To amend the Internal Revenue Code of 1986 to allow a credit for the purchase of principal residence by a first-time homebuyer.

Summary: Amends the Internal Revenue Code to allow a first-time homebuyer who purchases a principal residence a tax credit of ten percent of the purchase price of such residence.  Requires such residence to be purchased during the one-year period after the date of enactment of this Act.  Limits the credit to $2,500.

SECTION 1. CREDIT FOR PURCHASE OF PRINCIPAL RESIDENCE BY FIRST-TIME 
              HOMEBUYER.

    (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 22 the 
following new section:

``SEC. 23. PURCHASE OF PRINCIPAL RESIDENCE BY FIRST-TIME HOMEBUYER.

    ``(a) Allowance of Credit.--In the case of a first-time homebuyer, 
there shall be allowed as a credit against the tax imposed by this 
chapter an amount equal to 10 percent of the purchase price of the 
first principal residence purchased by the taxpayer during the 
eligibility period. Except as otherwise provided in this section, such 
credit shall be allowed for the taxable year in which such residence is 
purchased.
    ``(b) Limitation.--The credit allowed by subsection (a) to the 
taxpayer shall not exceed $2,500.
    ``(c) First-Time Homebuyer.--For purposes of this section--
            ``(1) In general.--The term `first-time homebuyer' means 
        any individual unless such individual or such individual's 
        spouse had a present ownership interest in any principal 
        residence at any time during the 3-year period ending on the 
        date of the purchase of the residence referred to in subsection 
        (a).
            ``(2) Unmarried joint owners.--An individual shall not be 
        treated as a first-time homebuyer with respect to any residence 
        unless all the individuals purchasing such residence with such 
        individual are first-time homebuyers.
            ``(3) Allocation of limits.--All individuals purchasing a 
        residence shall be treated as 1 individual for purposes of 
        determining the maximum credit under subsection (a), and such 
        maximum credit shall be allocated among such individuals under 
        regulations prescribed by the Secretary.
            ``(4) Certain individuals ineligible.--The term `first-time 
        homebuyer' shall not include any individual if, on the date of 
        the purchase of the residence, the period of time specified in 
        section 1034(a) is suspended under subsection (a)(6), (h), or 
        (k) of section 1034 with respect to such individual.
            ``(5) Special rule for certain contracts of deed.--In the 
        case of an individual described in section 143(i)(1)(C) for any 
        year, an ownership interest shall not include a contract of 
        deed described in such section.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Eligibility period.--
                    ``(A) In general.--The term `eligibility period' 
                means the 1-year period beginning on the date of the 
                enactment of this section.
                    ``(B) Binding contracts.--A residence shall be 
                treated as purchased during the eligibility period if--
                            ``(i) during the eligibility period, the 
                        purchaser enters into a binding contract to 
                        purchase the residence, and
                            ``(ii) the purchaser purchases and occupies 
                        the residence on or before the date 3 months 
                        after the last day of the eligibility period.
                For purposes of clause (i), a contract shall not fail 
                to be treated as binding merely because it is 
                contingent on financing or on the condition of the 
                residence.
            ``(2) Purchase.--The term `purchase' means any acquisition 
        of property, but only if--
                    ``(A) 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), and
                    ``(B) 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).
            ``(3) Principal residence.--The term `principal residence' 
        has the same meaning as when used in section 1034.
            ``(4) Purchase price.--The term `purchase price' means the 
        adjusted basis of the residence on the date of its acquisition.
    ``(e) Carryover of Unused Credit.--
            ``(1) In general.--If--
                    ``(A) the credit allowable under subsection (a) 
                exceeds
                    ``(B) the limitation imposed by section 26(a) 
                reduced by the sum of the credits allowable under 
                sections 21 and 22,
        such excess shall be carried to the succeeding taxable year and 
        shall be allowable under subsection (a) for such succeeding 
        taxable year.
            ``(2) 5-year limit on carryforward.--No amount may be 
        carried under paragraph (1) to any taxable year after the 5th 
        taxable year after the taxable year in which the residence is 
        purchased.
    ``(f) Recapture of Credit for Certain Dispositions.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), if the taxpayer disposes of property with respect to the 
        purchase of which a credit was allowed under subsection (a) and 
        such disposition occurs at any time within 36 months after the 
        date the taxpayer acquired the property as his principal 
        residence, then the tax imposed under this chapter for the 
        taxable year in which the disposition occurs is increased by an 
        amount equal to the amount allowed as a credit for the purchase 
        of such property.
            ``(2) Acquisition of new residence.--If, in connection with 
        a disposition described in paragraph (1) and within the 
        applicable period prescribed in section 1034, the taxpayer 
        purchases a new principal residence, then paragraph (1) shall 
        not apply and the tax imposed by this chapter for the taxable 
        year in which the new principal residence is purchased is 
        increased to the extent the amount of the credit that could be 
        claimed under this section on the purchase of the new residence 
        (were such residence the first residence purchased during the 
        eligibility period) is less than the amount of credit claimed 
        by the taxpayer under this section.
            ``(3) Death of owner; casualty loss; involuntary 
        conversion; etc.--Paragraph (1) shall not apply to--
                    ``(A) a disposition of a residence made on account 
                of the death of any individual having a legal or 
                equitable interest therein occurring during the 36-
                month period referred to in paragraph (1),
                    ``(B) a disposition of the old 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 
                residence is sold or the other spouse retains the 
                residence as a principal residence.''
    (b) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 22 the following new item:

                              ``Sec. 23. Purchase of principal 
                                        residence by first-time 
                                        homebuyer.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.