under section 48A, (iv) the basis of any property which is part of a qualifying gasification project under section 48B, (v) the basis of any property which is part of a qualifying advanced energy project under section 48C, (vi) the basis of any qualified property (as defined in subsection (b)(2) of section 48D) which is part of an advanced manufac- turing facility (as defined in subsection (b)(3) of such section), (vii) the basis of any qualified property which is part of a qualified facility under section 48E, and (viii) the basis of any energy storage technology under section 48E. (D) Nonqualified nonrecourse financing (i) In general For purposes of this paragraph and para- graph (2), the term ‘‘nonqualified non- recourse financing’’ means any non- recourse financing which is not qualified commercial financing. (ii) Qualified commercial financing For purposes of this paragraph, the term ‘‘qualified commercial financing’’ means any financing with respect to any property if— (I) such property is acquired by the taxpayer from a person who is not a re- lated person, (II) the amount of the nonrecourse fi- nancing with respect to such property does not exceed 80 percent of the credit base of such property, and (III) such financing is borrowed from a qualified person or represents a loan from any Federal, State, or local govern- ment or instrumentality thereof, or is guaranteed by any Federal, State, or local government. Such term shall not include any convert- ible debt. (iii) Nonrecourse financing For purposes of this subparagraph, the term ‘‘nonrecourse financing’’ includes— (I) any amount with respect to which the taxpayer is protected against loss through guarantees, stop-loss agree- ments, or other similar arrangements, and (II) except to the extent provided in regulations, any amount borrowed from a person who has an interest (other than as a creditor) in the activity in which the property is used or from a related person to a person (other than the tax- payer) having such an interest. In the case of amounts borrowed by a cor- poration from a shareholder, subclause (II) shall not apply to an interest as a share- holder. (iv) Qualified person For purposes of this paragraph, the term ‘‘qualified person’’ means any person which is actively and regularly engaged in the business of lending money and which is not— (I) a related person with respect to the taxpayer, (II) a person from which the taxpayer acquired the property (or a related per- son to such person), or (III) a person who receives a fee with respect to the taxpayer’s investment in the property (or a related person to such person). (v) Related person For purposes of this subparagraph, the term ‘‘related person’’ has the meaning given such term by section 465(b)(3)(C). Ex- cept as otherwise provided in regulations prescribed by the Secretary, the deter- mination of whether a person is a related person shall be made as of the close of the taxable year in which the property is placed in service. (E) Application to partnerships and S cor- porations For purposes of this paragraph and para- graph (2)— (i) In general Except as otherwise provided in this sub- paragraph, in the case of any partnership Page 379 TITLE 26—INTERNAL REVENUE CODE § 49 or S corporation, the determination of whether a partner’s or shareholder’s allo- cable share of any financing is non- qualified nonrecourse financing shall be made at the partner or shareholder level. (ii) Special rule for certain recourse financ- ing of S corporation A shareholder of an S corporation shall be treated as liable for his allocable share of any financing provided by a qualified person to such corporation if— (I) such financing is recourse financing (determined at the corporate level), and (II) such financing is provided with re- spect to qualified business property of such corporation. (iii) Qualified business property For purposes of clause (ii), the term ‘‘qualified business property’’ means any property if— (I) such property is used by the cor- poration in the active conduct of a trade or business, (II) during the entire 12-month period ending on the last day of the taxable year, such corporation had at least 3 full-time employees who were not owner- employees (as defined in section 465(c)(7)(E)(i)) and substantially all the services of whom were services directly related to such trade or business, and (III) during the entire 12-month period ending on the last day of such taxable year, such corporation had at least 1 full-time employee substantially all of the services of whom were in the active