Tax-Exempt Facility Bond Interest Exclusion

§ 142. Exempt facility bond(a) General ruleFor purposes of this part, the term “exempt facility bond” means any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide—(1) airports and spaceports, (2) docks and wharves, (3) mass commuting facilities, (4) facilities for the furnishing of water, (5) sewage facilities, (6) solid waste disposal facilities, (7) qualified residential rental projects, (8) facilities for the local furnishing of electric energy or gas, (9) local district heating or cooling facilities, (10) qualified hazardous waste facilities, (11) high-speed intercity rail facilities, (12) environmental enhancements of hydroelectric generating facilities, (13) qualified public educational facilities, (14) qualified green building and sustainable design projects, (15) qualified highway or surface freight transfer facilities, (16) qualified broadband projects, or (17) qualified carbon dioxide capture facilities. (b) Special exempt facility bond rulesFor purposes of subsection (a)—(1) Certain facilities must be governmentally owned(A) In generalA facility shall be treated as described in paragraph (1), (2), (3), or (12) of subsection (a) only if all of the property to be financed by the net proceeds of the issue is to be owned by a governmental unit. (B) Safe harbor for leases and management contractsFor purposes of subparagraph (A), property leased by a governmental unit shall be treated as owned by such governmental unit if—(i) the lessee makes an irrevocable election (binding on the lessee and all successors in interest under the lease) not to claim depreciation or an investment credit with respect to such property, (ii) the lease term (as defined in section 168(i)(3)) is not more than 80 percent of the reasonably expected economic life of the property (as determined under section 147(b)), and (iii) the lessee has no option to purchase the property other than at fair market value (as of the time such option is exercised). Rules similar to the rules of the preceding sentence shall apply to management contracts and similar types of operating agreements. (C) Special rule for spaceport ground leasesFor purposes of subparagraph (A), spaceport property located on land leased by a governmental unit from the United States shall not fail to be treated as owned by a governmental unit if the requirements of this paragraph are met by the lease and any subleases of the property. (2) Limitation on office spaceAn office shall not be treated as described in a paragraph of subsection (a) unless—(A) the office is located on the premises of a facility described in such a paragraph, and (B) not more than a de minimis amount of the functions to be performed at such office is not directly related to the day-to-day operations at such facility.