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[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 3436 Introduced in Senate (IS)]

<DOC>

118th CONGRESS
  1st Session
                                S. 3436

  To amend the Internal Revenue Code of 1986 to provide a credit for 
             middle-income housing, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                            December 7, 2023

Mr. Wyden (for himself and Mr. Sullivan) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

 
  To amend the Internal Revenue Code of 1986 to provide a credit for 
             middle-income housing, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Workforce Housing Tax Credit Act''.

SEC. 2. MIDDLE-INCOME HOUSING TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 42 the following new section:

``SEC. 42A. MIDDLE-INCOME HOUSING CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
middle-income housing credit determined under this section for any 
taxable year in the credit period shall be an amount equal to--
            ``(1) the applicable percentage, of
            ``(2) the qualified basis of each qualified middle-income 
        building.
    ``(b) Applicable Percentage.--
            ``(1) Determination of applicable percentage.--For purposes 
        of this section--
                    ``(A) In general.--The term `applicable percentage' 
                means, with respect to any building, the appropriate 
                percentage prescribed by the Secretary for the earlier 
                of--
                            ``(i) the month in which such building is 
                        placed in service, or
                            ``(ii) at the election of the taxpayer, the 
                        month in which the taxpayer and the housing 
                        credit agency enter into an agreement with 
                        respect to such building (which is binding on 
                        such agency, the taxpayer, and all successors 
                        in interest) as to the housing credit dollar 
                        amount to be allocated to such building.
                A month may be elected under clause (ii) only if the 
                election is made not later than the 5th day after the 
                close of such month. Such an election, once made, shall 
                be irrevocable.
                    ``(B) Method of prescribing percentages.--The 
                percentages prescribed by the Secretary for any month 
                shall be percentages which will yield over a 15-year 
                period amounts of credit under subsection (a) which 
                have a present value equal to--
                            ``(i) 50 percent of the qualified basis of 
                        a new building which is not federally 
                        subsidized for the taxable year, and
                            ``(ii) 20 percent of the qualified basis of 
                        a building not described in clause (i).
                    ``(C) Method of discounting.--The present value 
                under subparagraph (B) shall be determined--
                            ``(i) as of the last day of the 1st year of 
                        the 15-year period referred to in subparagraph 
                        (B),
                            ``(ii) by using a discount rate equal to 72 
                        percent of the average of the annual Federal 
                        mid-term rate and the annual Federal long-term 
                        rate applicable under section 1274(d)(1) to the 
                        month applicable under clause (i) or (ii) of 
                        subparagraph (A) and compounded annually, and
                            ``(iii) by assuming that the credit 
                        allowable under this section for any year is 
                        received on the last day of such year.
            ``(2) Minimum credit rate.--
                    ``(A) In general.--The applicable percentage for 
                any building which is not federally subsidized for the 
                taxable year shall not be less than 5 percent.
                    ``(B) Minimum credit rate for federally subsidized 
                buildings.--In the case of any building to which 
                subparagraph (A) does not apply, except as provided in 
                paragraph (3), the applicable percentage shall not be 
                less than 2 percent.
            ``(3) Exception for certain federally subsidized 
        buildings.--In the case of any building to which paragraph 
        (2)(A) does not apply, the applicable percentage is zero 
        unless--
                    ``(A) a credit is allowed under section 42 with 
                respect to such building for the taxable year, and
                    ``(B) such building is financed by tax-exempt bonds 
                as described in section 42(h)(4).
            ``(4) Cross references.--
                    ``(A) For treatment of certain rehabilitation 
                expenditures as separate new buildings, see subsection 
                (e).
                    ``(B) For determination of applicable percentage 
                for increases in qualified basis after the 1st year of 
                the credit period, see subsection (f)(3).
                    ``(C) For authority of housing credit agency to 
                limit applicable percentage and qualified basis which 
                may be taken into account under this section with 
                respect to any building, see subsection (h)(6).
    ``(c) Qualified Basis; Qualified Middle-Income Building.--For 
purposes of this section--
            ``(1) Qualified basis.--
                    ``(A) Determination.--The qualified basis of any 
                qualified middle-income building for any taxable year 
                is an amount equal to--
                            ``(i) the applicable fraction (determined 
                        as of the close of such taxable year); and
                            ``(ii) the eligible basis of such building 
                        (determined under subsection (d)).
                    ``(B) Applicable fraction.--For purposes of 
                subparagraph (A), the term `applicable fraction' means 
                the smaller of the unit fraction or the floor space 
                fraction.
                    ``(C) Unit fraction.--For purposes of subparagraph 
                (B), the term `unit fraction' means the fraction--
                            ``(i) the numerator of which is the number 
                        of middle-income units in the building, and
                            ``(ii) the denominator of which is the 
                        number of residential rental units (whether or 
                        not occupied) in such building.
                    ``(D) Floor space fraction.--For purposes of 
                subparagraph (B), the term `floor space fraction' means 
                the fraction--
                            ``(i) the numerator of which is the total 
                        floor space of the middle-income units in such 
                        building, and
                            ``(ii) the denominator of which is the 
                        total floor space of the residential rental 
                        units (whether or not occupied) in such 
                        building.
            ``(2) Qualified middle-income building.--The term 
        `qualified middle-income building' means any building which is 
        part of a qualified middle-income housing project at all times 
        during the period--
                    ``(A) beginning on the 1st day in the credit period 
                on which such building is part of such a project, and
                    ``(B) ending on the last day of the credit period 
                with respect to such building.
    ``(d) Eligible Basis.--For purposes of this section--
            ``(1) New buildings.--The eligible basis of a new building 
        is its adjusted basis as of the close of the 1st taxable year 
        of the credit period.
            ``(2) Existing buildings.--
                    ``(A) In general.--The eligible basis of an 
                existing building is--
                            ``(i) in the case of a building which meets 
                        the requirements of subparagraph (B), its 
                        adjusted basis as of the close of the 1st 
                        taxable year of the credit period, and
                            ``(ii) zero in any other case.
                    ``(B) Requirements.--A building meets the 
                requirements of this subparagraph if--
                            ``(i) the building is acquired by purchase 
                        (as defined in section 179(d)(2)),
                            ``(ii) there is a period of at least 10 
                        years between the date of its acquisition by 
                        the taxpayer and the date the building was last 
                        placed in service,
                            ``(iii) the building was not previously 
                        placed in service by the taxpayer or by any 
                        person who was a related person with respect to 
                        the taxpayer as of the time previously placed 
                        in service, and
                            ``(iv) except as provided in subsection 
                        (f)(5), a credit is allowable under subsection 
                        (a) by reason of subsection (e) with respect to 
                        the building.
                    ``(C) Adjusted basis.--For purposes of subparagraph 
                (A), the adjusted basis of any building shall not 
                include so much of the basis of such building as is 
                determined by reference to the basis of other property 
                held at any time by the person acquiring the building.
                    ``(D) Special rules.--
                            ``(i) Special rules for certain 
                        transfers.--For purposes of determining under 
                        subparagraph (B)(ii) when a building was last 
                        placed in service, there shall not be taken 
                        into account any placement in service--
                                    ``(I) in connection with the 
                                acquisition of the building in a 
                                transaction in which the basis of the 
                                building in the hands of the person 
                                acquiring it is determined in whole or 
                                in part by reference to the adjusted 
                                basis of such building in the hands of 
                                the person from whom acquired,
                                    ``(II) by a person whose basis in 
                                such building is determined under 
                                section 1014(a) (relating to property 
                                acquired from a decedent),
                                    ``(III) by any governmental unit or 
                                qualified nonprofit organization if the 
                                requirements of subparagraph (B)(ii) 
                                are met with respect to the placement 
                                in service by such unit or organization 
                                and all the income from such property 
                                is exempt from Federal income taxation,
                                    ``(IV) by any person who acquired 
                                such building by foreclosure (or by 
                                instrument in lieu of foreclosure) of 
                                any purchase-money security interest 
                                held by such person if the requirements 
                                of subparagraph (B)(ii) are met with 
                                respect to the placement in service by 
                                such person and such building is resold 
                                within 12 months after the date such 
                                building is placed in service by such 
                                person after such foreclosure, or
                                    ``(V) of a single-family residence 
                                by any individual who owned and used 
                                such residence for no other purpose 
                                than as his principal residence.
                            ``(ii) Related person.--For purposes of 
                        subparagraph (B)(iii), a person (hereinafter in 
                        this subclause referred to as the `related 
                        person') is related to any person if the 
                        related person bears a relationship to such 
                        person specified in section 267(b) or 
                        707(b)(1), or the related person and such 
                        person are engaged in trades or businesses 
                        under common control (within the meaning of 
                        subsections (a) and (b) of section 52).