management of the trade or business. (iv) Determination of allocable share The determination of any partner’s or shareholder’s allocable share of any fi- nancing shall be made in the same manner as the credit allowable by section 38 with respect to such property. (F) Special rules for energy property Rules similar to the rules of subparagraph (F) of section 46(c)(8) (as in effect on the day before the date of the enactment of the Rev- enue Reconciliation Act of 1990) shall apply for purposes of this paragraph. (2) Subsequent decreases in nonqualified non- recourse financing with respect to the property (A) In general If, at the close of a taxable year following the taxable year in which the property was placed in service, there is a net decrease in the amount of nonqualified nonrecourse fi- nancing with respect to such property, such net decrease shall be taken into account as an increase in the credit base for such prop- erty in accordance with subparagraph (C). (B) Certain transactions not taken into ac- count For purposes of this paragraph, non- qualified nonrecourse financing shall not be treated as decreased through the surrender or other use of property financed by non- qualified nonrecourse financing. (C) Manner in which taken into account (i) Credit determined by reference to tax- able year property placed in service For purposes of determining the amount of credit allowable under section 38 and the amount of credit subject to the early disposition or cessation rules under sec- tion 50(a), any increase in a taxpayer’s credit base for any property by reason of this paragraph shall be taken into account as if it were property placed in service by the taxpayer in the taxable year in which the property referred to in subparagraph (A) was first placed in service. (ii) Credit allowed for year of decrease in nonqualified nonrecourse financing Any credit allowable under this subpart for any increase in qualified investment by reason of this paragraph shall be treated as earned during the taxable year of the decrease in the amount of nonqualified nonrecourse financing. (b) Increases in nonqualified nonrecourse fi- nancing (1) In general If, as of the close of the taxable year, there is a net increase with respect to the taxpayer in the amount of nonqualified nonrecourse fi- nancing (within the meaning of subsection (a)(1)) with respect to any property to which subsection (a)(1) applied, then the tax under this chapter for such taxable year shall be in- creased by an amount equal to the aggregate decrease in credits allowed under section 38 for all prior taxable years which would have re- sulted from reducing the credit base (as de- fined in subsection (a)(1)(C)) taken into ac- count with respect to such property by the amount of such net increase. For purposes of determining the amount of credit subject to the early disposition or cessation rules of sec- tion 50(a), the net increase in the amount of the nonqualified nonrecourse financing with respect to the property shall be treated as re- ducing the property’s credit base in the year in which the property was first placed in serv- ice. (2) Transfers of debt more than 1 year after initial borrowing not treated as increasing nonqualified nonrecourse financing For purposes of paragraph (1), the amount of nonqualified nonrecourse financing (within the meaning of subsection (a)(1)(D)) with re- spect to the taxpayer shall not be treated as increased by reason of a transfer of (or agree- ment to transfer) any evidence of any indebt- edness if such transfer occurs (or such agree- ment is entered into) more than 1 year after the date such indebtedness was incurred. (3) Special rules for certain energy property Rules similar to the rules of section 47(d)(3) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this sub- section. (4) Special rule Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter Page 380 TITLE 26—INTERNAL REVENUE CODE § 49 for purposes of determining the amount of any credit allowable under this chapter. (Added Pub. L. 99–514, title II, § 211(a), Oct. 22, 1986, 100 Stat. 2166; amended Pub. L. 100–647, title I, § 1002(e)(1)–(3), (8)(B), Nov. 10, 1988, 102 Stat. 3367, 3369; Pub. L. 101–508, title XI, § 11813(a), Nov. 5, 1990, 104 Stat. 1388–543; Pub. L. 105–206, title VI, § 6004(g)(6), July 22, 1998, 112 Stat. 796; Pub. L. 109–58, title XIII, § 1307(c)(1), Aug. 8, 2005, 119 Stat. 1006; Pub. L. 111–5, div. B, title I, § 1302(c)(1), Feb. 17, 2009, 123 Stat. 347; Pub. L. 111–148, title IX, § 9023(c)(1), Mar. 23, 2010, 124 Stat. 880; Pub. L. 115–141, div. U, title