118 STAT. 1604 PUBLIC LAW 108–357—OCT. 22, 2004 ‘‘(C) ALLOWABLE AMOUNT.— ‘‘(i) IN GENERAL.—Except as otherwise provided in this subparagraph, the term ‘allowable amount’ means an amount equal to 20 percent of the lessor’s adjusted basis in the property at the time the lease is entered into. ‘‘(ii) HIGHER AMOUNT PERMITTED IN CERTAIN CASES.—To the extent provided in regulations, a higher percentage shall be permitted under clause (i) where necessary because of the credit worthiness of the les see. In no event may such regulations permit a percent age of more than 50 percent. ‘‘(iii) OPTION TO PURCHASE.—If under the lease the lessee has the option to purchase the property for a fixed price or for other than the fair market value of the property (determined at the time of exer cise), the allowable amount at the time such option may be exercised may not exceed 50 percent of the price at which such option may be exercised. ‘‘(iv) NO ALLOWABLE AMOUNT FOR CERTAIN ARRANGEMENTS.—The allowable amount shall be zero with respect to any arrangement which involves— ‘‘(I) a loan from the lessee to the lessor or a lender, ‘‘(II) any deposit received, letter of credit issued, or payment undertaking agreement entered into by a lender otherwise involved in the trans action, or ‘‘(III) in the case of a transaction which involves a lender, any credit support made avail able to the lessor in which any such lender does not have a claim that is senior to the lessor. For purposes of subclause (I), the term ‘loan’ shall not include any amount treated as a loan under section 467 with respect to a section 467 rental agreement. ‘‘(2) LESSOR MUST MAKE SUBSTANTIAL EQUITY INVEST MENT.— ‘‘(A) IN GENERAL.—A lease of property meets the requirements of this paragraph if— ‘‘(i) the lessor— ‘‘(I) has at the time the lease is entered into an unconditional at risk equity investment (as determined by the Secretary) in the property of at least 20 percent of the lessor’s adjusted basis in the property as of that time, and ‘‘(II) maintains such investment throughout the term of the lease, and ‘‘(ii) the fair market value of the property at the end of the lease term is reasonably expected to be equal to at least 20 percent of such basis. ‘‘(B) RISK OF LOSS.—For purposes of clause (ii), the fair market value at the end of the lease term shall be reduced to the extent that a person other than the lessor bears a risk of loss in the value of the property. ‘‘(C) PARAGRAPH NOT TO APPLY TO SHORT TERM LEASES.—This paragraph shall not apply to any lease with a lease term of 5 years or less.
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