A bill to amend the Internal Revenue Code of 1954 to modify the application of the imputed interest and interest accrual rules.

Amends the Internal Revenue Code to provide that a person, including an estate or testamentary trust, who sells a principal residence for a purchase price of $250,000 or less will be subject to a nine percent imputed interest test rate. Permits the Secretary of the Treasury to lower the imputed interest test rate in certain circumstances. Requires the use of a "blended" rate to calculate the imputed interest test rate where the sales price exceeds the $250,000 limit.

Provides that a homebuilder or realtor selling a residence which is held in inventory and is sold for $250,000 or less would be subject to an imputed interest rate of 80 percent of the applicable Treasury rate. Applies this 80 percent rate to sales of homes to be occupied by owners. Provides that where the purchase price is greater than $250,000, the applicable test rate would be a weighted "blend" of 80 percent of the Federal rate and 100 percent of the applicable Federal rate. Provides that interest deductions on borrowing to carry seller-financed housing would be limited to current interest income, including imputed interest recognized on seller financing. Permits deferred interest deductions on a pro-rata basis as the homebuyer makes payments on the mortgage.

Provides that the sale of a farm or ranch with a purchase price of not more than $2,000,000 would be subject to a nine percent imputed interest test rate. Requires the property to have been used as a farm or ranch for the three years prior to the sale and the purchaser to intend to use the property as a farm or ranch. Provides for a "blended" imputed interest test rate where the purchase price is over $2,000,000. Prohibits sale-leaseback transactions. Provides that the nine percent imputed interest test rate shall not apply to sales of new property subject to the investment tax credit.

Provides that the sale of a trade or business with a purchase price of $1,000,000 or less would be subject to a nine percent imputed interest test rate. Applies this test rate to the sale of a complete line of such business and to a sale of an ownership interest in such business. Provides that if the business is sold for more than $1,000,000, the imputed interest test weight will be a weighted "blend" rate. Prohibits the sale-leaseback type of arrangement. Prohibits the use of the nine percent imputed interest test rate in the case of sales of new investment credit property.

Provides that for sales of real property involving no more than $4,000,000 of deferred payments, the applicable imputed interest test rate will be 80 percent of the applicable Federal rate. Requires that payments for such a sale not extend for more than 12 years. Imposes on sales exceeding $4,000,000 an imputed interest test rate of 100 percent of the applicable Federal rate. Provides that the maximum imputed interest test rate for these transactions shall be 11 percent for the first six months of 1985. Limits the increase in the rates thereafter to one-half percent for every six months until the rate equals 100 percent of the applicable Federal rate. Requires that 80 percent of interest due under the contract be paid currently.

Provides that other transactions not meeting the rules stated above shall have an imputed interest test rate of 110 percent of the applicable Federal rate.

Exempts certain transactions from the operation of these rules. Limits the increase in the imputed interest test rate where the Federal rate increases by more than two percent during a six month period.

Provides that the imputed interest test rate will apply to the sale or exchange of any real property used in an active trade or business by a person who would be qualified if he disposed of an entire interest. Provides that the sales price together with any prior sales during the preceding 12-month period shall not exceed $1,000,000.

Prohibits certain restrictions on loan assumptions that are eligible for the nine or ten percent imputed interest test rate.