IV, § 401(a)(24), (d)(3)(B)(i), Mar. 23, 2018, 132 Stat. 1185, 1209; Pub. L. 117–167, div. A, § 107(d)(2), Aug. 9, 2022, 136 Stat. 1398; Pub. L. 117–169, title I, § 13702(b)(2), Aug. 16, 2022, 136 Stat. 1997.) Editorial Notes REFERENCES IN TEXT The date of the enactment of the Revenue Reconcili- ation Act of 1990, referred to in subsecs. (a)(1)(F) and (b)(3), is the date of enactment of Pub. L. 101–508, which was approved Nov. 5, 1990. PRIOR PROVISIONS A prior section 49, Pub. L. 91–172, title VII, § 703(a), Dec. 30, 1969, 83 Stat. 660; Pub. L. 92–178, title I, § 101(b)(1)–(4), Dec. 10, 1971, 85 Stat. 498, 499, related to termination of rules for computing credit for invest- ment in certain depreciable property for period begin- ning Apr. 19, 1969, and ending during 1971, prior to re- peal by Pub. L. 95–600, title III, § 312(c)(1), Nov. 6, 1978, 92 Stat. 2826, applicable to taxable years ending after Dec. 31, 1978. AMENDMENTS 2022—Subsec. (a)(1)(C)(vi). Pub. L. 117–167 added cl. (vi). Subsec. (a)(1)(C)(vii), (viii). Pub. L. 117–169 added cls. (vii) and (viii). 2018—Subsec. (a)(1)(C)(vi). Pub. L. 115–141, § 401(d)(3)(B)(i), struck out cl. (vi) which read as follows: ‘‘the basis of any property to which paragraph (1) of section 48D(e) applies which is part of a qualifying therapeutic discovery project under such section 48D.’’ Subsec. (a)(1)(D)(iii). Pub. L. 115–141, § 401(a)(24), sub- stituted ‘‘shareholder’’ for ‘‘share-holder’’ in con- cluding provisions. 2010—Subsec. (a)(1)(C)(vi). Pub. L. 111–148 added cl. (vi). 2009—Subsec. (a)(1)(C)(v). Pub. L. 111–5 added cl. (v). 2005—Subsec. (a)(1)(C)(iii), (iv). Pub. L. 109–58 added cls. (iii) and (iv) and struck out former cl. (iii) which read as follows: ‘‘the amortizable basis of any qualified timber property.’’ 1998—Subsec. (b)(4). Pub. L. 105–206 substituted ‘‘this chapter’’ for ‘‘subpart A, B, D, or G’’. 1990—Pub. L. 101–508, § 11813(a), amended section gen- erally, substituting section catchline for one which read: ‘‘Termination of regular percentage’’ and in text substituting present provisions for provisions relating to the nonapplicability of the regular percentage to any property placed in service after Dec. 31, 1985, for purposes of determining the investment tax credit, ex- ceptions to such rule, the 35 percent reduction in credit for taxable years after 1986, the full basis adjustment in determining investment tax credit, and the definition of transition property and treatment of progress ex- penditures. 1988—Subsec. (c)(4)(B). Pub. L. 100–647, § 1002(e)(2), substituted ‘‘years’’ for ‘‘year’’ in heading and amended text generally. Prior to amendment, text read as fol- lows: ‘‘The amount of the reduction of the regular in- vestment credit under paragraph (3)— ‘‘(i) may not be carried back to any taxable year, but ‘‘(ii) shall be added to the carryforwards from the taxable year before applying paragraph (2).’’ Subsec. (c)(5)(B)(i). Pub. L. 100–647, § 1002(e)(3), amend- ed cl. (i) generally. Prior to amendment, cl. (i) read as follows: ‘‘The term ‘regular investment credit’ has the meaning given such term by section 48(o)’’. Subsec. (c)(5)(C). Pub. L. 100–647, § 1002(e)(8)(B), struck out subpar. (C) which related to portion of credits at- tributable to regular investment credit. Subsec. (d)(1). Pub. L. 100–647, § 1002(e)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: ‘‘In the case of periods after December 31, 1985, section 48(q) (relating to basis adjustment to section 38 property) shall be applied with respect to transaction property— ‘‘(A) by substituting ‘100 percent’ for ‘50 percent’ in paragraph (1), and ‘‘(B) without regard to paragraph (4) thereof (relat- ing to election of reduced credit in lieu of basis ad- justment).’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2022 AMENDMENT Amendment by Pub. L. 117–169 applicable to property placed in service after Dec. 31, 2024, see section 13702(c) of Pub. L. 117–169, set out as an Effective Date note under section 48E of this title. Amendment by Pub. L. 117–167 applicable to property placed in service after Dec. 31, 2022, and, for any prop- erty the construction of which begins prior to Jan. 1, 2023, only to the extent of the basis thereof attributable to the construction, reconstruction, or erection after Aug. 9, 2022, see section 107(f) of Pub. L. 117–167, set out as a note under section 905 of Title 2, The Congress. EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–148 applicable to amounts paid or incurred after Dec. 31, 2008, in taxable years be- ginning after such