            ``(3) Special rules relating to determination of adjusted 
        basis.--For purposes of this subsection--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the adjusted basis of any building 
                shall be determined without regard to the adjusted 
                basis of any property which is not residential rental 
                property.
                    ``(B) Basis of property in common areas, etc., 
                included.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the adjusted basis of any building 
                        shall be determined by taking into account the 
                        adjusted basis of property (of a character 
                        subject to the allowance for depreciation) used 
                        in common areas or provided as comparable 
                        amenities to all residential rental units in 
                        such building.
                            ``(ii) Special rule.--In the case of any 
                        building for which the low-income housing tax 
                        credit is allowable under section 42, the 
                        adjusted basis of the building under this 
                        section shall be determined without regard to 
                        property used in common areas or provided as 
                        comparable amenities to all residential rental 
                        units in such building.
                    ``(C) No reduction for depreciation.--The adjusted 
                basis of any building shall be determined without 
                regard to paragraphs (2) and (3) of section 1016(a).
            ``(4) Special rules for determining eligible basis.--
                    ``(A) Federal grants not taken into account in 
                determining eligible basis.--The eligible basis of a 
                building shall not include any costs financed with the 
                proceeds of a federally funded grant.
                    ``(B) Increase in credit for buildings in high cost 
                areas.--
                            ``(i) In general.--In the case of any 
                        building located in a difficult development 
                        area which is designated for purposes of this 
                        subparagraph--
                                    ``(I) in the case of a new 
                                building, the eligible basis of such 
                                building shall be 130 percent of such 
                                basis determined without regard to this 
                                subparagraph, and
                                    ``(II) in the case of an existing 
                                building, the rehabilitation 
                                expenditures taken into account under 
                                subsection (e) shall be 130 percent of 
                                such expenditures determined without 
                                regard to this subparagraph.
                            ``(ii) Limitation.--Clause (i) shall not 
                        apply to any building if paragraph (1) of 
                        subsection (h) does not apply to any portion of 
                        the eligible basis of such building by reason 
                        of paragraph (9) of such subsection.
                            ``(iii) Difficult development areas.--
                                    ``(I) In general.--The term 
                                `difficult development areas' means any 
                                area designated by the Secretary of 
                                Housing and Urban Development as an 
                                area which has high construction, land, 
                                or utility costs relative to area 
                                median gross income, any rural area, 
                                and any Indian area.
                                    ``(II) Rural area.--For purposes of 
                                subclause (I), the term `rural area' 
                                means any non-metropolitan area, or any 
                                rural area as defined by section 520 of 
                                the Housing Act of 1949, which is 
                                identified by the qualified allocation 
                                plan under subsection (m)(1)(B).
                                    ``(III) Indian area.--For purposes 
                                of subclause (I), the term `Indian 
                                area' means any Indian area (as defined 
                                in section 4(11) of the Native American 
                                Housing Assistance and Self 
                                Determination Act of 1996 (25 U.S.C. 
                                4103(11))).
                                    ``(IV) Special rule for buildings 
                                in indian areas.--In the case of an 
                                area which is a difficult development 
                                area solely because it is an Indian 
                                area, a building shall not be treated 
                                as located in such area unless such 
                                building is assisted or financed under 
                                the Native American Housing Assistance 
                                and Self Determination Act of 1996 (25 
                                U.S.C. 4101 et seq.) or the project 
                                sponsor is an Indian tribe (as defined 
                                in section 45A(c)(6)), a tribally 
                                designated housing entity (as defined 
                                in section 4(22) of such Act (25 U.S.C. 
                                4103(22))), or wholly owned or 
                                controlled by such an Indian tribe or 
                                tribally designated housing entity.
                                    ``(V) Limit on areas designated.--
                                The portions of metropolitan 
                                statistical areas which may be 
                                designated for purposes of this 
                                subparagraph shall not exceed an 
                                aggregate area having 20 percent of the 
                                population of such metropolitan 
                                statistical areas. A comparable rule 
                                shall apply to nonmetropolitan areas.
                            ``(iv) Special rules and definitions.--For 
                        purposes of this subparagraph--
                                    ``(I) population shall be 
                                determined on the basis of the most 
                                recent decennial census for which data 
                                are available,
                                    ``(II) area median gross income 
                                shall be determined in accordance with 
                                subsection (g)(4),
                                    ``(III) the term `metropolitan 
                                statistical area' has the same meaning 
                                as when used in section 143(k)(2)(B), 
                                and
                                    ``(IV) the term `nonmetropolitan 
                                area' means any county (or portion 
                                thereof) which is not within a 
                                metropolitan statistical area.
                            ``(v) Buildings designated by state housing 
                        credit agency.--Any building which is 
                        designated by the State housing credit agency 
                        as requiring the increase in credit under this 
                        subparagraph in order for such building to be 
                        financially feasible as part of a qualified 
                        middle-income housing project shall be treated 
                        for purposes of this subparagraph as located in 
                        a difficult development area which is 
                        designated for purposes of this subparagraph.
            ``(5) Credit allowable for certain buildings acquired 
        during 10-year period.--On application by the taxpayer, the 
        Secretary may waive paragraph (2)(B)(ii) with respect to any 
        building acquired from an insured depository institution in 
        default (as defined in section 3 of the Federal Deposit 
        Insurance Act) or from a receiver or conservator of such an 
        institution.
            ``(6) Acquisition of building before end of prior credit 
        period.--
                    ``(A) In general.--Under regulations prescribed by 
                the Secretary, in the case of a building described in 
                subparagraph (B) (or interest therein) which is 
                acquired by the taxpayer--
                            ``(i) paragraph (2)(B) shall not apply, but
                            ``(ii) the credit allowable by reason of 
                        subsection (a) to the taxpayer for any period 
                        after such acquisition shall be equal to the 
                        amount of credit which would have been 
                        allowable under subsection (a) for such period 
                        to the prior owner referred to in subparagraph 
                        (B) had such owner not disposed of the 
                        building.
                    ``(B) Description of building.--A building is 
                described in this subparagraph if--
                            ``(i) a credit was allowed by reason of 
                        subsection (a) to any prior owner of such 
                        building, and
                            ``(ii) the taxpayer acquired such building 
                        before the end of the credit period for such 
                        building with respect to such prior owner 
                        (determined without regard to any disposition 
                        by such prior owner).
    ``(e) Rehabilitation Expenditures Treated as Separate New 
Building.--
            ``(1) In general.--Rehabilitation expenditures paid or 
        incurred by the taxpayer with respect to any building shall be 
        treated for purposes of this section as a separate new 
        building.
            ``(2) Rehabilitation expenditures.--For purposes of 
        paragraph (1)--
                    ``(A) In general.--The term `rehabilitation 
                expenditures' means amounts chargeable to capital 
                account and incurred for property (or additions or 
                improvements to property) of a character subject to the 
                allowance for depreciation in connection with the 
                rehabilitation of a building.
                    ``(B) Cost of acquisition, etc., not included.--
                Such term does not include the cost of acquiring any 
                building (or interest therein) or any amount not 
                permitted to be taken into account under paragraph (3) 
                of subsection (d).
                    ``(C) Certain relocation costs.--In the case of a 
                rehabilitation of a building to which section 280B does 
                not apply, costs relating to the relocation of 
                occupants, including--
                            ``(i) amounts paid to occupants,
                            ``(ii) amounts paid to third parties for 
                        services relating to such relocation, and
                            ``(iii) amounts paid for temporary housing 
                        for occupants,
                shall be treated as chargeable to capital account and 
                taken into account as rehabilitation expenditures.
            ``(3) Minimum expenditures to qualify.--
                    ``(A) In general.--Paragraph (1) shall apply to 
                rehabilitation expenditures with respect to any 
                building only if--
                            ``(i) the expenditures are allocable to 1 
                        or more middle-income units or substantially 
                        benefit such units, and
                            ``(ii) the amount of such expenditures 
                        during any 24-month period meets the 
                        requirements of whichever of the following 
                        subclauses requires the greater amount of such 
                        expenditures:
                                    ``(I) The requirement of this 
                                subclause is met if such amount is not 
                                less than 20 percent of the adjusted 
                                basis of the building (determined as of 
                                the 1st day of such period and without 
                                regard to paragraphs (2) and (3) of 
                                section 1016(a)).
                                    ``(II) The requirement of this 
                                subclause is met if the qualified basis 
                                attributable to such amount, when 
                                divided by the number of middle-income 
                                units in the building, is equal to or 
                                greater than the dollar amount in 
                                effect under section 
                                42(e)(3)(A)(ii)(II) for the calendar 
                                year in which such expenditures are 
                                treated as placed in service under 
                                paragraph (4).
