PUBLIC LAW 99-514—OCT. 22, 1986
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100 STAT. 2239
the spouse of the individual) is less than 10 percent (by value) of all interests in such activity. "(B) No PARTICIPATION REQUIREMENT FOR LOW-INCOME HOUSING OR REHABILITATION CREDIT.—Paragraphs (1) and (4)(A) shall be applied without regard to the active participation requirement in the case of— "(i) any credit determined under section 42 for any taxable year, or "(ii) any rehabilitation investment credit (within the meaning of section 48(o)). "(C) INTEREST AS A LIMITED PARTNER.—No interest as a
limited partner in a limited partnership shall be treated as an interest with respect to which the taxpayer actively participates. "(D) PARTICIPATION BY SPOUSE.—In determining whether a taxpayer actively participates, the participation of the spouse of the taxpayer shall be taken into account. "(j) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) CLOSELY HELD CORPORATION.—The term 'closely held C corporation' means any C corporation described in section 465(a)(1)(B). "(2) PERSONAL SERVICE CORPORATION.—The term 'personal service corporation' has the meaning given such term by section 269A(b)(l), except that section 269A(b)(2) shall be applied— "(A) by substituting 'any' for 'more than 10 percent', and y' "(B) by substituting'any'for'50 percent or more in value' in section 318(a)(2)(C). A corporation shall not be treated as a personal service corporation unless more than 10 percent of the stock (by value) in such corporation is held by employee-owners (within the meaning of section 269A(b)(2), as modified by the preceding sentence). "(3) REGULAR TAX LIABILITY.—The term 'regular tax liability' has the meaning given such term by section 260t)). "(4) ALLOCATION OF PASSIVE ACTIVITY LOSS AND CREDIT.—The
passive activity loss and the passive activity credit (and the $25,000 amount under subsection (i)) shall be allocated to activities, and within activities, on a pro rata basis in such manner as the Secretary may prescribe. "(5) DEDUCTION EQUIVALENT.—The deduction equivalent of credits from a passive activity for any taxable year is the amount which (if allowed as a deduction) would reduce the regular tax liability for such taxable year by an amount equal to such credits. "(6) SPECIAL RULE FOR GIFTS.—In the case of a disposition of any interest in a passive activity by gift— "(A) the basis of such interest immediately before the transfer shall be increased by the amount of any passive activity losses allocable to such interest, and "(B) such losses shall not be allowable as a deduction for any taxable year. "(7) QUALIFIED RESIDENCE INTEREST.—The passive activity loss of a taxpayer shall be computed without regard to qualified residence interest (within the meaning of section 163(h)(3)). "(8) RENTAL ACTIVITY.—The term 'rental activity' means any activity where payments are principally for the use of tangible property.
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