SECTION 1. MORTGAGE INTEREST DEDUCTION FOR QUALIFIED NON-REDEEMABLE 
              GROUND RENTS.

    (a) In General.--Section 163(c) of the Internal Revenue Code of 
1986 is amended to read as follows:
    ``(c) Ground Rents.--For purposes of this subtitle, any annual or 
periodic rental under a redeemable ground rent (excluding amounts in 
redemption thereof) or a qualified non-redeemable ground rent shall be 
treated as interest on an indebtedness secured by a mortgage.''
    (b) Treatment of Qualified Non-Redeemable Ground Rents.--
            (1) In general.--Subsections (a), (b), and (d) of section 
        1055 of the Internal Revenue Code of 1986 (relating to 
        redeemable ground rents) are amended by inserting ``or 
        qualified non-redeemable'' after ``redeemable'' each place it 
        appears.
            (2) Definition.--Section 1055 of such Code is amended by 
        redesignating subsection (d) as subsection (e) and by inserting 
        after subsection (c) the following new subsection:
    ``(d) Qualified Non-Redeemable Ground Rent.--For purposes of this 
subtitle, the term `qualified non-redeemable ground rent' means a 
ground rent with respect to which--
            ``(1) there is a lease of land which is for a term in 
        excess of 15 years,
            ``(2) no portion of any payment is allocable to the use of 
        any property other than the land surface,
            ``(3) the lessor's interest in the land is primarily a 
        security interest to protect the rental payments to which the 
        lessor is entitled under the lease, and
            ``(4) the leased property must be used as the taxpayer's 
        principal residence (within the meaning of section 1034).''
            (3) Conforming amendments.--
                    (A) The heading for section 1055 of such Code is 
                amended by striking ``redeemable''.
                    (B) The item relating to section 1055 in the table 
                of sections for part IV of subchapter O of chapter 1 of 
                subtitle A of such Code is amended by striking 
                ``Redeemable ground'' and inserting ``Ground''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act, with respect to 
taxable years ending after such date.

SEC. 2. CREDIT FOR TRANSACTION COSTS ON THE TRANSFER OF LAND SUBJECT TO 
              CERTAIN GROUND RENTS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to foreign tax credit, 
etc.) is amended by inserting after section 30 the following new 
section:

``SEC. 30A. CREDIT FOR TRANSACTION COSTS.

    ``(a) Allowance of Credit.--
            ``(1) In general.--At the election of the taxpayer, there 
        shall be allowed as a credit against the tax imposed by this 
        chapter for the taxable year an amount equal to the transaction 
        costs relating to any sale or exchange of land subject to 
        ground rents with respect to which immediately after and for at 
        least 1 year prior to such sale or exchange--
                    ``(A) the transferee is the lessee who owns a 
                dwelling unit on the land being transferred, and
                    ``(B) the transferor is the lessor.
            ``(2) Credit allowed to both transferor and transferee.--
        The credit allowed under paragraph (1) shall be allowed to both 
        the transferor and the transferee.
    ``(b) Limitations.--
            ``(1) Limitation per dwelling unit.--The amount of the 
        credit allowed to a taxpayer under subsection (a) for any 
        taxable year shall not exceed the lesser of--
                    ``(A) $5,000 per dwelling unit, or
                    ``(B) 10 percent of the sale price of the land.
            ``(2) Limitation based on taxable income.--The amount of 
        the credit allowed to a taxpayer under subsection (a) for any 
        taxable year shall not exceed the sum of--
                    ``(A) 20 percent of the regular tax for the taxable 
                year reduced by the sum of the credits allowable under 
                subpart A and sections 27, 28, 29, and 30, plus
                    ``(B) the alternative minimum tax imposed by 
                section 55.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Transaction costs.--
                    ``(A) In General.--The term `transaction costs' 
                means any expenditure directly associated with a 
                transaction, the purpose of which is to convey to the 
                lessee, by the lessor, land subject to ground rents.
                    ``(B) Specific expenditures.--Such term includes 
                closing costs, attorney fees, surveys and appraisals, 
                and telephone, office, and travel expenses incurred in 
                negotiations with respect to such transaction.
                    ``(C) Lost rents not included.--Such term does not 
                include lost rents due to the premature termination of 
                an existing lease.
            ``(2) Dwelling unit.--A dwelling unit shall include any 
        structure or portion of any structure which serves as the 
        principal residence (within the meaning of section 1034) for 
        the lessee.
            ``(3) Reduction in basis.--The basis of property acquired 
        in a transaction to which this section applies shall be reduced 
        by the amount of credit allowed under subsection (a).
            ``(4) Election.--This section shall apply to any taxpayer 
        for the taxable year only if such taxpayer elects to have this 
        section so apply.
    ``(d) Carryover of Credit.--
            ``(1) Carryover period.--If the credit allowed to the 
        taxpayer under subsection (a) for any taxable year exceeds the 
        amount of the limitation imposed by subsection (b)(2) for such 
        taxable year (hereafter in this subsection referred to as the 
        `unused credit year'), such excess shall be a carryover to each 
        of the 5 succeeding taxable years.
            ``(2) Amount carried to each year.--
                    ``(A) Entire amount carried to first year.--The 
                entire amount of the unused credit for an unused credit 
                year shall be carried to the earliest of the 5 taxable 
                years to which (by reason of paragraph (1)) such credit 
                may be carried.
                    ``(B) Amount carried to other 4 years.--The amount 
                of unused credit for the unused credit year shall be 
                carried to each of the remaining 4 taxable years to the 
                extent that such unused credit may not be taken into 
                account for a prior taxable year because of the 
                limitation imposed by subsection (b)(2).
    ``(e) Termination.--This section shall not apply to any transaction 
cost paid or incurred in taxable years beginning after December 31, 
1999.''
    (b) Clerical Amendment.--The table of sections for such subpart B 
is amended by inserting after the item relating to section 30 the 
following new item:

                              ``Sec. 30A. Credit for transaction costs 
                                        on the transfer of land subject 
                                        to certain ground rents.''
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred in taxable years beginning after 
December 31, 1994.
Amends the Internal Revenue Code to require qualified non-redeemable ground rents to be treated as interest on an indebtedness secured by a mortgage. 
Allows a credit for the transaction costs relating to any sale or exchange of land subject to ground rents and meeting specified requirements.
A bill to amend the Internal Revenue Code of 1986 to provide for the tax treatment of residential ground rents, and for other purposes.