To amend the Internal Revenue Code of 1986 to provide tax relief to victims of Hurricane Katrina.

Summary: Katrina Assistance Tax Relief Incentives for Necessities Act of 2005 or the KATRINA Act of 2005 - Amends the Internal Revenue Code to: (1) designate Hurricane Katrina disaster victims as members of a targeted group for purposes of the work opportunity tax credit; (2) allow a tax credit, up to $1,000 annually, for individuals who house Hurricane Katrina disaster victims free of charge; (3) allow a tax credit, up to $5,000, for Hurricane Katrina disaster victims who purchase a principal residence in the Hurricane Katrina disaster area; and (4) increase the per capita housing credit ceiling for the low-income housing tax credit for Alabama, Louisiana, and Mississippi for 2006 and 2007 (from $1.75 to $3.70 multiplied by the state's population) and to waive certain requirements for such credit.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Katrina Assistance Tax Relief 
Incentives for Necessities Act of 2005'' or the ``KATRINA Act of 
2005''.

SEC. 2. HURRICANE KATRINA DISASTER VICTIMS MADE MEMBERS OF TARGETED 
              GROUPS UNDER WORK OPPORTUNITY TAX CREDIT.

    (a) In General.--Paragraph (1) of section 51(d) of the Internal 
Revenue Code of 1986 (defining generally members of targeted group) is 
amended by striking ``or'' at the end of subparagraph (G), by striking 
the period at the end of subparagraph (H) and inserting ``, or'', and 
by inserting after subparagraph (H) the following new subparagraph:
                    ``(I) a Hurricane Katrina disaster victim.''.
    (b) Qualified Disaster Victim.--Subsection (d) of section 51 of 
such Code (relating to members of targeted groups) is amended by 
redesignating paragraphs (10), (11), and (12) as paragraphs (11), (12), 
and (13), respectively, and by inserting after paragraph (9) the 
following new paragraph:
            ``(10) Hurricane katrina disaster victim.--The term 
        `Hurricane Katrina disaster victim' means an individual who is 
        certified by the designated local agency as being a eligible to 
        receive assistance from the Federal Government under the Robert 
        T. Stafford Disaster Relief and Emergency Assistance Act by 
        reason of Hurricane Katrina.''.
    (c) Termination.--Subparagraph (B) of section 51(c)(4) of such Code 
is amended by inserting ``(2006 in the case of a Hurricane Katrina 
disaster victim)'' before the period.
    (d) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after August 28, 
2005.

SEC. 3. HURRICANE KATRINA DISPLACED RESIDENT CREDIT.

    (a) In General.--Subpart A of of part IV of subchapter A of chapter 
1 of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25D the 
following new section:

``SEC. 25E. HURRICANE KATRINA DISPLACED RESIDENT CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--There shall be allowed as a credit 
        against the tax imposed by this chapter for the taxable year 
        with respect to all qualified displaced persons residing 
        without charge with the taxpayer in the principal residence of 
        the taxpayer an amount equal to the applicable percentage of 
        $1,000.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage is the ratio (expressed as a 
        percentage) which--
                    ``(A) the number of days the qualified displace 
                persons reside without charge with the taxpayer in the 
                principal residence of the taxpayer during the taxable 
                year, bears to
                    ``(B) 360.
    ``(b) Limitations.--
            ``(1) Limitation based on adjusted gross income.--The 
        amount of the credit allowable under subsection (a) shall be 
        reduced (but not below zero) by $50 for each $1,000 (or 
        fraction thereof) by which the taxpayer's modified adjusted 
        gross income exceeds the threshold amount. For purposes of the 
        preceding sentence, the term `modified adjusted gross income' 
        means adjusted gross income increased by any amount excluded 
        from gross income under section 911, 931, or 933.
            ``(2) Threshold amount.--For purposes of paragraph (1), the 
        term `threshold amount' means--
                    ``(A) $110,000 in the case of a joint return,
                    ``(B) $75,000 in the case of an individual who is 
                not married, and
                    ``(C) $55,000 in the case of a married individual 
                filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703.
            ``(3) Limitation based on amount of tax.--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section and sections 23 and 
                25B) and section 27 for the taxable year.
    ``(c) Qualified Displaced Person.--For purposes of this section, 
the term `qualified displaced person' means, with respect to any 
taxpayer for any taxable year, any individual--
            ``(1) who is displaced by reason of Hurricane Katrina, and
            ``(2) who, after such displacement, resides with the 
        taxpayer without charge for not less than 90 days.
Such term shall not include the spouse or any dependent of the 
taxpayer.
    ``(d) Identification Requirement.--No credit shall be allowed under 
this section to a taxpayer with respect to any qualified displaced 
person unless the taxpayer includes the name and taxpayer 
identification number of such qualified displaced person on the return 
of tax for the taxable year.
    ``(e) Taxable Year Must Be Full Taxable Year.--Except in the case 
of a taxable year closed by reason of the death of the taxpayer, no 
credit shall be allowable under this section in the case of a taxable 
year covering a period of less than 12 months.
    ``(f) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2006.''.
    (b) Clerical Amendment.--The table of sections for subpart A of of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following new item:

