tax-exempt use property
(1) In general For purposes of this section— (A) Property other than nonresidential real property Except as otherwise provided in this subsection, the term “tax-exempt use property” means that portion of any tangible property (other than nonresidential real property) leased to a tax-exempt entity. (B) Nonresidential real property (i) In general In the case of nonresidential real property, the term “tax-exempt use property” means that portion of the property leased to a tax-exempt entity in a disqualified lease. (ii) Disqualified lease For purposes of this subparagraph, the term “disqualified lease” means any lease of the property to a tax-exempt entity, but only if— (I) part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a) and such entity (or a related entity) participated in such financing, (II) under such lease there is a fixed or determinable price purchase or sale option which involves such entity (or a related entity) or there is the equivalent of such an option, (III) such lease has a lease term in excess of 20 years, or (IV) such lease occurs after a sale (or other transfer) of the property by, or lease of the property from, such entity (or a related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease. (iii) 35-percent threshold test Clause (i) shall apply to any property only if the portion of such property leased to tax-exempt entities in disqualified leases is more than 35 percent of the property. (iv) Treatment of improvements For purposes of this subparagraph, improvements to a property (other than land) shall not be treated as a separate property. (v) Leasebacks during 1st 3 months of use not taken into account Subclause (IV) of clause (ii) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity). (C) Exception for short-term leases (i) In general Property shall not be treated as tax-exempt use property merely by reason of a short-term lease. (ii) Short-term lease For purposes of clause (i), the term “short-term lease” means any lease the term of which is— (I) less than 3 years, and (II) less than the greater of 1 year or 30 percent of the property’s present class life. In the case of nonresidential real property and property with no present class life, subclause (II) shall not apply. (D) Exception where property used in unrelated trade or business The term “tax-exempt use property” shall not include any portion of a property if such portion is predominantly used by the tax-exempt entity (directly or through a partnership of which such entity is a partner) in an unrelated trade or business the income of which is subject to tax under section 511. For purposes of subparagraph (B)(iii), any portion of a property so used shall not be treated as leased to a tax-exempt entity in a disqualified lease. (E) Nonresidential real property defined For purposes of this paragraph, the term “nonresidential real property” includes residential rental property.