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TITLE 26-INTERNAL REVENUE CODE (7) Special rule where taxpayer owns 50 percent or more of enterprise (A) General rule In the case of any 50 percent owned cor- poration or partnership, the $10,000 figure specified in paragraph (1) shall be increased by the lesser of- (i) $15,000, or (ii) the interest paid or accrued during the taxable year on investment indebted- ness incurred or continued in connection with the acquisition of the interest in such corporation or partnership. In the case of a separate return by a mar- ried individual, $7,500 shall be substituted for the $15,000 figure in clause (1). (B) Ownership requirements This paragraph shall apply with respect to indebtedness only if the taxpayer, his spouse, and his children own 50 percent or more of the total value of all classes of stock of the corporation or 50 percent or more of all capital interests in the partner- ship, as the case may be. (e) Cross references (1) For disallowance of certain amounts paid in con- nection with insurance, endowment, or annuity con- tracts, see section 264. (2) For disallowance of deduction for interest relating to tax-exempt income, see section 265(2). (3) For disallowance of deduction for carrying charges chargeable to capital account, see section 266. (4) For disallowance of interest with respect to trans. actions between related taxpayers, see section 267. (5) For treatment of redeemable ground rents and real property held subject to liabilities under redeemable ground rents, see section 1055. (Aug. 16, 1954, ch, 736, 68A Stat. 46; Apr. 10, 1963, Pub. L. 88-9, § l(a), (c), 77 Stat. 6, 7; Feb. 26, 1964, Pub. L. 88-272, title II, § 224(c), 78 Stat. 79; Dec. 30, 1969, Pub. L. 91-172, title II, § 221(a), 83 Stat. 574; Dec. 10, 1971, Pub. L. 92- 178, title III, § 304(a)(2), (b)(2), (d), 85 Stat. 523, 524; Oct. 4, 1976, Pub. L. 94-455, title II, §§ 205(c)(3), 209(a), title XIX, §§ 1901(b)(3)(K), (8)(C), 1906(b)(13)(A), 90 Stat. 1535, 1542, 1543, 1793, 1794, 1834.) REFERENCES IN TEXT The Tax Reform Act of 1976, referred to in subsec. (d)(3)(A), is Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1520. For complete classification of this Act to the Code, see Tables volume. CODIFICATION Amendment by section 205(c)(3) of Pub. L. 94-455 has been executed to subsec. (d)(3)(B)(iii) as the prob- able intent of Congress. Amendment to subsec. (d)(5) by Pub. L. 94-455, § 1901(b)(3)(K), which substituted "ordinary income" for "gain from the sale or exchange of property which is neither a capital asset nor property described in sec- tion 1231" was not executed in view of the striking out of subsec. (d)(5) by Pub. L. 94-455. § 209(a)(4) and the redesignation of subsec. (d)(6) as (d)(5). AMENDMENTS 1976-Subsec. (b)(l). Pub. L. 94-455, § 1901(b)(8)(C), substituted "organization described in section 170(b)(1)(A)(i) and which is provided for a student of such organization" for "institution (as defined in sec- tion 151(e)(4)) and which is provided for a student of such institution". Subsec. (d)(1). Pub. L. 94-455, § 209(a)(1), among other changes, substituted in subpar. (A) "$10,000" for "$25,000" and "$5,000" for "$12,500", struck out subpar. (C) relating to the excess of net long-term cap- ital gain over short-term capital loss and subpar. (D) relating to the excess of investment interest over amounts in subpar. (A), and in provisions following lettered paragraphs substituted "$10,000" for "$25,000" and struck out provisions relating to the de- termination of the amount referred to in subpar. (C). Subsec. (d)(2). Pub. L. 94-455, § 209(a)(1), among other changes, struck out provisions relating to the limitation on the amount of interest allowable by this par. and to reduction of disallowed investment interest for capital gain deduction purposes. Subsec. (d)(3)(A). Pub. L. 94-455, § 209(a)(2), added provision relating to determination of the amount of net investment income where taxpayer has investment interest for taxable year to which this subsection ap- plies. Subsec. (d)(3)(B)(iii). Pub. L. 94-455, §§ 205(c)(3), 1901(b)(3)(K), substituted "1250, and 1254" for "and 1250", and "ordinary income" for "gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231". Subsec. (d)(3)(E). Pub. L. 94-455, § 209(a)(3), substi- tuted "limitation in paragraph (1)" for "limitations in paragraphs (1) and (2)(A)". Subsec. (d)(4). Pub. L. 94-455, § 1906(b)(13)(A), struck out in subpars. (B) and (C) "or his delegate" following "Secretary". Subsec. (d)(5). Pub. L. 94-455, § 209(a) (4), (5), rede- signated former subsec. (d)(6) as (d)(5), and as so rede- signated, added provision relating to the application of this paragraph after Dec. 31, 1975 on an allocation basis rather than a specific item basis. Former subsec. (d)(5), relating to capital gains treatment of invest- ment interest, was struck out. Subsec. (d)(6). Pub. L. 94-455, §§ 209(a)(4), 1906(b)(13)(A), redesignated former subsec. (d)(7) as (d)(6), and as so redesignated, struck out in provision following subpar. (B) "or his delegate" following "Sec- retary". Former subsec. (d)(6) redesignated (d)(5). Subsec. (d)(7). Pub. L. 94-455, § 209(a)(6), added subsec. (d)(7). Former subsec. (d)(7) redesignated (d)(6). 1971-Subsec. (d)(1)(B). Pub. L. 92-178, § 304(b)(2), inserted following "plus" the following words "the amount (if any) by which the deductions allowable under this section (determined without regard to this subsection) and sections 162, 164(a)(1) or (2), or 212 at- tributable to property of the taxpayer subject to a net lease exceeds the rental income produced by such property for the property year, plus". Subsec. (d)(3)(C). Pub. L. 92-178, § 304(d), included reference to section 162. Subsec. (d)(4)(A)(i). Pub. L. 92-178, § 304(a)(2)(A), in- serted "of the lessor" following "deductions" and par- enthetical phrase "(other than rents and reimbursed amounts with respect to such property)" following "section 162". Subsec. (d)(7). Pub. L. 92-178, § 304(a)(2)(B), added par. (7). 1969-Pub. L. 91-172 added subsec. (d). Former subsec. (d) was redesignated as (e). 1964-Subsec. (b)(1). Pub. L. 88-272 included the purchase of educational services, and defined "educa- tional services". 1963-Subsec. (c). Pub. L. 88-9, § l(a), added subsec. (c). Former subsec. (c) redesignated (d). Subsec. (d). Pub. L. 88-9, § l(a), (c), redesignated former subsec. (c) as (d), and added par. (5). EFFECTIVE DATE OF 1976 AMENDMENT Amendment of subsecs. (b)(1) and (d)(3)(B)(iii) by section 1901(b)(8)(C) and (3)(K) of Pub. L. 94-455 ap- plicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. Section 209(b) of Pub. L. 94-455 provided that: Page 144 § 163