``Sec. 25E. Hurricane Katrina displaced resident credit.''.

SEC. 4. HOME PURCHASE BY VICTIMS OF HURRICANE KATRINA.

    (a) In General.--Subpart A of of part IV of subchapter A of chapter 
1 of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25E the 
following new section:

``SEC. 25F. HOME PURCHASE BY INDIVIDUALS DISPLACED BY HURRICANE 
              KATRINA.

    ``(a) Allowance of Credit.--In the case of an eligible homebuyer 
who purchases a principal residence in the Hurricane Katrina disaster 
area, there shall be allowed as a credit against the tax imposed by 
this chapter for the taxable year an amount equal to so much of the 
purchase price of the residence as does not exceed $5,000.
    ``(b) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) In general.--The amount allowable as a credit under 
        subsection (a) (determined without regard to this subsection 
        and subsection (d)) for the taxable year shall be reduced (but 
        not below zero) by the amount which bears the same ratio to the 
        credit so allowable as--
                    ``(A) the excess (if any) of--
                            ``(i) the taxpayer's modified adjusted 
                        gross income for such taxable year, over
                            ``(ii) $70,000 ($110,000 in the case of a 
                        joint return), bears to
                    ``(B) $20,000.
            ``(2) Modified adjusted gross income.--For purposes of 
        paragraph (1), the term `modified adjusted gross income' means 
        the adjusted gross income of the taxpayer for the taxable year 
        increased by any amount excluded from gross income under 
        section 911, 931, or 933.
    ``(c) Eligible Homebuyer.--For purposes of this section--
            ``(1) In general.--The term `eligible homebuyer' means any 
        individual if--
                    ``(A) on August 29, 2005, the principal place of 
                abode of such individual (and if married, such 
                individual's spouse) was located in the Hurricane 
                Katrina disaster area, and such principal place of 
                abode was rendered uninhabitable by Hurricane Katrina, 
                and
                    ``(B) the principal residence for which the credit 
                is allowed under subsection (a) is located in the same 
                State as such principal place of abode.
            ``(2) One-time only.--If an individual is allowed a credit 
        under this section with respect to any principal residence, 
        such individual may not be allowed a credit under this section 
        with respect to any other principal residence.
            ``(3) Principal residence.--The term `principal residence' 
        has the same meaning as when used in section 121.
    ``(d) Carryover of Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under this 
subpart (other than this section and sections 23, 24, 25B, and 1400C) 
such excess shall be carried to the succeeding taxable year and added 
to the credit allowable under subsection (a) for such taxable year.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Hurricane katrina disaster area.--The term `Hurricane 
        Katrina disaster area' means an area determined by the 
        President to warrant assistance from the Federal Government 
        under the Robert T. Stafford Disaster Relief and Emergency 
        Assistance Act by reason of Hurricane Katrina.
            ``(2) Allocation of dollar limitation.--
                    ``(A) Married individuals filing separately.--In 
                the case of a married individual filing a separate 
                return, subsection (a) shall be applied by substituting 
                `$2,500' for `$5,000'.
                    ``(B) Other taxpayers.--If 2 or more individuals 
                who are not married purchase a principal residence, the 
                amount of the credit allowed under subsection (a) shall 
                be allocated among such individuals in such manner as 
                the Secretary may prescribe, except that the total 
                amount of the credits allowed to all such individuals 
                shall not exceed $5,000.
            ``(3) Purchase.--
