PUBLIC LAW 100-647— NOV. 10, 1988 102 STAT. 3389

(11) Subsection 0") of section 469 of the 1986 Code is amended
by adding at the end thereof the following new paragraph:

"(12)^ SPECIAL RULE FOR DISTRIBUTIONS BY ESTATES OR TRUSTS.—
If any interest in a passive activity is distributed by an estate or
trust —

"(A) the basis of such interest immediately before such
distribution 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."

(12) Subsection (m) of section 469 of the 1986 Code, as redesig-
nated by section 10211 of the Revenue Act of 1987, is amended
by striking all that precedes subparagraph (B) of paragraph (3)
thereof and inserting in lieu thereof the following:

"(m) PHASE-IN OF DISALLOWANCE OF LOSSES AND CREDITS FOR
INTEREST HELD BEFORE DATE OF ENACTMENT. —

"(1) IN GENERAL. — In the case of any passive activity loss or
passive activity credit for any taxable year beginning in cal-
endar years 1987 through 1990, subsection (a) shall not apply to
the applicable percentage of that portion of such loss (or such
credit) which is attributable to pre-enactment interests.

"(2) APPLICABLE PERCENTAGE.— For purposes of this subsec-
tion, the applicable percentage shall be determined in accord-
ance with the following table:

"In the case of taxable The applicable

years beginning in: percentage is:

1987 ....................................................................................... 65

1988 ....................................................................................... 40

1989 ....................................................................................... 20

1990 ....................................................................................... 10.

"(3) PORTION OF LOSS OK CREDIT ATTRIBUTABLE TO PRE-ENACT-
MENT INTERESTS. — For purposes of this subsection —

"(A) IN GENERAL. — The portion of the passive activity loss

(or passive activity credit) for any taxable year which is

attributable to preenactment interests is the lesser of—

"(i) the amount of the passive activity loss (or passive

activity credit) which is disallowed for the taxable year

under subsection (a) (without regard to this subsection),

or

"(ii) the amount of the passive activity loss (or pas-
sive activity credit) which would be disallowed for the
taxable year (without regard to this subsection and
without regard to any amount allocable to an activity
for the taxable year under subsection (b)) taking into
account only pre-enactment interests."
(b) AMENDMENTS RELATED TO SECTION 502 OF THE REFORM ACT. —

(1) Subparagraph (A) of section 502(d)(l) of the Reform Act 26 USC 469 note.
(defining qualified investor) is amended to read as follows:

"(i) in the case of a project placed in service on or
before August 16, 1986, such person held an interest in
such project on August 16, 1986, and such person made
his initial investment after December 31, 1983, or

"(ii) in the case of a project placed in service after
August 16, 1986, such person made his initial invest-
ment after December 31, 1983, and such person held an
interest in such project on December 31, 1986, and".