118 STAT. 1605 PUBLIC LAW 108–357—OCT. 22, 2004 ‘‘(3) LESSEE MAY NOT BEAR MORE THAN MINIMAL RISK OF LOSS.— ‘‘(A) IN GENERAL.—A lease of property meets the requirements of this paragraph if there is no arrangement under which the lessee bears— ‘‘(i) any portion of the loss that would occur if the fair market value of the leased property were 25 percent less than its reasonably expected fair market value at the time the lease is terminated, or ‘‘(ii) more than 50 percent of the loss that would occur if the fair market value of the leased property at the time the lease is terminated were zero. ‘‘(B) EXCEPTION.—The Secretary may by regulations provide that the requirements of this paragraph are not met where the lessee bears more than a minimal risk of loss. ‘‘(C) PARAGRAPH NOT TO APPLY TO SHORT TERM LEASES.—This paragraph shall not apply to any lease with a lease term of 5 years or less. ‘‘(4) PROPERTY WITH MORE THAN 7 YEAR CLASS LIFE.—In the case of a lease— ‘‘(A) of property with a class life (as defined in section 168(i)(1)) of more than 7 years, other than fixed wing air craft and vessels, and ‘‘(B) under which the lessee has the option to purchase the property, the lease meets the requirements of this paragraph only if the purchase price under the option equals the fair market value of the property (determined at the time of exercise). ‘‘(e) SPECIAL RULES.— ‘‘(1) TREATMENT OF FORMER TAX EXEMPT USE PROPERTY.— ‘‘(A) IN GENERAL.—In the case of any former tax exempt use property— ‘‘(i) any deduction allowable under subsection (b) with respect to such property for any taxable year shall be allowed only to the extent of any net income (without regard to such deduction) from such property for such taxable year, and ‘‘(ii) any portion of such unused deduction remaining after application of clause (i) shall be treated as a deduction allowable under subsection (b) with respect to such property in the next taxable year. ‘‘(B) FORMER TAX EXEMPT USE PROPERTY.—For purposes of this subsection, the term ‘former tax exempt use prop erty’ means any property which— ‘‘(i) is not tax exempt use property for the taxable year, but ‘‘(ii) was tax exempt use property for any prior taxable year. ‘‘(2) DISPOSITION OF ENTIRE INTEREST IN PROPERTY.—If during the taxable year a taxpayer disposes of the taxpayer’s entire interest in tax exempt use property (or former tax exempt use property), rules similar to the rules of section 469(g) shall apply for purposes of this section. ‘‘(3) COORDINATION WITH SECTION 469.—This section shall be applied before the application of section 469. ‘‘(4) COORDINATION WITH SECTIONS 1031 AND 1033.— Applicability.
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