                    ``(B) Date of determination.--The determination 
                under subparagraph (A) shall be made as of the close of 
                the 1st taxable year in the credit period with respect 
                to such expenditures.
            ``(4) Special rules.--For purposes of applying this section 
        with respect to expenditures which are treated as a separate 
        building by reason of this subsection--
                    ``(A) such expenditures shall be treated as placed 
                in service at the close of the 24-month period referred 
                to in paragraph (3)(A), and
                    ``(B) the applicable fraction under subsection 
                (c)(1) shall be the applicable fraction for the 
                building (without regard to paragraph (1)) with respect 
                to which the expenditures were incurred.
        Nothing in subsection (d)(2) shall prevent a credit from being 
        allowed by reason of this subsection.
            ``(5) No double counting.--Rehabilitation expenditures may, 
        at the election of the taxpayer, be taken into account under 
        this subsection or subsection (d)(2)(A)(i) but not under both 
        such subsections.
            ``(6) Regulations to apply subsection with respect to group 
        of units in building.--The Secretary may prescribe regulations, 
        consistent with the purposes of this subsection, treating a 
        group of units with respect to which rehabilitation 
        expenditures are incurred as a separate new building.
    ``(f) Definition and Special Rules Relating to Credit Period.--
            ``(1) Credit period defined.--For purposes of this section, 
        the term `credit period' means, with respect to any building, 
        the period of 15 taxable years beginning with--
                    ``(A) the taxable year in which the building is 
                placed in service, or
                    ``(B) at the election of the taxpayer, the 
                succeeding taxable year,
        but only if the building is a qualified middle-income building 
        as of the close of the 1st year of such period. The election 
        under subparagraph (B), once made, shall be irrevocable.
            ``(2) Special rule for 1st year of credit period.--
                    ``(A) In general.--The credit allowable under 
                subsection (a) with respect to any building for the 1st 
                taxable year of the credit period shall be determined 
                by substituting for the applicable fraction under 
                subsection (c)(1) the fraction--
                            ``(i) the numerator of which is the sum of 
                        the applicable fractions determined under 
                        subsection (c)(1) as of the close of each full 
                        month of such year during which such building 
                        was in service, and
                            ``(ii) the denominator of which is 12.
                    ``(B) Disallowed 1st-year credit allowed in 16th 
                year.--Any reduction by reason of subparagraph (A) in 
                the credit allowable (without regard to subparagraph 
                (A)) for the 1st taxable year of the credit period 
                shall be allowable under subsection (a) for the 1st 
                taxable year following the credit period.
            ``(3) Determination of applicable percentage with respect 
        to increases in qualified basis after 1st year of credit 
        period.--
                    ``(A) In general.--In the case of any building 
                which was a qualified middle-income building as of the 
                close of the 1st year of the credit period, if--
                            ``(i) as of the close of any taxable year 
                        in the credit period (after the 1st year of 
                        such period) the qualified basis of such 
                        building, exceeds
                            ``(ii) the qualified basis of such building 
                        as of the close of the 1st year of the credit 
                        period,
                the applicable percentage which shall apply under 
                subsection (a) for the taxable year to such excess 
                shall be the percentage equal to \2/3\ of the 
                applicable percentage which (after the application of 
                subsection (h)) would but for this paragraph apply to 
                such basis.
                    ``(B) 1st year computation applies.--A rule similar 
                to the rule of paragraph (2)(A) shall apply to any 
                increase in qualified basis to which subparagraph (A) 
                applies for the 1st year of such increase.
            ``(4) Dispositions of property.--If a building (or an 
        interest therein) is disposed of during any year for which 
        credit is allowable under subsection (a), such credit shall be 
        allocated between the parties on the basis of the number of 
        days during such year the building (or interest) was held by 
        each.
            ``(5) Credit period for existing buildings not to begin 
        before rehabilitation credit allowed.--
                    ``(A) In general.--The credit period for an 
                existing building shall not begin before the 1st 
                taxable year of the credit period for rehabilitation 
                expenditures with respect to the building.
                    ``(B) Acquisition credit allowed for certain 
                buildings not allowed a rehabilitation credit.--
                            ``(i) In general.--In the case of a 
                        building described in clause (ii)--
                                    ``(I) subsection (d)(2)(B)(iv) 
                                shall not apply, and
                                    ``(II) the credit period for such 
                                building shall not begin before the 
                                taxable year which would be the 1st 
                                taxable year of the credit period for 
                                rehabilitation expenditures with 
                                respect to the building under the 
                                modifications described in clause 
                                (ii)(II).
                            ``(ii) Building described.--A building is 
                        described in this clause if--
                                    ``(I) a waiver is granted under 
                                subsection (d)(4) with respect to the 
                                acquisition of the building, and
                                    ``(II) a credit would be allowed 
                                for rehabilitation expenditures with 
                                respect to such building if subsection 
                                (e)(3)(A)(ii)(I) did not apply and if 
                                the dollar amount in effect under 
                                subsection (e)(3)(A)(ii)(II) were two-
                                thirds of such amount.
    ``(g) Qualified Middle-Income Housing Project.--For purposes of 
this section--
            ``(1) In general.--The term `qualified middle-income 
        housing project' means any project for residential rental 
        property if--
                    ``(A) 60 percent or more of the residential units 
                in such project are both rent-restricted and occupied 
                by individuals whose income is 100 percent or less of 
                area median gross income, and
                    ``(B) not less than 20 percent of the residential 
                units in such project are units which--
                            ``(i) are described in subparagraph (A), 
                        and
                            ``(ii) are not residential units which are 
                        taken into account under section 42.
            ``(2) Rent-restricted units.--
                    ``(A) In general.--For purposes of paragraph (1), a 
                residential unit is rent-restricted if the gross rent 
                with respect to such unit does not exceed 30 percent of 
                the imputed income limitation applicable to such unit. 
                For purposes of the preceding sentence, the amount of 
                the income limitation under paragraph (1) applicable 
                for any period shall not be less than such limitation 
                applicable for the earliest period the building (which 
                contains the unit) was included in the determination of 
                whether the project is a qualified middle-income 
                housing project.
                    ``(B) Gross rent.--For purposes of subparagraph 
                (A), gross rent--
                            ``(i) includes any utility allowance 
                        determined by the Secretary after taking into 
                        account such determinations under section 8 of 
                        the United States Housing Act of 1937,
                            ``(ii) does not include any fee for a 
                        supportive service which is paid to the owner 
                        of the unit (on the basis of the middle-income 
                        status of the tenant of the unit) by any 
                        governmental program of assistance (or by an 
                        organization described in section 501(c)(3) and 
                        exempt from tax under section 501(a)) if such 
                        program (or organization) provides assistance 
                        for rent and the amount of assistance provided 
                        for rent is not separable from the amount of 
                        assistance provided for supportive services, 
                        and
                            ``(iii) does not include any rental payment 
                        to the owner of the unit to the extent such 
                        owner pays an equivalent amount to the Farmers' 
                        Home Administration under section 515 of the 
                        Housing Act of 1949.
                For purposes of clause (ii), the term `supportive 
                service' means any service provided under a planned 
                program of services designed to enable residents of a 
                residential rental property to remain independent and 
                avoid placement in a hospital, nursing home, or 
                intermediate care facility for the mentally or 
                physically handicapped.
                    ``(C) Imputed income limitation applicable to 
                unit.--For purposes of this paragraph, the imputed 
                income limitation applicable to a unit is the income 
                limitation which would apply under paragraph (1) to 
                individuals occupying the unit if the number of 
                individuals occupying the unit were as follows:
                            ``(i) In the case of a unit which does not 
                        have a separate bedroom, 1 individual.
                            ``(ii) In the case of a unit which has 1 or 
                        more separate bedrooms, 1.5 individuals for 
                        each separate bedroom.
                In the case of a project with respect to which a credit 
                is allowable by reason of this section and for which 
                financing is provided by a bond described in section 
                142(a)(7), the imputed income limitation shall apply in 
                lieu of the otherwise applicable income limitation for 
                purposes of applying section 142(d)(4)(B)(ii).
                    ``(D) Treatment of units occupied by individuals 
                whose incomes rise above limit.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), notwithstanding an increase in the 
                        income of the occupants of a middle-income unit 
                        above the income limitation applicable under 
                        paragraph (1), such unit shall continue to be 
                        treated as a middle-income unit if the income 
                        of such occupants initially met such income 
                        limitation and such unit continues to be rent-
                        restricted.
