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TITLE 26-INTERNAL REVENUE CODE tion shall be allowed for real property construc- tion period interest and taxes. (b) Amortization of amounts charged to capital ac. count Any amount paid or accrued which would (but for subsection (a)) be allowable as a deduc- tion for the taxable year shall be allowable for such taxable year and each subsequent amorti- zation year in accordance with the following table: If the amount is paid or accrued in a taxable year beginning in- Residential The percentage of real such amount property allowable for each (other amortization year Nonresidential than low- Low- shall be the following real income income percentage of such property housing) housing amount 1976 ............................................................ see subsection (M) 1978 1982 25 1977 1979 1983 20 1978 1980 1984 16% 1979 1981 1985 14% 1980 1982 1986 12 1981 1983 1987 11 after 1981 after 1983 after 1987 10 (c) Amortization year (1) In general For purposes of this section, the term "am- ortization year" means the taxable year in which the amount is paid or accrued, and each taxable year thereafter (beginning with the taxable year after the taxable year in which paid or accrued or, if later, the taxable year in which the real property is ready to be placed in service or is ready to be held for sale) until the full amount has been allowable as a deduction (or until the property is sold or exchanged). (2) Rules for sales and exchanges For purposes of paragraph (1)- (A) Proportion of percentage allowed For the amortization year in which the property is sold or exchanged, a proportion- ate part of the percentage allowable for such year (determined without regard to the sale or exchange) shall be allowable. If the real property is subject to an allowance for depreciation, the proportion shall be de- termined in accordance with the convention used for depreciation purposes with respect to such property. In the case of all other real property, under regulations prescribed by the Secretary, the proportion shall be based on that proportion of the amortiza- tion year which elapsed before the sale or exchange. (B) Unamortized balance In the case of a sale or exchange of the property, the portion of the amount not al- lowable shall be treated as an adjustment to basis under section 1016 for purposes of de- termining gain or loss. (C) Certain exchanges An exchange or transfer after which the property received has a basis determined in whole or in part by reference to the basis of the property to which the amortizable con- struction period interest and taxes relate, shall not be treated as an exchange. (d) Certain residential property excluded This section shall not apply to any real prop- erty acquired, constructed, or carried if such property is not, and cannot reasonably be ex- pected to be, held in a trade or business or in an activity conducted for profit. (e) Definitions For purposes of this section- (1) Construction period interest and taxes The term "construction period interest and taxes" means all- (A) interest paid or accrued on indebted- ness incurred or continued to acquire, con- struct, or carry real property, and (B) real property taxes, to the extent such interest and taxes are at- tributable to the construction period for such property and would be allowable as a deduc- tion under this chapter for the taxable year in which paid or accrued (determined without regard to this section). (2) Construction period The term "construction period", when used with respect to any real property, means the period- (A) beginning on the date on which con- struction of the building or other improve- ment begins, and (B) ending on the date on which the item of property is ready to be placed in service or is ready to be held for sale. (3) Nonresidential real property The term "nonresidential real property" means real property which is neither residen- tial real property nor low-income housing. (4) Residential real property The term "residential real property" means property which is or can reasonably be ex- pected to be- (A) residential rental property as defined in section 167(j)(2)(B), or (B) real property described in section 1221(1) held for sale as dwelling units (within the meaning of section 167(k)(3)(C)). (5) Low-income housing The term "low-income housing" means property described in clause (1), (ii), (iii), or (iv) of section 1250(a)(1)(B). (f) Transitional rule for 1976 In the case of amounts paid or accrued by the taxpayer in a taxable year beginning in 1976, the percentage of such amount allowable under this section for- (1) the taxable year beginning in 1976 shall be 50 percent, and (2) each amortization year thereafter shall be 16% percent. (Added Pub. L. 94-455, title II, § 201(a), Oct. 4, 1976, 90 Stat. 1525.) EFFECTIVE DATE Section 201(c) of Pub. L. 94-455 provided that: "The amendments made by this section [adding this section and amending analysis preceding section 161 of this title] shall apply- § 189 Page 190