[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.42-16]

[Page 177-178]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.42-16  Eligible basis reduced by federal grants.

    (a) In general. If, during any taxable year of the compliance period 
(described in section 42(i)(1)), a grant is made with respect to any 
building or the operation thereof and any portion of the grant is funded 
with federal funds (whether or not includible in gross income), the 
eligible basis of the building for the taxable year and all succeeding 
taxable years is reduced by the portion of the grant that is so funded.
    (b) Grants do not include certain rental assistance payments. A 
federal rental assistance payment made to a building owner on behalf or 
in respect of a tenant is not a grant made with respect to a building or 
its operation if the payment is made pursuant to--
    (1) Section 8 of the United States Housing Act of 1937 (42 U.S.C. 
1437f)
    (2) A qualifying program of rental assistance administered under 
section 9 of the United States Housing Act of 1937 (42 U.S.C. 1437g); or
    (3) A program or method of rental assistance as the Secretary may 
designate by publication in the Federal Register or in the Internal 
Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter).
    (c) Qualifying rental assistance program. For purposes of paragraph 
(b)(2) of this section, payments are made pursuant to a qualifying 
rental assistance program administered under section 9 of the United 
States Housing Act of 1937 to the extent that the payments--
    (1) Are made to a building owner pursuant to a contract with a 
public housing authority with respect to units the owner has agreed to 
maintain as public housing units (PH-units) in the building;
    (2) Are made with respect to units occupied by public housing 
tenants, provided that, for this purpose, units may be considered 
occupied during periods of short term vacancy (not to exceed 60 days); 
and

[[Page 178]]

    (3) Do not exceed the difference between the rents received from a 
building's PH-unit tenants and a pro rata portion of the building's 
actual operating costs that are reasonably allocable to the PH-units 
(based on square footage, number of bedrooms, or similar objective 
criteria), and provided that, for this purpose, operating costs do not 
include any development costs of a building (including developer's fees) 
or the principal or interest of any debt incurred with respect to any 
part of the building.
    (d) Effective date. This section is effective September 26, 1997.

[T.D. 8731, 62 FR 50503, Sept. 26, 1997]