                            ``(ii) Next available unit must be rented 
                        to middle-income tenant if income rises above 
                        140 percent of income limit.--If the income of 
                        the occupants of the unit increases above 140 
                        percent of the income limitation applicable 
                        under paragraph (1), clause (i) shall cease to 
                        apply to such unit if any residential rental 
                        unit in the building (of a size comparable to, 
                        or smaller than, such unit) is occupied by a 
                        new resident whose income exceeds such income 
                        limitation.
            ``(3) Date for meeting requirements.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, a building shall be treated as a 
                qualified middle-income building only if the project 
                (of which such building is a part) meets the 
                requirements of paragraph (1) not later than the close 
                of the 1st year of the credit period for such building.
                    ``(B) Buildings which rely on later buildings for 
                qualification.--
                            ``(i) In general.--In determining whether a 
                        building (hereinafter in this subparagraph 
                        referred to as the `prior building') is a 
                        qualified middle-income building, the taxpayer 
                        may take into account 1 or more additional 
                        buildings placed in service during the 12-month 
                        period described in subparagraph (A) with 
                        respect to the prior building only if the 
                        taxpayer elects to apply clause (ii) with 
                        respect to each additional building taken into 
                        account.
                            ``(ii) Treatment of elected buildings.--In 
                        the case of a building which the taxpayer 
                        elects to take into account under clause (i), 
                        the period under subparagraph (A) for such 
                        building shall end at the close of the 12-month 
                        period applicable to the prior building.
                            ``(iii) Date prior building is treated as 
                        placed in service.--For purposes of determining 
                        the credit period for the prior building, the 
                        prior building shall be treated for purposes of 
                        this section as placed in service on the most 
                        recent date any additional building elected by 
                        the taxpayer (with respect to such prior 
                        building) was placed in service.
                    ``(C) Special rule.--A building--
                            ``(i) other than the 1st building placed in 
                        service as part of a project, and
                            ``(ii) other than a building which is 
                        placed in service during the 12-month period 
                        described in subparagraph (A) with respect to a 
                        prior building which becomes a qualified 
                        middle-income building,
                shall in no event be treated as a qualified middle-
                income building unless the project is a qualified 
                middle-income housing project (without regard to such 
                building) on the date such building is placed in 
                service.
                    ``(D) Projects with more than 1 building must be 
                identified.--For purposes of this section, a project 
                shall be treated as consisting of only 1 building 
                unless, before the close of the 1st calendar year in 
                the project period (as defined in subsection 
                (h)(1)(F)(ii)), each building which is (or will be) 
                part of such project is identified in such form and 
                manner as the Secretary may provide.
            ``(4) Certain rules made applicable.--Paragraphs (2) (other 
        than subparagraph (A) thereof), (3), and (7) of section 142(d), 
        and section 6652(j), shall apply for purposes of determining 
        whether any project is a qualified middle-income housing 
        project and whether any unit is a middle-income unit; except 
        that, in applying such provisions for such purposes--
                    ``(A) the term `gross rent' shall have the meaning 
                given such term by paragraph (2)(B) of this subsection, 
                and
                    ``(B) the term `applicable income limit' means the 
                limitation under paragraph (1) of this subsection.
            ``(5) Election to treat building after credit period as not 
        part of a project.--For purposes of this section, the taxpayer 
        may elect to treat any building as not part of a qualified 
        middle-income housing project for any period beginning after 
        the credit period for such building.
            ``(6) Special rule where de minimis equity contribution.--
        Property shall not be treated as failing to be residential 
        rental property for purposes of this section merely because the 
        occupant of a residential unit in the project pays (on a 
        voluntary basis) to the lessor a de minimis amount to be held 
        toward the purchase by such occupant of a residential unit in 
        such project if--
                    ``(A) all amounts so paid are refunded to the 
                occupant on the cessation of his occupancy of a unit in 
                the project, and
                    ``(B) the purchase of the unit is not permitted 
                until after the close of the credit period with respect 
                to the building in which the unit is located.
        Any amount paid to the lessor as described in the preceding 
        sentence shall be included in gross rent under paragraph (2) 
        for purposes of determining whether the unit is rent-
        restricted.
            ``(7) Scattered site projects.--Buildings which would (but 
        for their lack of proximity) be treated as a project for 
        purposes of this section shall be so treated if all of the 
        dwelling units in each of the buildings are rent-restricted 
        (within the meaning of paragraph (2)) residential rental units.
            ``(8) Waiver of certain recertifications.--On application 
        by the taxpayer, the Secretary may waive any annual 
        recertification of tenant income for purposes of this 
        subsection, if the entire building is occupied by middle-income 
        tenants.
            ``(9) Clarification of general public use requirement.--A 
        project does not fail to meet the general public use 
        requirement solely because of occupancy restrictions or 
        preferences that favor tenants--
                    ``(A) with special needs, or
                    ``(B) who are members of a specified group under a 
                Federal program or State program or policy that 
                supports housing for such a specified group.
    ``(h) Limitation on Aggregate Credit Allowable With Respect to 
Projects Located in a State.--
            ``(1) Credit may not exceed credit amount allocated to 
        building.--
                    ``(A) In general.--The amount of the credit 
                determined under this section for any taxable year with 
                respect to any building shall not exceed the housing 
                credit dollar amount allocated to such building under 
                this subsection.
                    ``(B) Time for making allocation.--Except in the 
                case of an allocation which meets the requirements of 
                subparagraph (C), (D), (E), or (F), an allocation shall 
                be taken into account under subparagraph (A) only if it 
                is made not later than the close of the calendar year 
                in which the building is placed in service.
                    ``(C) Exception where binding commitment.--An 
                allocation meets the requirements of this subparagraph 
                if there is a binding commitment (not later than the 
                close of the calendar year in which the building is 
                placed in service) by the housing credit agency to 
                allocate a specified housing credit dollar amount to 
                such building beginning in a specified later taxable 
                year.
                    ``(D) Exception where increase in qualified 
                basis.--
                            ``(i) In general.--An allocation meets the 
                        requirements of this subparagraph if such 
                        allocation is made not later than the close of 
                        the calendar year in which ends the taxable 
                        year to which it will 1st apply but only to the 
                        extent the amount of such allocation does not 
                        exceed the limitation under clause (ii).
                            ``(ii) Limitation.--The limitation under 
                        this clause is the amount of credit allowable 
                        under this section (without regard to this 
                        subsection) for a taxable year with respect to 
                        an increase in the qualified basis of the 
                        building equal to the excess of--
                                    ``(I) the qualified basis of such 
                                building as of the close of the 1st 
                                taxable year to which such allocation 
                                will apply, over
                                    ``(II) the qualified basis of such 
                                building as of the close of the 1st 
                                taxable year to which the most recent 
                                prior housing credit allocation with 
                                respect to such building applied.
                            ``(iii) Housing credit dollar amount 
                        reduced by full allocation.--Notwithstanding 
                        clause (i), the full amount of the allocation 
                        shall be taken into account under paragraph 
                        (2).
                    ``(E) Exception where 10 percent of cost 
                incurred.--
                            ``(i) In general.--An allocation meets the 
                        requirements of this subparagraph if such 
                        allocation is made with respect to a qualified 
                        building which is placed in service not later 
                        than the close of the second calendar year 
                        following the calendar year in which the 
                        allocation is made.
                            ``(ii) Qualified building.--For purposes of 
                        clause (i), the term `qualified building' means 
                        any building which is part of a project if the 
                        taxpayer's basis in such project (as of the 
                        date which is 1 year after the date that the 
                        allocation was made) is more than 10 percent of 
                        the taxpayer's reasonably expected basis in 
                        such project (as of the close of the second 
                        calendar year referred to in clause (i)). Such 
                        term does not include any existing building 
                        unless a credit is allowable under subsection 
                        (e) for rehabilitation expenditures paid or 
                        incurred by the taxpayer with respect to such 
                        building for a taxable year ending during the 
                        second calendar year referred to in clause (i) 
                        or the prior taxable year.
                    ``(F) Allocation of credit on a project basis.--
                            ``(i) In general.--In the case of a project 
                        which includes (or will include) more than 1 
                        building, an allocation meets the requirements 
                        of this subparagraph if--
                                    ``(I) the allocation is made to the 
                                project for a calendar year during the 
                                project period,
                                    ``(II) the allocation only applies 
                                to buildings placed in service during 
                                or after the calendar year for which 
                                the allocation is made, and
                                    ``(III) the portion of such 
                                allocation which is allocated to any 
                                building in such project is specified 
                                not later than the close of the 
                                calendar year in which the building is 
                                placed in service.
