102 STAT. 3390 PUBLIC LAW 100-647—NOV. 10, 1988

26 USC 469 note. (2) Subsection (d) of section 502 of the Reform Act (defining

qualified investor) is amended by adding after paragraph (2) the
following new paragraph:

"(3) SPECIAL RULE FOR CERTAIN PARTNERSHIPS.—In the case of
any property which is held by a partnership—

"(A) which placed such property in service on or after
December 31, 1985, and before August 17, 1986, and
continuously held such property through the close of the
taxable year for which the determination is being made,
and

"(B) which was not treated as a new partnership or as
terminated at any time on or after the date on which such
property was placed in service and through the close of the
taxable year for which the determination is being made,
paragraph (l)(AXi) shall be applied by substituting 'Decem-
ber 31,1988* for 'August 16, 1986' the 2nd place it appears."

(3) The subsection (d) of section 502 of the Reform Act which
relates to special rules is redesignated as subsection (e).
(c) AMENDMENTS RELATED TO SECTION 511 OF THE REFORM ACT.—

(1) Subparagraph (A) of section 163(d)(3) of the 1986 Code
(defining investment interest) is amended by striking out "in-
curred or continued to purchase or carry" and inserting in lieu
thereof "properly allocable to".

(2) Subparagraph (B) of section 163(d)(4) of the 1986 Code is
amended to read as follows:

"(B) INVESTMENT INCOME.—The term 'investment income'
means the sum of—

"(i) gross income (other than gain taken into account
under clause (ii)) from property held for investment,
and

"(ii) any net gain attributable to the disposition of
property held for investment."

(3) Subparagraph (A) of section 163(d)(6) of the 1986 Code is
amended to read as follows:

"(A) IN GENERAL.—The amount of interest paid or ac-
crued during any such taxable year which is disallowed
under this subsection shall not exceed the sum of—

"(i) the amount which would be disallowed under this
subsection if—

"(I) paragraph (1) were applied by substituting
'the sum of the ceiling amount and the net invest-
ment income' for 'the net investment income', and
"(II) paragraphs (4XE) and (5)(A)(ii) did not apply,
and

"(ii) the applicable percentage of the excess of—
"(I) the amount which (without regard to this
paragraph) is not allowable as a deduction under
this subsection for the taxable year, over
"(II) the amount described in clause (i).
The preceding sentence shall not apply to any interest
treated as paid or accrued during the taxable year under
paragraph (2)."

(4) Subparagraph (A) of section 163(h)(2) of the 1986 Code is
amended by striking out "incurred or continued in connection
with the conduct of' and inserting in lieu thereof "properly
allocable to".