To amend the Internal Revenue Code of 1986 to allow a first time homebuyer credit for the purchase of principal residences located in rural areas.

Summary: Rural Housing Tax Credit Act of 2005 - Amends the Internal Revenue Code to allow a nonrefundable tax credit (the lesser of ten percent of the purchase price or $5,000) for the purchase of a principal residence in a rural area by a first-time homebuyer. Limits the amount of such credit based on taxpayer modified adjusted gross income.

Requires the recapture of credit amounts if a taxpayer fails to use a residence for which a tax credit is allowed as a principal residence or sells such residence within five years of purchase.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Rural Housing Tax Credit Act of 
2005''.

SEC. 2. CREDIT FOR PURCHASE OF PRINCIPAL RESIDENCES BY FIRST-TIME RURAL 
              HOMEBUYERS.

    (a) In General.--Subpart A 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 25B the 
following:

``SEC. 25C. PURCHASE OF PRINCIPAL RESIDENCES BY FIRST-TIME RURAL 
              HOMEBUYERS.

    ``(a) Allowance of Credit.--In the case of an individual who is a 
first-time homebuyer of a principal residence in a rural area during 
any taxable year, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount equal to the 
lesser of--
            ``(1) 10 percent of the purchase price of the residence, or
            ``(2) $5,000.
    ``(b) Limitations.--
            ``(1) Limitation based on adjusted gross income.--
                    ``(A) In general.--The amount allowed as a credit 
                under subsection (a) for any taxable year shall be 
                reduced (but not below zero) by the amount which bears 
                the same ratio to such amount as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $30,000 ($60,000 in the case 
                                of a joint return), bears to
                            ``(ii) $10,000 ($20,000 in the case of a 
                        joint return).
                    ``(B) Modified adjusted gross income.--For purposes 
                of subparagraph (A), 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.
            ``(2) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for any taxable year shall not 
        exceed the excess of--
                    ``(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 section 27 for 
                the taxable year.
            ``(3) Married individuals filing jointly.--In the case of a 
        husband and wife who file a joint return, the credit under this 
        section is allowable only if the residence is a qualified 
        residence with respect to both the husband and wife, and the 
        amount specified under subsection (a)(2) shall apply to the 
        joint return.
            ``(4) Married individuals filing separately.--In the case 
        of a married individual filing a separate return, subsection 
        (a)(2) shall be applied by substituting `$2,500' for `$5,000'.
            ``(5) Other taxpayers.--If 2 or more individuals who are 
        not married purchase a qualified 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.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Rural area.--The term `rural area' has the meaning 
        given such term by section 520 of the Housing Act of 1949.
            ``(2) First-time homebuyer.--The term `first-time 
        homebuyer' has the meaning given such term by section 
        72(t)(8)(D)(i).
            ``(3) Principal residence.--The term `principal residence' 
        has the same meaning as when used in section 121.
            ``(4) Purchase and purchase price.--The terms `purchase' 
        and `purchase price' have the meanings provided by section 
        1400C(e).
    ``(d) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) for any taxable year exceeds the limitation imposed by 
subsection (b)(2) for such taxable year reduced by the sum of the 
credits allowable under this subpart (other than this section), such 
excess shall be carried to the succeeding taxable year and added to the 
credit allowable under subsection (a) for such taxable year.
    ``(e) 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.
    ``(f) Recapture of Credit in Case of Certain Sales.--
            ``(1) In general.--Except as provided in paragraph (5), if 
        the taxpayer--
                    ``(A) fails to use a qualified residence as the 
                principal residence of the taxpayer, or
                    ``(B) disposes of a qualified residence,
        with respect to the purchase of which a credit was allowed 
        under subsection (a) at any time within 5 years after the date 
        the taxpayer acquired the property, then the tax imposed under 
        this chapter for the taxable year in which the disposition 
        occurs is increased by the credit recapture amount.
            ``(2) Credit recapture amount.--For purposes of paragraph 
        (1), the credit recapture amount is an amount equal to the sum 
        of--
                    ``(A) the applicable recapture percentage of the 
                amount of the credit allowed to the taxpayer under this 
                section, plus
                    ``(B) interest at the overpayment rate established 
                under section 6621 on the amount determined under 
                subparagraph (A) for each prior taxable year for the 
                period beginning on the due date for filing the return 
                for the prior taxable year involved.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Applicable recapture percentage.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable recapture percentage shall be determined 
                from the following table:

