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TITLE 26-INTERNAL REVENUE CODE with respect to such property, reduced by the greater of the adjusted basis of the section 1250 property disposed of or the cost of the section 1250 property acquired, but shall not exceed the gain recognized in the transaction, and (it) if any section 1250 property is treat- ed as consisting of more than one element by reason of the application of subpara- graph (E) to a prior transaction, then the amount of gain recognized, the net amount realized, and the additional de- preciation, with respect to each such ele- ment shall be allocated in accordance with regulations prescribed by the Secre- tary. (9) Transfers to tax-exempt organization where property will be used in unrelated business (A) In general The second sentence of paragraph (3) shall not apply to a disposition of section 1250 property to an organization described in section 511(a)(2) or 511(b)(2) if, immedi- ately after such disposition, such organiza. tion uses such property in an unrelated trade or business (as defined in section 513). (B) Later change in use If any property with respect to the dispo- sition of which gain is not recognized by reaso:i of subparagraph (A) ceases to be used in an unrelated trade or business of the organization acquiring such property, such organization shall be treated for pur- poses of this section as having disposed of such property on the date of such cessation. (10) Foreclosure dispositions If any section 1250 property is disposed of by the taxpayer pursuant to a bid for such property at foreclosure or by operation of an agreement or of process of law after there was a default on indebtedness which such property secured, the applicable percentage referred to in paragraph (1)(B), (2)(B), or (3)(B) of subsection (a), as the case may be, shall be determined as if the taxpayer ceased to hold such property on the date of the be- ginning of the proceedings pursuant to which the disposition occurred, or, in the event there are no proceedings, such percentage shall be determined as if the taxpayer ceased to hold such property on the date, deter- mined under regulations prescribed by the Secretary, on which such operation of an agreement or process of law, pursuant to which the disposition occurred, began. (e) Holding period For purposes of determining the applicable percentage under this section, the provisions of section 1223 shall not apply, and the holding period of section 1250 property shall be deter- mined under the following rules: (1) Beginning of holding period The holding period of section 1250 property shall be deemed to begin- (A) in the case of property acquired by the taxpayer, on the day after the date of acquisition, or (B) in the case of property constructed, reconstructed, or erected by the taxpayer, on the first day of the month during which the property is placed in service. (2) Property with transferred basis If the basis of property acquired in a trans- action described in paragraph (1), (2), (3), or (5) of subsection (d) is determined by refer- ence to its basis in the hands of the transfer- or, then the holding period of the property in the hands of the transferree shall include the holding period of the property in the hands of the transferor. (3) Principal residence If the basis of property acquired in a trans- action described in paragraph (7) of subsec- tion (d) is determined by reference to the basis in the hands of the taxpayer of other property, then the holding period of the property acquired shall include the holding period of such other property. (4) Qualified low-incoint housing The holding period of any section 1250 property acquired which is described in sub- section (d)(8)(E)(i) shall include the holding period of the corresponding element of sec- tion 1250 property disposed of. (f) Special rules for property which is substantially improved (1) Amount trcutedI as ordinary Income If, in the case of a disposition of section 1250 property, the property is treated Rs con- sisting of more than one element by reason of paragraph (3), then the amount taken into account under subsection (a) in respect of such section 1250 property as ordinary income shall be the sum of the amounts de- termined under paragraph (2). (2) Ordinary income attributable to an element For purposes of paragraph (1), the amount taken into account for any element shall be the sum of a series of amounts determined for the periods set forth in subsection (a), with the amount for any such period being deter- mined by multiplying- (A) the amount which bears the same ratio to the lower of the amounts spec!.!ld in clause (i) or (ii) of subsection (a)(1)(A), in clause (i) or (ii) of subsection (a)(2)(A), or in clause (1) or (ii) of subsection (a)(3)(A), as the case may be, for the section 1250 prop- erty as the additional depreciation for such element attributable to such period bears to the sum of the additional depreciation for all elements attributable to such period, by (B) the applicable percentage for such ele- ment for such period. For purposes of this paragraph, determina- tions with respect to any element shall be made as if it were a separate property. (3) Property consisting of more than one element In applying this subsection in the case of any section 1250 property, there shall be treated as a separate element- (A) each separate improvement, (B) if, before completion of section 1250 property, units thereof (as distinguished from improvements) were placed in service, each such unit of section 1250 property, and 71-999 0 - 78 - 47 (Vol. 7) Page 709 § 1250