date, see section 9023(f) of Pub. L. 111–148, set out as a note under section 46 of this title. EFFECTIVE DATE OF 2009 AMENDMENT Amendment by Pub. L. 111–5 applicable to periods after Feb. 17, 2009, under rules similar to the rules of section 48(m) of this title as in effect on the day before Nov. 5, 1990, see section 1302(d) of Pub. L. 111–5, set out as a note under section 46 of this title. EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–58 applicable to periods after Aug. 8, 2005, under rules similar to the rules of section 48(m) of this title, as in effect on the day before Nov. 5, 1990, see section 1307(d) of Pub. L. 109–58, set out as a note under section 46 of this title. EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable to property placed in service after Dec. 31, 1990, but not applicable to any transition property (as defined in section 49(e) of this title), any property with respect to which qualified progress expenditures were previously taken into ac- count under section 46(d) of this title, and any property described in section 46(b)(2)(C) of this title, as such sec- tions were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101–508, set out as a note under section 45K of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by section 1002(e)(1)–(3) of Pub. L. 100–647 effective, except as otherwise provided, as if included in Page 381 TITLE 26—INTERNAL REVENUE CODE § 49 the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under sec- tion 1 of this title. Amendment by section 1002(e)(8)(B) of Pub. L. 100–647 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 1002(e)(8)(C) of Pub. L. 100–647, set out as a note under section 38 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Pub. L. 99–514, title II, § 211(e), Oct. 22, 1986, 100 Stat. 2169, as amended by Pub. L. 100–647, title I, § 1002(e)(4)–(7), Nov. 10, 1988, 102 Stat. 3367, 3368, provided that: ‘‘(1) IN GENERAL.—Except as provided in this sub- section, the amendments made by this section [enact- ing this section and provisions set out below] shall apply to property placed in service after December 31, 1985, in taxable years ending after such date. Section 49(c) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to taxable years ending after June 30, 1987, and to amounts carried to such taxable years. ‘‘(2) EXCEPTIONS FOR CERTAIN FILMS.—For purposes of determining whether any property is transition prop- erty within the meaning of section 49(e) of the Internal Revenue Code of 1986— ‘‘(A) in the case of any motion picture or television film, construction shall be treated as including pro- duction for purposes of section 203(b)(1) of this Act [enacting provisions set out as a note under section 168 of this title], and written contemporary evidence of an agreement (in accordance with industry prac- tice) shall be treated as a written binding contract for such purposes, ‘‘(B) in the case of any television film, a license agreement or agreement for production services be- tween a television network and a producer shall be treated as a binding contract for purposes of section 203(b)(1)(A) of this Act, and ‘‘(C) a motion picture film shall be treated as de- scribed in section 203(b)(1)(A) of this Act if— ‘‘(i) funds were raised pursuant to a public offer- ing before September 26, 1985, for the production of such film, ‘‘(ii) 40 percent of the funds raised pursuant to such public offering are being spent on films the production of which commenced before such date, and ‘‘(iii) all of the films funded by such public offer- ing are required to be distributed pursuant to dis- tribution agreements entered into before Sep- tember 26, 1985. ‘‘(3) NORMALIZATION RULES.—The provisions of sub- section (b) [see Normalization Rules note below] shall apply to any violation of the normalization require- ments under paragraph (1) or (2) of section 46(f) of the Internal Revenue Code of 1986 occurring in taxable years ending after December 31, 1985. ‘‘(4) ADDITIONAL EXCEPTIONS.