                    ``(A) In general.--The term `purchase' means any 
                acquisition, but only if--
                            ``(i) the property is not acquired from a 
                        person whose relationship to the person 
                        acquiring it would result in the disallowance 
                        of losses under section 267 or 707(b) (but, in 
                        applying section 267(b) and (c) for purposes of 
                        this section, paragraph (4) of section 267(c) 
                        shall be treated as providing that the family 
                        of an individual shall include only his spouse, 
                        ancestors, and lineal descendants), and
                            ``(ii) the basis of the property in the 
                        hands of the person acquiring it is not 
                        determined--
                                    ``(I) in whole or in part by 
                                reference to the adjusted basis of such 
                                property in the hands of the person 
                                from whom acquired, or
                                    ``(II) under section 1014(a) 
                                (relating to property acquired from a 
                                decedent).
                    ``(B) Construction.--A residence which is 
                constructed by the taxpayer shall be treated as 
                purchased by the taxpayer on the date the taxpayer 
                first occupies such residence.
            ``(4) Purchase price.--The term `purchase price' means the 
        adjusted basis of the principal residence on the date such 
        residence is purchased.
    ``(f) Reporting.--If the Secretary requires information reporting 
under section 6045 by a person described in subsection (e)(2) thereof 
to verify the eligibility of taxpayers for the credit allowable by this 
section, the exception provided by section 6045(e)(5) shall not apply.
    ``(g) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section with respect to the purchase of any 
residence, the basis of such residence shall be reduced by the amount 
of the credit so allowed.
    ``(h) Application of Section.--This section shall apply to property 
purchased after August 28, 2005, and before January 1, 2007.''.
    (b) Conforming Amendment.--Section 1016(a) of such Code is amended 
by striking ``and'' at the end of paragraph (36), by striking the 
period at the end of paragraph (37) and inserting ``, and'', and by 
adding at the end the following new paragraph:
            ``(38) to the extent provided in section 25F(g).''.
    (c) Clerical Amendment.--The table of sections for subpart A of of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 25E the following new 
item:

``Sec. 25F. Home purchase by individuals displaced by Hurricane 
                            Katrina.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 5. RELIEF THROUGH LOW-INCOME HOUSING CREDIT RELATING TO HURRICANE 
              KATRINA.

    (a) Increase in Housing Credit Dollar Amount.--For purposes of 
determining the State housing credit ceiling of the States of Alabama, 
Louisiana, and Mississippi for 2006 and 2007, section 
42(h)(3)(C)(ii)(I) of the Internal Revenue Code of 1986 shall be 
applied by substituting ``$3.70'' for ``$1.75''.
    (b) Authority to Waive Percentage Limitation to Treat Hurricane 
Katrina Disaster Areas as Difficult Development Areas.--In the case of 
taxable years beginning in 2005, 2006, and 2007, any area in the State 
of Alabama, Florida, Louisiana, or Mississippi located within the area 
determined by the President to warrant assistance from the Federal 
Government under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act by reason of Hurricane Katrina shall be treated as a 
difficult development area for purposes of section 42(d)(5)(C) of the 
Internal Revenue Code of 1986, notwithstanding the percentage 
limitation in clause (iii)(II) of such section.
    (c) Waiver of Full Subscription Requirement.--In the case of the 
States of Alabama, Florida, Louisiana, and Mississippi for 2005, 2006, 
and 2007, section 42(h)(3)(D) of such Code shall be applied without 
regard to clause (iv)(I) of such section.