Limitation on deduction for business interest of certain businesses owned by private funds

(a) In general Section 163(j) of the Internal Revenue Code of 1986 is amended by redesignating paragraph (11) as paragraph (12) and by inserting after paragraph (10) the following new paragraph: (11) Modification of limitation for certain businesses owned by private firms (A) In general In the case of a taxpayer which is an applicable entity controlled by an applicable controlling entity (or any person related within the meaning of section 267(b) or 707(b) to such entity) at any time during the taxable year— (i) if the ratio of debt to equity of the taxpayer as of the close of the taxable year (or on any other day during the taxable year as the Secretary may prescribe in regulations) exceeds 1, then paragraph (1) shall be applied by substituting a percentage that the Secretary determines appropriate (and which shall be not less than 30 percent) for 30 percent, and (ii) in the case of the election under paragraph (7)(B) to treat any trade or business of the taxpayer as an electing real property trade or business— (I) the taxpayer may not make any such election during such taxable year, and (II) any such election of the taxpayer in effect as of the close of the taxable year preceding such taxable year with respect to a trade or business shall be revoked, effective for such taxable year and all succeeding taxable years. (B) Ratio of debt to equity For purposes of this paragraph, the term ratio of debt to equity means, with respect to any taxpayer, the ratio which the total indebtedness of the taxpayer bears to the sum of the taxpayer's money and all other assets reduced (but not below zero) by such total indebtedness. For purposes of the preceding sentence— (i) the amount taken into account with respect to any asset shall be the adjusted basis thereof for purposes of determining gain, (ii) the amount taken into account with respect to any indebtedness with original issue discount shall be its issue price plus the portion of the original issue discount previously accrued as determined under the rules of section 1272 (determined without regard to subsection (a)(7) or (b)(4) thereof), and (iii) there shall be such other adjustments as the Secretary may by regulations prescribe. (C) Coordination with depreciation rules If the alternative depreciation system under section 168(g) applies to property by reason of an election under paragraph (7)(B) which is revoked under subparagraph (A)(ii)(II), then the depreciation deduction under section 167(a) with respect to such property for the taxable year of revocation and all succeeding taxable years shall be determined under section 168 in the same manner as if such revocation were a change in use of the property under section 168(i)(5) and the regulations thereunder. (D) Definitions and rules For purposes of this paragraph— (i) any term used in this paragraph which is also used in section 59B shall have the same meaning as when used in such section, and (ii) the constructive ownership rules of section 318 shall apply in the same manner as such rules apply for purposes of section 59B.. (b) Effective dates (1) In general The amendments made by this section shall apply to taxable years beginning on or after the date of enactment of this Act. (2) Revocation of elections Subparagraphs (A)(ii)(II) and (C) of section 163(j)(11) of the Internal Revenue Code of 1986, as added by this section, shall apply to taxable years beginning on or after the date of enactment of this Act, with respect to elections under section 163(j)(7)(B) of such Code made before, on, or after such date.