                            ``(ii) Project period.--For purposes of 
                        clause (i), the term `project period' means the 
                        period--
                                    ``(I) beginning with the 1st 
                                calendar year for which an allocation 
                                may be made for the 1st building placed 
                                in service as part of such project, and
                                    ``(II) ending with the calendar 
                                year the last building is placed in 
                                service as part of such project.
            ``(2) Allocated credit amount to apply to all taxable years 
        ending during or after credit allocation year.--Any housing 
        credit dollar amount allocated to any building for any calendar 
        year--
                    ``(A) shall apply to such building for all taxable 
                years in the credit period ending during or after such 
                calendar year, and
                    ``(B) shall reduce the aggregate housing credit 
                dollar amount of the allocating agency only for such 
                calendar year.
            ``(3) Housing credit dollar amount for agencies.--
                    ``(A) In general.--The aggregate housing credit 
                dollar amount which a housing credit agency may 
                allocate for any calendar year is the portion of the 
                State housing credit ceiling allocated under this 
                paragraph for such calendar year to such agency.
                    ``(B) State ceiling initially allocated to state 
                housing credit agencies.--Except as provided in 
                subparagraph (D), the State housing credit ceiling for 
                each calendar year shall be allocated to the housing 
                credit agency of such State. If there is more than 1 
                housing credit agency of a State, all such agencies 
                shall be treated as a single agency.
                    ``(C) State housing credit ceiling.--The State 
                housing credit ceiling applicable to any State for any 
                calendar year shall be an amount equal to the sum of--
                            ``(i) the unused State housing credit 
                        ceiling (if any) of such State for the 
                        preceding calendar year,
                            ``(ii) the greater of--
                                    ``(I) $1.00 multiplied by the State 
                                population, or
                                    ``(II) $1,500,000, plus
                            ``(iii) the amount of State housing credit 
                        ceiling returned in the calendar year.
                For purposes of clause (i), the unused State housing 
                credit ceiling for any calendar year is the excess (if 
                any) of the sum of the amounts described in clauses 
                (ii) (reduced by the aggregate amounts described in 
                paragraph (10)(A)(i) with respect to all elections made 
                for such calendar year) and (iii) over the aggregate 
                housing credit dollar amount allocated for such year. 
                For purposes of clause (iii), the amount of State 
                housing credit ceiling returned in the calendar year 
                equals the housing credit dollar amount previously 
                allocated within the State to any project which fails 
                to meet the 10 percent test under paragraph (1)(E)(ii) 
                on a date after the close of the calendar year in which 
                the allocation was made or which does not become a 
                qualified middle-income housing project within the 
                period required by this section or the terms of the 
                allocation or to any project with respect to which an 
                allocation is cancelled by mutual consent of the 
                housing credit agency and the allocation recipient.
                    ``(D) State may provide for different allocation.--
                Rules similar to the rules of section 146(e) (other 
                than paragraph (2)(B) thereof) shall apply for purposes 
                of this paragraph.
                    ``(E) Population.--For purposes of this paragraph, 
                population shall be determined in accordance with 
                section 146(j).
                    ``(F) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year after 2024, the $1,500,000 and 
                        $1.00 amounts in subparagraph (C) shall each be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year by 
                                substituting `calendar year 2023' for 
                                `calendar year 2016' in subparagraph 
                                (A)(ii) thereof.
                            ``(ii) Rounding.--
                                    ``(I) In the case of the $1,140,000 
                                amount, any increase under clause (i) 
                                which is not a multiple of $5,000 shall 
                                be rounded to the next lowest multiple 
                                of $5,000.
                                    ``(II) In the case of the $1.00 
                                amount, any increase under clause (i) 
                                which is not a multiple of 5 cents 
                                shall be rounded to the next lowest 
                                multiple of 5 cents.
            ``(4) Portion of state ceiling set-aside for certain 
        projects involving qualified nonprofit organizations.--
                    ``(A) In general.--Not more than 90 percent of the 
                State housing credit ceiling (determined without regard 
                to paragraph (7)) for any State for any calendar year 
                shall be allocated to projects other than qualified 
                middle-income housing projects described in 
                subparagraph (B).
                    ``(B) Projects involving qualified nonprofit 
                organizations.--For purposes of subparagraph (A), a 
                qualified middle-income housing project is described in 
                this subparagraph if a qualified nonprofit organization 
                is to own an interest in the project (directly or 
                through a partnership) and materially participate 
                (within the meaning of section 469(h)) in the 
                development and operation of the project throughout the 
                credit period.
                    ``(C) Qualified nonprofit organization.--For 
                purposes of this paragraph, the term `qualified 
                nonprofit organization' means any organization if--
                            ``(i) such organization is described in 
                        paragraph (3) or (4) of section 501(c) and is 
                        exempt from tax under section 501(a);
                            ``(ii) such organization is determined by 
                        the State housing credit agency not to be 
                        affiliated with or controlled by a for-profit 
                        organization; and
                            ``(iii) one of the exempt purposes of such 
                        organization includes the fostering of middle-
                        income housing.
                    ``(D) Treatment of certain subsidiaries.--
                            ``(i) In general.--For purposes of this 
                        paragraph, a qualified nonprofit organization 
                        shall be treated as satisfying the ownership 
                        and material participation test of subparagraph 
                        (B) if any qualified corporation in which such 
                        organization holds stock satisfies such test.
                            ``(ii) Qualified corporation.--For purposes 
                        of clause (i), the term `qualified corporation' 
                        means any corporation if 100 percent of the 
                        stock of such corporation is held by 1 or more 
                        qualified nonprofit organizations at all times 
                        during the period such corporation is in 
                        existence.
                    ``(E) State may not override set-aside.--Nothing in 
                subparagraph (E) of paragraph (3) shall be construed to 
                permit a State not to comply with subparagraph (A) of 
                this paragraph.
            ``(5) Buildings eligible for credit only if minimum long-
        term commitment to middle-income housing.--
                    ``(A) In general.--No credit shall be allowed by 
                reason of this section with respect to any building for 
                the taxable year unless an extended middle-income 
                housing commitment is in effect as of the end of such 
                taxable year.
                    ``(B) Extended middle-income housing commitment.--
                For purposes of this paragraph, the term `extended 
                middle-income housing commitment' means any agreement 
                between the taxpayer and the housing credit agency--
                            ``(i) which requires that the applicable 
                        fraction (as defined in subsection (c)(1)) for 
                        the building for each taxable year in the 
                        extended use period will not be less than the 
                        applicable fraction specified in such agreement 
                        and which prohibits the actions described in 
                        subclauses (I) and (II) of subparagraph 
                        (E)(ii),
                            ``(ii) which allows individuals who meet 
                        the income limitation applicable to the 
                        building under subsection (g) (whether 
                        prospective, present, or former occupants of 
                        the building) the right to enforce in any State 
                        court the requirement and prohibitions of 
                        clause (i),
                            ``(iii) which prohibits the disposition to 
                        any person of any portion of the building to 
                        which such agreement applies unless all of the 
                        building to which such agreement applies is 
                        disposed of to such person,
                            ``(iv) which prohibits the refusal to lease 
                        to a holder of a voucher or certificate of 
                        eligibility under section 8 of the United 
                        States Housing Act of 1937 because of the 
                        status of the prospective tenant as such a 
                        holder,
                            ``(v) which is binding on all successors of 
                        the taxpayer, and
                            ``(vi) which, with respect to the property, 
                        is recorded pursuant to State law as a 
                        restrictive covenant.
                    ``(C) Allocation of credit may not exceed amount 
                necessary to support commitment.--The housing credit 
                dollar amount allocated to any building may not exceed 
                the amount necessary to support the applicable fraction 
                specified in the extended middle-income housing 
                commitment for such building, including any increase in 
                such fraction pursuant to the application of subsection 
                (f)(3) if such increase is reflected in an amended 
                middle-income housing commitment.
                    ``(D) Extended use period.--For purposes of this 
                paragraph, the term `extended use period' means the 
                period--
                            ``(i) beginning on the 1st day in the 
                        credit period on which such building is part of 
                        a qualified middle-income housing project, and
                            ``(ii) ending on the later of--
                                    ``(I) the date specified by such 
                                agency in such agreement, or
                                    ``(II) the date which is 15 years 
                                after the close of the credit period.
                    ``(E) Exceptions if foreclosure or if no buyer 
                willing to maintain middle-income status.--
                            ``(i) In general.--The extended use period 
                        for any building shall terminate on the 61st 
                        day after the taxpayer (or a successor in 
                        interest) provides notice to the Secretary and 
                        the housing credit agency that the building has 
                        been acquired by foreclosure (or instrument in 
                        lieu of foreclosure) and that the taxpayer 
                        intends the termination of such period, unless, 
                        before such date, the Secretary or the housing 
                        credit agency determines that such acquisition 
                        is part of an arrangement with the taxpayer a 
                        purpose of which is to terminate such period.