                                                         The applicable
  
                                                              recapture
          ``If the sale occurs in:
                                                         percentage is:
                Year 1...............................               100
                Year 2...............................                80
                Year 3...............................                60
                Year 4...............................                40
                Year 5...............................                20
                Years 6 and thereafter...............                0.
                    ``(B) Years.--For purposes of subparagraph (A), 
                year 1 shall begin on the first day of the taxable year 
                in which the purchase of the qualified residence 
                described in subsection (a) occurs.
            ``(4) No credits against tax.--Any increase in tax under 
        this subsection shall not be treated as a tax imposed by this 
        chapter for purposes of determining the amount of any credit 
        under this chapter or for purposes of section 55.
            ``(5) Death of owner; casualty loss; involuntary 
        conversion; etc.--The provisions of paragraph (1) do not apply 
        to--
                    ``(A) a disposition of a qualified residence made 
                on account of the death of any individual having a 
                legal or equitable interest therein occurring during 
                the 5-year period to which reference is made under 
                paragraph (1),
                    ``(B) a disposition of the old qualified residence 
                if it is substantially or completely destroyed by a 
                casualty described in section 165(c)(3) or compulsorily 
                or involuntarily converted (within the meaning of 
                section 1033(a)), or
                    ``(C) a disposition pursuant to a settlement in a 
                divorce or legal separation proceeding where the 
                qualified residence is sold or the other spouse retains 
                such residence.
    ``(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.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016 of such Code (relating 
        to general rule for adjustments to basis) is amended by 
        striking ``and'' at the end of paragraph (30), by striking the 
        period at the end of paragraph (31) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(32) in the case of a residence with respect to which a 
        credit was allowed under section 25C, to the extent provided in 
        section 25C(g).''.
            (2) Section 23(b)(4)(B) of such Code is amended by 
        inserting ``and section 25C'' after ``this section''.
            (3) Section 24(b)(3)(B) of such Code is amended by striking 
        ``23 and 25B'' and inserting ``23, 25B, and 25C''.
            (4) Section 25(e)(1)(C) of such Code is amended by 
        inserting ``25C'' after ``25B''.
            (5) Section 25B of such Code is amended by striking 
        ``section 23'' and inserting ``sections 23 and 25C''.
            (6) Section 26(a)(1) of such Code is amended by striking 
        ``and 25B'' and inserting ``25B, and 25C''.
            (7) Section 904(i) of such Code is amended by striking 
        ``and 25B'' and inserting ``25B, and 25C''.
            (8) Section 1400C(d) of such Code is amended by striking 
        ``and 25B'' and inserting ``25B, and 25C''.
            (9) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        before the item relating to section 26 the following:

``Sec. 25C. Purchase of principal residences by first-time rural 
                            homebuyers.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsections (a) and 
        (b)(9) shall apply to purchases after the date of the enactment 
        of this Act, in taxable years ending after such date.
            (2) Subsection (b).--
                    (A) The amendments made by subsection (b) (other 
                than paragraph (9) thereof) shall apply to taxable 
                years beginning after December 31, 2005.
                    (B) In the case of taxable years beginning before 
                January 1, 2006, for purposes of applying the 
                provisions of subpart A of part IV of subchapter A of 
                chapter 1 of such Code relating to limitations based on 
                amount of tax and carryovers of credit and of section 
                904(i)--
                            (i) section 25C(b)(2) of such Code, as 
                        added by subsection (a), shall not apply, and
                            (ii) section 25C of such Code (as so added) 
                        shall be stacked after section 23 of such Code.