To amend the Internal Revenue Code of 1986 to allow certain current and former service members to receive a refundable credit for the purchase of a principal residence.

Summary: American Heroes' Homeownership Assistance Act of 2008 - Amends the Internal Revenue Code to allow current or former members of the Uniformed Services who perform duty in a combat zone between 2001 and 2010, or their surviving spouses, a one-time tax credit for 10% of the purchase price of a principal residence, up to $7,500. Limits such credit to residences purchased before January 1, 2011.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``American Heroes' Homeownership 
Assistance Act of 2008''.

SEC. 2. QUALIFIED SERVICE MEMBER HOMEBUYER CREDIT.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by redesignating 
section 36 as section 37 and by inserting after section 35 the 
following new section:

``SEC. 36. QUALIFIED SERVICE MEMBER HOMEBUYER CREDIT.

    ``(a) Allowance of Credit.--In the case of a qualified service 
member, or such service member's surviving spouse, who purchases a 
principal residence, there shall be allowed to the taxpayer a credit 
against the tax imposed by this chapter an amount equal to 10 percent 
of the purchase price of such residence.
    ``(b) Limitations.--
            ``(1) In general.--Except as otherwise provided in this 
        paragraph, the credit allowed under subsection (a) shall not 
        exceed $7,500.
            ``(2) Married individuals filing separately.--In the case 
        of a married individual filing a separate return, paragraph (1) 
        shall be applied by substituting `$3,750' for `$7,500'.
            ``(3) Other individuals.--If two 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 a manner as the Secretary may 
        prescribe, except that the total amount of the credits allowed 
        to all such individuals shall not exceed $7,500.
            ``(4) One-time only.--If an individual receives a credit 
        under subsection (a) for the purchase of a principal residence, 
        such individual shall not be allowed a credit under subsection 
        (a) with respect to the purchase of any other principal 
        residence. The preceding sentence shall not apply to a 
        principal residence with respect to which a credit is allowed 
        under subsection (a) and to which subsection (e)(1) applies.
    ``(c) Definitions.--
            ``(1) Qualified service member.--The term `qualified 
        service member' means a current or former service member who 
        performs duty in a combat zone between the years 2001 and 2010.
            ``(2) Service member.--The term `service member' means a 
        member of the uniformed services (as defined in section 
        101(a)(5) of title 10, United States Code).
            ``(3) Combat zone.--The term `combat zone' has the meaning 
        given such term by section 112(c)(2).
            ``(4) Principal residence.--The term `principal residence' 
        has the same meaning as when used in section 121.
            ``(5) Purchase.--
                    ``(A) In general.--The term `purchase' means any 
                acquisition, but only if--
                            ``(i) the property is not acquired from a 
                        person related to the person acquiring it, and
                            ``(ii) the basis of the property in the 
                        hands of the person acquiring it is not 
                        determined--
                                    ``(I) in whole or part by reference 
                                to the adjusted basis of such property 
                                in the hands of the person from whom 
                                acquired it, 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 the residence.
            ``(6) Purchase price.--The term `purchase price' means the 
        adjusted basis of the principal residence on the date such 
        residence is purchased.
            ``(7) Related persons.--A person shall be treated as 
        related to another person if the relationship between such 
        persons 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).
    ``(d) Exceptions.--No credit under subsection (a) shall be allowed 
to any taxpayer for any taxable year with respect to the purchase of a 
residence if--
            ``(1) the residence is financed by the proceeds of a 
        qualified mortgage issue, the interest on which is exempt from 
        tax under section 103,
            ``(2) the taxpayer is a nonresident alien, or
            ``(3) the taxpayer disposes of such residence (or such 
        residence ceases to be the principal residence of the taxpayer 
        (and, if married, the taxpayer's spouse)) before the close of 
        such taxable year.
    ``(e) Recapture of Credit.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, if a taxpayer disposes of the principal residence 
        with respect to which a credit was allowed under subsection (a) 
        (or such residence ceases to be the principal residence of the 
        taxpayer) before the end of the recapture period, the taxpayer 
        shall take into gross income an amount equal to one half the 
        credit allowed under subsection (a) in the first taxable year 
        following such disposal or cessation and one half in the second 
        taxable year following such disposal or cessation.
            ``(2) Exceptions.--
                    ``(A) Death of taxpayer.--Paragraph (1) shall not 
                apply to any taxable year ending after the date of the 
                taxpayer's death.
                    ``(B) Involuntary conversion.--Paragraph (1) shall 
                not apply in the case of a residence which is 
                compulsorily or involuntarily converted (within the 
                meaning of section 1033(a)) if the taxpayer acquires a 
                new principal residence during the 2-year period 
                beginning on the date of the disposition or cessation 
                referred to in paragraph (1). Paragraph (1) shall apply 
                to such new principal residence during the recapture 
                period in the same manner as if such new principal 
                residence were the converted residence.
                    ``(C) Transfers between spouses or incident to 
                divorce.--In the case of a transfer of a residence to 
                which section 1041(a) applies--
                            ``(i) paragraph (1) shall not apply to such 
                        transfer, and
                            ``(ii) in the case of taxable years ending 
                        after such transfer, paragraph (1) shall apply 
                        to the transferee in the same manner as if such 
                        transferee were the transferor (and shall not 
                        apply to the transferor).
                    ``(D) Acquisition of new principal residence.--
                Paragraph (1) shall not apply if the taxpayer acquires 
                a new principal residence during the 2-year period 
                beginning on the date of the disposition. Paragraph (1) 
                shall apply to such new principal residence during the 
                recapture period in the same manner as if such new 
                principal residence were the disposed residence.
            ``(3) Recapture period.--For purposes of this subsection, 
        the term `recapture period' means the taxable year following 
        the taxable year for which a credit is allowed under subsection 
        (a).
            ``(4) Joint returns.--In the case of a credit allowed under 
        subsection (a) with respect to a joint return, half of such 
        credit shall be treated as having been allowed to each 
        individual filing such return for purposes of this subsection.
    ``(f) Application of Section.--This section shall only apply to 
principal residences purchased by the taxpayer before January 1, 
2011.''.
    (b) Conforming Amendments.--
            (1) Section 26(b)(2) of such Code is amended by striking 
        ``and'' at the end of subparagraph (U), by striking the period 
        and inserting ``, and'' at the end of paragraph (V), and by 
        inserting after subparagraph (V) the following new 
        subparagraph:
                    ``(W) section 36(e) (relating to recapture of 
                qualified service member homebuyer credit).''.
            (2) Section 6211(b)(4)(A) of such Code is amended by 
        striking ``34'' and all that follows through ``6428'' and 
        inserting ``34, 35, 36, 53(e), and 6428''.
            (3) Section 1324(b)(2) of title 31, United States Code, is 
        amended by inserting``, 36'' after ``section 35''.
            (4) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        is amended by redesignating the item relating to section 36 as 
        an item relating to section 37 and by inserting before such 
        item the following new item:

``Sec. 36. Qualified Service Member Homebuyer Credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to principal residences purchased by the taxpayer on or after the 
date of enactment of this Act.