— ‘‘(A) Subsections (c) and (d) of section 49 of the In- ternal Revenue Code of 1986 shall not apply to any continuous caster facility for slabs and blooms which is subject to a lease and which is part of a project the second phase of which is a continuous slab caster which was placed in service before December 31, 1985. ‘‘(B) For purposes of determining whether an auto- mobile manufacturing facility (including equipment and incidental appurtenances) is transition property within the meaning of section 49(e), property with re- spect to which the Board of Directors of an auto- mobile manufacturer formally approved the plan for the project on January 7, 1985 shall be treated as transition property and subsections (c) and (d) of sec- tion 49 of such Code shall not apply to such property, but only with respect to $70,000,000 of regular invest- ment tax credits. ‘‘(C) Any solid waste disposal facility which will process and incinerate solid waste of one or more public or private entities including Dakota County, Minnesota, and with respect to which a bond carryforward from 1985 was elected in an amount equal to $12,500,000 shall be treated as transition property within the meaning of section 49(e) of the Internal Revenue Code of 1986. ‘‘(D) For purposes of section 49 of such Code, the following property shall be treated as transition property: ‘‘(i) 2 catamarans built by a shipbuilder incor- porated in the State of Washington in 1964, the con- tracts for which were signed on April 22, 1986 and November 12, 1985, and 1 barge built by such ship- builder the contract for which was signed on Au- gust 7, 1985. ‘‘(ii) 2 large passenger ocean-going United States flag cruise ships with a passenger rated capacity of up to 250 which are built by the shipbuilder de- scribed in clause (i), which are the first such ships built in the United States since 1952, and which were designed at the request of a Pacific Coast cruise line pursuant to a contract entered into in October 1985. This clause shall apply only to that portion of the cost of each ship which does not ex- ceed $40,000,000. ‘‘(iii) Property placed in service during 1986 by Satellite Industries, Inc., with headquarters in Min- neapolis, Minnesota, to the extent that the cost of such property does not exceed $1,950,000. ‘‘(E) Subsections (c) and (d) of section 49 of such Code shall not apply to property described in section 204(a)(4) of this Act [enacting provisions set out as a note under section 168 of this title].’’ SAVINGS PROVISION Pub. L. 115–141, div. U, title IV, § 401(d)(3)(C), Mar. 23, 2018, 132 Stat. 1209, provided that: ‘‘In the case of the re- peal of section 48D(e)(1) of the Internal Revenue Code of 1986, the amendments made by this paragraph [amend- ing this section and sections 50 and 280C of this title and repealing former section 48D of this title] shall not apply to expenditures made in taxable years beginning before January 1, 2011.’’ For provisions that nothing in amendment by section 401(d)(3)(B)(i) of Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. NORMALIZATION RULES Pub. L. 99–514, title II, § 211(b), Oct. 22, 1986, 100 Stat. 2168, provided that: ‘‘If, for any taxable year beginning after December 31, 1985, the requirements of paragraph (1) or (2) of section 46(f) of the Internal Revenue Code of 1986 are not met with respect to public utility prop- erty to which the regular percentage applied for pur- poses of determining the amount of the investment tax credit— ‘‘(1) all credits for open taxable years as of the time of the final determination referred to in section 46(f)(4)(A) of such Code shall be recaptured, and ‘‘(2) if the amount of the taxpayer’s unamortized credits (or the credits not previously restored to rate base) with respect to such property (whether or not for open years) exceeds the amount referred to in paragraph (1), the taxpayer’s tax for the taxable year shall be increased by the amount of such excess. If any portion of the excess described in paragraph (2) is attributable to a credit which is allowable as a carry- Page 382 TITLE 26—INTERNAL REVENUE CODE § 50 over to a taxable year beginning after December 31, 1985, in lieu of applying paragraph (2) with respect to such portion, the amount of such carryover shall be re- duced by the amount of such portion. Rules similar to the rules of this subsection shall apply in the case of any property with respect to which the requirements of section 46(f)(9) of such Code are met.’’ EXCEPTION FOR CERTAIN AIRCRAFT USED IN ALASKA Pub. L. 99–514, title II, § 211(d), Oct. 22, 1986, 100 Stat. 2168, provided that: ‘‘(1) The amendments made by subsection (a) [enact- ing this section and provisions set out above] shall not apply to property originally placed in service after De- cember 29, 1982, and before August 1, 1985, by a corpora- tion incorporated in Alaska on May 21, 1953, and used by it— ‘‘(A) in part, for the transportation of mail for the United States Postal Service in the State of Alaska, and ‘‘(B) in part, to provide air service in the State of Alaska on routes which had previously been served by an air carrier that received compensation from the Civil Aeronautics Board for providing service. ‘‘(2) In the case of property described in subparagraph (A)— ‘‘(A) such property shall be treated as recovery property described in section 208(d)(5) of the Tax Eq- uity and Fiscal Responsibility Act of 1982 (‘TEFRA’) [section 208(d)(5) of Pub. L. 97–248, enacting provisions set out as a note under section 168 of this title]; ‘‘(B) ‘48 months’ shall be substituted for ‘3 months’ each place it appears in applying— ‘‘(i) section 48(b)(2)(B) of the Code [26 U.S.C. 48(b)(2)(B)], and ‘‘(ii) section 168(f)(8)(D) of the Code [26 U.S.C. 168(f)(8)(D)] (as in effect after the amendments made by the Technical Corrections Act of 1982 [Pub. L. 97–448] but before the amendments made by TEFRA); and ‘‘(C) the limitation of section 168(f)(8)(D)(ii)(III) (as then in effect) shall be read by substituting ‘the les- see’s original cost basis.’, for ‘the adjusted basis of the lessee at the time of the lease.’ ‘‘(3) The aggregate amount of property to which this paragraph shall apply shall not exceed $60,000,000.’’ § 50. Other special rules (a) Recapture in case of dispositions, etc. Under regulations prescribed by the Sec- retary— (1) Early disposition, etc. (A) General rule If, during any taxable year, investment credit property is disposed of, or otherwise ceases to be investment credit property with respect to the taxpayer, before the close of the recapture period, then the tax under this chapter for such taxable year shall be in- creased by the recapture percentage of the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted solely from re- ducing to zero any credit determined under this subpart with respect to such property. (B) Recapture percentage For purposes of subparagraph (A), the re- capture percentage shall be determined in accordance with the following table: If the property ceases to be investment credit property within— The recapture percentage is: (i) One full year after placed in service ................................... 100 If the property ceases to be investment credit property within— The recapture percentage is: (ii) One full year after the close of the period described in clause (i) ................................ 80 (iii) One full year after the close of the period described in clause (ii) .......................... 60 (iv) One full year after the close of the period described in clause (iii) ......................... 40 (v) One full year after the close of the period described in clause (iv) .............................. 20 (2) Property ceases to qualify for progress ex- penditures (A) In general If during any taxable year any building to which section 47(d) applied ceases (by reason of sale or other disposition, cancellation or abandonment of contract, or otherwise) to be, with respect to the taxpayer, property which, when placed in service, will be a qualified rehabilitated building, then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted solely from re- ducing to zero the credit determined under this subpart with respect to such building. (B) Certain excess credit recaptured Any amount which would have been ap- plied as a reduction under paragraph (2) of section 47(b) but for the fact that a reduc- tion under such paragraph cannot reduce the amount taken into account under section 47(b)(1) below zero shall be treated as an amount required to be recaptured under sub- paragraph (A) for the taxable year during which the building is placed in service. (C) Certain sales and leasebacks Under regulations prescribed by the Sec- retary, a sale by, and leaseback to, a tax- payer who, when the property is placed in service, will be a lessee to whom the rules referred to in subsection (d)(5) apply shall not be treated as a cessation described in subparagraph (A) to the extent that the amount which will be passed through to the lessee under such rules with respect to such property is not less than the qualified reha- bilitation expenditures properly taken into account by the lessee under section 47(d) with respect to such property. (D) Coordination with paragraph (1) If, after property is placed in service, there is a disposition or other cessation described in paragraph (1), then paragraph (1) shall be applied as if any credit which was allowable by reason of section 47(d) and which has not been required to be recaptured before such disposition, cessation, or change in use were allowable for the taxable year the property was placed in service. (E) Special rules Rules similar to the rules of this para- graph shall apply in cases where qualified