                            ``(ii) Eviction, etc., of existing middle-
                        income tenants not permitted.--The termination 
                        of an extended use period under clause (i) 
                        shall not be construed to permit before the 
                        close of the 3-year period following such 
                        termination--
                                    ``(I) the eviction or the 
                                termination of tenancy (other than for 
                                good cause) of an existing tenant of 
                                any middle-income unit, or
                                    ``(II) any increase in the gross 
                                rent with respect to such unit not 
                                otherwise permitted under this section.
                    ``(F) Effect of noncompliance.--If, during a 
                taxable year, there is a determination that an extended 
                middle-income housing agreement was not in effect as of 
                the beginning of such year, such determination shall 
                not apply to any period before such year and 
                subparagraph (A) shall be applied without regard to 
                such determination if the failure is corrected within 1 
                year from the date of the determination.
                    ``(G) Projects which consist of more than 1 
                building.--The application of this paragraph to 
                projects which consist of more than 1 building shall be 
                made under regulations prescribed by the Secretary.
            ``(6) Special rules.--
                    ``(A) Building must be located within jurisdiction 
                of credit agency.--A housing credit agency may allocate 
                its aggregate housing credit dollar amount only to 
                buildings located in the jurisdiction of the 
                governmental unit of which such agency is a part.
                    ``(B) Agency allocations in excess of limit.--If 
                the aggregate housing credit dollar amounts allocated 
                by a housing credit agency for any calendar year exceed 
                the portion of the State housing credit ceiling 
                allocated to such agency for such calendar year, the 
                housing credit dollar amounts so allocated shall be 
                reduced (to the extent of such excess) for buildings in 
                the reverse of the order in which the allocations of 
                such amounts were made.
                    ``(C) Credit reduced if allocated credit dollar 
                amount is less than credit which would be allowable 
                without regard to placed in service convention, etc.--
                            ``(i) In general.--The amount of the credit 
                        determined under this section with respect to 
                        any building shall not exceed the clause (ii) 
                        percentage of the amount of the credit which 
                        would (but for this subparagraph) be determined 
                        under this section with respect to such 
                        building.
                            ``(ii) Determination of percentage.--For 
                        purposes of clause (i), the clause (ii) 
                        percentage with respect to any building is the 
                        percentage which--
                                    ``(I) the housing credit dollar 
                                amount allocated to such building, 
                                bears to
                                    ``(II) the credit amount determined 
                                in accordance with clause (iii).
                            ``(iii) Determination of credit amount.--
                        The credit amount determined in accordance with 
                        this clause is the amount of the credit which 
                        would (but for this subparagraph) be determined 
                        under this section with respect to the building 
                        if--
                                    ``(I) this section were applied 
                                without regard to paragraphs (2)(A) and 
                                (3)(B) of subsection (f), and
                                    ``(II) subsection (f)(3)(A) were 
                                applied without regard to `the 
                                percentage equal to \2/3\ of'.
                    ``(D) Housing credit agency to specify applicable 
                percentage and maximum qualified basis.--In allocating 
                a housing credit dollar amount to any building, the 
                housing credit agency shall specify the applicable 
                percentage and the maximum qualified basis which may be 
                taken into account under this section with respect to 
                such building. The applicable percentage and maximum 
                qualified basis so specified shall not exceed the 
                applicable percentage and qualified basis determined 
                under this section without regard to this subsection.
            ``(7) Increase in state ceiling dedicated to certain rural 
        development projects.--
                    ``(A) In general.--The State housing credit ceiling 
                for any calendar year shall be increased by an amount 
                equal to 5 percent of the amount determined under 
                paragraph (3)(C)(ii).
                    ``(B) Use of increased amount.--
                            ``(i) In general.--The amount of the 
                        increase under subparagraph (A) for any 
                        calendar year may only be allocated to 
                        buildings located in a rural area.
                            ``(ii) Rural area.--For purposes of clause 
                        (i), the term `rural area' means any non-
                        metropolitan area, or any rural area as defined 
                        by section 520 of the Housing Act of 1949, 
                        which is identified by the qualified allocation 
                        plan under subsection (l)(1)(B).
            ``(8) Other definitions.--For purposes of this subsection--
                    ``(A) Housing credit agency.--The term `housing 
                credit agency' means any agency authorized to carry out 
                this subsection.
                    ``(B) Possessions treated as states.--The term 
                `State' includes a possession of the United States.
            ``(9) Credit for buildings financed by tax-exempt bonds 
        subject to volume cap not taken into account.--Rules similar to 
        the rules of subsections (h)(4), (m)(1)(D), and (m)(2)(D) of 
        section 42 shall apply for purposes of this subsection.
            ``(10) Election to transfer state housing credit ceiling 
        for allocations to low-income buildings.--
                    ``(A) In general.--If a State housing credit agency 
                makes an election under this paragraph with respect to 
                a calendar year--
                            ``(i) the State housing credit ceiling for 
                        such calendar year under paragraph (3) 
                        (determined before application of paragraph 
                        (7)) shall be reduced by the amount specified 
                        in such election,
                            ``(ii) the amount determined under 
                        paragraph (7) for such calendar year shall be 
                        reduced by the amount specified in such 
                        election, and
                            ``(iii) the amount determined under section 
                        42(h)(3)(C)(ii) for such calendar year shall be 
                        increased by the sum of the amounts specified 
                        in clauses (i) and (ii), except that any amount 
                        specified under clause (ii)--
                                    ``(I) may only be allocated under 
                                such section to qualified low-income 
                                buildings (as defined in section 42) 
                                located in a rural area (as defined in 
                                paragraph (7), and
                                    ``(II) shall not be taken into 
                                account for purposes of determining the 
                                unused housing credit ceiling under the 
                                second sentence of section 42(h)(3)(C).
                    ``(B) Time and manner for making election.--
                            ``(i) In general.--An election under this 
                        paragraph--
                                    ``(I) shall be made before the end 
                                of the calendar year with respect to 
                                which such election applies,
                                    ``(II) shall be made in such manner 
                                as specified by the Secretary, and
                                    ``(III) shall separately specify 
                                the amount of reductions to be made 
                                under paragraph (3) and paragraph (7).
                            ``(ii) Frequency.--A State housing credit 
                        agency may make more than one election under 
                        this section with respect to any calendar year, 
                        and any such election, once made, shall be 
                        revocable only if such revocation is made 
                        before the end of the calendar year with 
                        respect to which such election is made.
                    ``(C) Limitation.--The aggregate amount specified 
                in elections under this paragraph with respect to any 
                State housing credit agency for calendar year shall not 
                exceed the sum of--
                            ``(i) the amount determined under paragraph 
                        (3)(C)(ii) for such calendar year, plus
                            ``(ii) the amount determined under 
                        paragraph (7) for such calendar year.
    ``(i) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Middle-income unit.--
                    ``(A) In general.--The term `middle-income unit' 
                means any unit in a building if--
                            ``(i) such unit is rent-restricted (as 
                        defined in subsection (g)(2)), and
                            ``(ii) the individuals occupying such unit 
                        meet the income limitation applicable under 
                        subsection (g)(1) to the project of which such 
                        building is a part.
                    ``(B) Exceptions.--
                            ``(i) Exclusion of low-income units.--A 
                        unit shall not be treated as a middle-income 
                        unit if such unit is a low-income unit (as 
                        defined under section 42(i)(3)).
                            ``(ii) Unit must be suitable for permanent 
                        occupancy.--
                                    ``(I) In general.--A unit shall not 
                                be treated as a middle-income unit 
                                unless the unit is suitable for 
                                occupancy and used other than on a 
                                transient basis.
                                    ``(II) Suitability for occupancy.--
                                For purposes of subclause (I), the 
                                suitability of a unit for occupancy 
                                shall be determined under regulations 
                                prescribed by the Secretary taking into 
                                account local health, safety, and 
                                building codes.
                                    ``(III) Single-room occupancy 
                                units.--For purposes of subclause (I), 
                                a single-room occupancy unit shall not 
                                be treated as used on a transient basis 
                                merely because it is rented on a month-
                                by-month basis.
                    ``(C) Special rule for buildings having 4 or fewer 
                units.--In the case of any building which has 4 or 
                fewer residential rental units, no unit in such 
                building shall be treated as a middle-income unit if 
                the units in such building are owned by--
                            ``(i) any individual who occupies a 
                        residential unit in such building, or
                            ``(ii) any person who is related (as 
                        defined in subsection (d)(2)(D)(ii)) to such 
                        individual.
                    ``(D) Rules relating to students.--
                            ``(i) In general.--A unit occupied solely 
                        by individuals who--
                                    ``(I) have not attained age 24, and
                                    ``(II) are enrolled in a full-time 
                                course of study at an institution of 
                                higher education (as defined in section 
                                3304(f)),
                        shall not be treated as a middle-income unit.
                            ``(ii) Exception for certain federal 
                        programs.--In the case of a federally assisted 
                        building (as defined in subsection (d)(6)(C)(i) 
                        of section 42), clause (i) shall not apply to a 
                        unit all of the occupants of which meet all 
                        applicable requirements under the housing 
                        program described in such subsection through 
                        which the building is assisted, financed, or 
                        operated.
                            ``(iii) Other exceptions.--Clause (i) shall 
                        not apply to a unit occupied by an individual 
                        who--
                                    ``(I) is married, if such 
                                individual's spouse also occupies the 
                                unit,
                                    ``(II) is a person with 
                                disabilities (as defined in section 
                                3(b)(3)(E) of the United States Housing 
                                Act of 1937),
                                    ``(III) is a veteran (as defined in 
                                section 101(2) of title 38, United 
                                States Code),
                                    ``(IV) has one or more qualifying 
                                children (as defined in section 
                                152(c)), if such children also occupy 
                                the unit, the individual is not a 
                                dependent (as defined in section 152, 
                                determined without regard to 
                                subsections (b)(1), (b)(2), and 
                                (d)(1)(B) thereof) of another 
                                individual, and such children are not 
                                claimed as dependents (as so defined) 
                                of another individual, or
                                    ``(V) is, or was immediately prior 
                                to attaining the age of majority--
                                            ``(aa) an emancipated minor 
                                        or in legal guardianship as 
                                        determined by a court of 
                                        competent jurisdiction in the 
                                        individual's State of legal 
                                        residence,
                                            ``(bb) under the care and 
                                        placement responsibility of the 
                                        State agency responsible for 
                                        administering a plan under part 
                                        B or part E of title IV of the 
                                        Social Security Act, or
                                            ``(cc) was an unaccompanied 
                                        youth (within the meaning of 
                                        section 725(6) of the McKinney-
                                        Vento Homeless Assistance Act 
                                        (42 U.S.C. 11434a(6))) or a 
                                        homeless child or youth (within 
                                        the meaning of section 725(2) 
                                        of such Act (42 U.S.C. 
                                        11434a(2))).
                    ``(E) Owner-occupied buildings having 4 or fewer 
                units eligible for credit where development plan.--
                            ``(i) In general.--Subparagraph (C) shall 
                        not apply to the acquisition or rehabilitation 
                        of a building pursuant to a development plan of 
                        action sponsored by a State or local government 
                        or a qualified nonprofit organization.
                            ``(ii) Limitation on credit.--In the case 
                        of a building to which clause (i) applies, the 
                        applicable fraction shall not exceed 80 percent 
                        of the unit fraction.
                            ``(iii) Certain unrented units treated as 
                        owner-occupied.--In the case of a building to 
                        which clause (i) applies, any unit which is not 
                        rented for 90 days or more shall be treated as 
                        occupied by the owner of the building as of the 
                        1st day it is not rented.
            ``(2) New building.--The term `new building' means a 
        building the original use of which begins with the taxpayer.
            ``(3) Existing building.--The term `existing building' 
        means any building which is not a new building.
            ``(4) Application to estates and trusts.--In the case of an 
        estate or trust, the amount of the credit determined under 
        subsection (a) shall be apportioned between the estate or trust 
        and the beneficiaries on the basis of the income of the estate 
        or trust allocable to each.
            ``(5) Impact of tenant's option to acquire property.--
                    ``(A) In general.--No Federal income tax benefit 
                shall fail to be allowable to the taxpayer with respect 
                to any qualified middle-income building merely by 
                reason of an option held by the tenants (in cooperative 
                form or otherwise) or resident management corporation 
                of such building or by a qualified nonprofit 
                organization or government agency to purchase the 
                property or all of the partnership interests (other 
                than interests of the person exercising such option or 
                a related party thereto (within the meaning of section 
                267(b) or 707(b)(1))) relating to the property after 
                the close of the credit period for a price which is not 
                less than the minimum purchase price determined under 
                subparagraph (B).
                    ``(B) Minimum purchase price.--For purposes of 
                subparagraph (A), the minimum purchase price under this 
                subparagraph is an amount equal to the principal amount 
                of outstanding indebtedness secured by the building 
                (other than indebtedness incurred within the 5-year 
                period ending on the date of the sale to the tenants). 
                In the case of a purchase of a partnership interest, 
                the minimum purchase price is an amount equal to such 
                interest's ratable share of the amount determined under 
                the preceding sentence.
            ``(6) Treatment of rural projects.--For purposes of this 
        section, in the case of any project for residential rental 
        property located in a rural area (as defined in section 520 of 
        the Housing Act of 1949), any income limitation measured by 
        reference to area median gross income shall be measured by 
        reference to the greater of area median gross income or 
        national non-metropolitan median income.
            ``(7) Determination of whether building is federally 
        subsidized.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, for purposes of this section, a project 
                shall be treated as federally subsidized for any 
                taxable year if, at any time during such taxable year 
                or any prior taxable year, there is or was outstanding 
                any obligation the interest on which is exempt from tax 
                under section 103 the proceeds of which are or were 
                used (directly or indirectly) with respect to such 
                project or the operation thereof.
                    ``(B) Special rule for subsidized construction 
                financing.--Subparagraph (A) shall not apply to any 
                tax-exempt obligation used to provide construction 
                financing for any building if--
                            ``(i) such obligation (when issued) 
                        identified the building for which the proceeds 
                        of such obligation would be used, and
                            ``(ii) such obligation is redeemed before 
                        such building is placed in service.
            ``(8) Reduction in basis.--In the case of any building for 
        which a credit is allowable under this section and section 42, 
        the basis of the building shall be reduced by the amount of 
        such credit allowed under subsection (a).
    ``(j) Application of At-Risk Rules.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, rules similar to the rules of section 49(a)(1) 
        (other than subparagraphs (D)(ii)(II) and (D)(iv)(I) thereof), 
        section 49(a)(2), and section 49(b)(1) shall apply in 
        determining the qualified basis of any building in the same 
        manner as such sections apply in determining the credit base of 
        property.
            ``(2) Special rules for determining qualified person.--For 
        purposes of paragraph (1)--
                    ``(A) In general.--If the requirements of 
                subparagraphs (B), (C), and (D) are met with respect to 
                any financing borrowed from a qualified nonprofit 
                organization, the determination of whether such 
                financing is qualified commercial financing with 
                respect to any qualified middle-income building shall 
                be made without regard to whether such organization--
                            ``(i) is actively and regularly engaged in 
                        the business of lending money, or
                            ``(ii) is a person described in section 
                        49(a)(1)(D)(iv)(II).
                    ``(B) Financing secured by property.--The 
                requirements of this subparagraph are met with respect 
                to any financing if such financing is secured by the 
                qualified middle-income building, except that this 
                subparagraph shall not apply in the case of a federally 
                assisted building described in section 42(d)(6)(C) if--
                            ``(i) a security interest in such building 
                        is not permitted by a Federal agency holding or 
                        insuring the mortgage secured by such building, 
                        and
                            ``(ii) the proceeds from the financing (if 
                        any) are applied to acquire or improve such 
                        building.
                    ``(C) Portion of building attributable to 
                financing.--The requirements of this subparagraph are 
                met with respect to any financing for any taxable year 
                in the credit period if, as of the close of such 
                taxable year, not more than 60 percent of the eligible 
                basis of the qualified middle-income building is 
                attributable to such financing (reduced by the 
                principal and interest of any governmental financing 
                which is part of a wrap-around mortgage involving such 
                financing).
                    ``(D) Repayment of principal and interest.--The 
                requirements of this subparagraph are met with respect 
                to any financing if such financing is fully repaid on 
                or before the earliest of--
                            ``(i) the date on which such financing 
                        matures,
                            ``(ii) the 90th day after the close of the 
                        credit period with respect to the qualified 
                        middle-income building, or
                            ``(iii) the date of its refinancing or the 
                        sale of the building to which such financing 
                        relates.
                In the case of a qualified nonprofit organization which 
                is not described in section 49(a)(1)(D)(iv)(II) with 
                respect to a building, clause (ii) of this subparagraph 
                shall be applied as if the date described therein were 
                the 90th day after the earlier of the date the building 
                ceases to be a qualified middle-income building or the 
                date which is 15 years after the close of a credit 
                period with respect thereto.
            ``(3) Present value of financing.--If the rate of interest 
        on any financing described in paragraph (2)(A) is less than the 
        rate which is 1 percentage point below the applicable Federal 
        rate as of the time such financing is incurred, then the 
        qualified basis (to which such financing relates) of the 
        qualified middle-income building shall be the present value of 
        the amount of such financing, using as the discount rate such 
        applicable Federal rate. For purposes of the preceding 
        sentence, the rate of interest on any financing shall be 
        determined by treating interest to the extent of government 
        subsidies as not payable.
            ``(4) Failure to fully repay.--
                    ``(A) In general.--To the extent that the 
                requirements of paragraph (2)(D) are not met, then the 
                taxpayer's tax under this chapter for the taxable year 
                in which such failure occurs shall be increased by an 
                amount equal to the applicable portion of the credit 
                under this section with respect to such building, 
                increased by an amount of interest for the period--
                            ``(i) beginning with the due date for the 
                        filing of the return of tax imposed by chapter 
                        1 for the 1st taxable year for which such 
                        credit was allowable, and
                            ``(ii) ending with the due date for the 
                        taxable year in which such failure occurs,
                determined by using the underpayment rate and method 
                under section 6621.
                    ``(B) Applicable portion.--For purposes of 
                subparagraph (A), the term `applicable portion' means 
                the aggregate decrease in the credits allowed to a 
                taxpayer under section 38 for all prior taxable years 
                which would have resulted if the eligible basis of the 
                building were reduced by the amount of financing which 
                does not meet requirements of paragraph (2)(D).
                    ``(C) Certain rules to apply.--Rules similar to the 
                rules of subparagraphs (A) and (D) of section 42(j)(4) 
                shall apply for purposes of this subsection.
    ``(k) Certifications and Other Reports to Secretary.--
            ``(1) Certification with respect to 1st year of credit 
        period.--Following the close of the 1st taxable year in the 
        credit period with respect to any qualified middle-income 
        building, the taxpayer shall certify to the Secretary (at such 
        time and in such form and in such manner as the Secretary 
        prescribes)--
                    ``(A) the taxable year, and calendar year, in which 
                such building was placed in service,
                    ``(B) the adjusted basis and eligible basis of such 
                building as of the close of the 1st year of the credit 
                period,
                    ``(C) the maximum applicable percentage and 
                qualified basis permitted to be taken into account by 
                the appropriate housing credit agency under subsection 
                (h), and
                    ``(D) such other information as the Secretary may 
                require.
        In the case of a failure to make the certification required by 
        the preceding sentence on the date prescribed therefor, unless 
        it is shown that such failure is due to reasonable cause and 
        not to willful neglect, no credit shall be allowable by reason 
        of subsection (a) with respect to such building for any taxable 
        year ending before such certification is made.
            ``(2) Annual reports to the secretary.--The Secretary may 
        require taxpayers to submit an information return (at such time 
        and in such form and manner as the Secretary prescribes) for 
        each taxable year setting forth--
                    ``(A) the qualified basis for the taxable year of 
                each qualified middle-income building of the taxpayer,
                    ``(B) the information described in paragraph (1)(C) 
                for the taxable year, and
                    ``(C) such other information as the Secretary may 
                require.
        The penalty under section 6652(j) shall apply to any failure to 
        submit the return required by the Secretary under the preceding 
        sentence on the date prescribed therefor.
            ``(3) Annual reports from housing credit agencies.--Each 
        agency which allocates any housing credit amount to any 
        building for any calendar year shall submit to the Secretary 
        (at such time and in such manner as the Secretary shall 
        prescribe) an annual report specifying--
                    ``(A) the amount of housing credit amount allocated 
                to each building for such year,
                    ``(B) sufficient information to identify each such 
                building and the taxpayer with respect thereto, and
                    ``(C) such other information as the Secretary may 
                require.
        The penalty under section 6652(j) shall apply to any failure to 
        submit the report required by the preceding sentence on the 
        date prescribed therefor.
    ``(l) Responsibilities of Housing Credit Agencies.--
            ``(1) Plans for allocation of credit among projects.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this section, the housing credit dollar 
                amount with respect to any building shall be zero 
                unless--
                            ``(i) such amount was allocated pursuant to 
                        a qualified allocation plan of the housing 
                        credit agency which is approved by the 
                        governmental unit (in accordance with rules 
                        similar to the rules of section 42(m)(1)) of 
                        which such agency is a part,
                            ``(ii) a comprehensive market study of the 
                        housing needs of middle-income individuals in 
                        the area to be served by the project is 
                        conducted before the credit allocation is made 
                        and at the developer's expense by a 
                        disinterested party who is approved by such 
                        agency, and
                            ``(iii) a written explanation is available 
                        to the general public for any allocation of a 
                        housing credit dollar amount which is not made 
                        in accordance with established priorities and 
                        selection criteria of the housing credit 
                        agency.
                    ``(B) Qualified allocation plan.--For purposes of 
                this paragraph, the term `qualified allocation plan' 
                means any plan--
                            ``(i) which sets forth selection criteria 
                        to be used to determine housing priorities of 
                        the housing credit agency which are appropriate 
                        to local conditions,
                            ``(ii) which also gives preference in 
                        allocating housing credit dollar amounts among 
                        selected projects to--
                                    ``(I) projects obligated to serve 
                                qualified tenants for the longest 
                                periods,
                                    ``(II) projects in areas with 
                                insufficient supply of housing 
                                affordable to median income households,
                                    ``(III) projects which target 
                                housing to tenants at a range of 
                                incomes between 60 and 100 percent of 
                                area median gross income, and
                                    ``(IV) projects located near 
                                transit hubs, and
                            ``(iii) which provides a procedure that the 
                        agency (or an agent or other private contractor 
                        of such agency) will follow in monitoring for 
                        noncompliance with the provisions of this 
                        section and in notifying the Internal Revenue 
                        Service of such noncompliance which such agency 
                        becomes aware of and in monitoring for 
                        noncompliance with habitability standards 
                        through regular site visits.
                    ``(C) Certain selection criteria must be used.--The 
                selection criteria set forth in a qualified allocation 
                plan must include--
                            ``(i) project location,
                            ``(ii) housing needs characteristics,
                            ``(iii) project characteristics, including 
                        whether the project includes the use of 
                        existing housing as part of a community 
                        revitalization plan,
                            ``(iv) sponsor characteristics,
                            ``(v) tenant populations with special 
                        housing needs,
                            ``(vi) tenant populations of individuals 
                        with children,
                            ``(vii) projects intended for eventual 
                        tenant ownership,
                            ``(viii) the energy efficiency of the 
                        project, and
                            ``(ix) the historic nature of the project.
                    ``(D) Certain selection criteria prohibited.--The 
                selection criteria set forth in a qualified allocation 
                plan shall not include a requirement of local approval 
                or local contributions, either as a threshold 
                qualification requirement or as part of a point system 
                to be considered for allocations of housing credit 
                dollar amount.
            ``(2) Credit allocated to building not to exceed amount 
        necessary to assure project feasibility.--
                    ``(A) In general.--The housing credit dollar amount 
                allocated to a project shall not exceed the amount the 
                housing credit agency determines is necessary for the 
                financial feasibility of the project and its viability 
                as a qualified middle-income housing project throughout 
                the credit period.
                    ``(B) Agency evaluation.--In making the 
                determination under subparagraph (A), the housing 
                credit agency shall consider--
                            ``(i) the sources and uses of funds and the 
                        total financing planned for the project,
                            ``(ii) any proceeds or receipts expected to 
                        be generated by reason of tax benefits,
                            ``(iii) the percentage of the housing 
                        credit dollar amount used for project costs 
                        other than the cost of intermediaries, and
                            ``(iv) the reasonableness of the 
                        developmental and operational costs of the 
                        project.
                Clause (iii) shall not be applied so as to impede the 
                development of projects in hard-to-develop areas. Such 
                a determination shall not be construed to be a 
                representation or warranty as to the feasibility or 
                viability of the project.
                    ``(C) Determination made when credit amount applied 
                for and when building placed in service.--
                            ``(i) In general.--A determination under 
                        subparagraph (A) shall be made as of each of 
                        the following times:
                                    ``(I) The application for the 
                                housing credit dollar amount.
                                    ``(II) The allocation of the 
                                housing credit dollar amount.
                                    ``(III) The date the building is 
                                placed in service.
                            ``(ii) Certification as to amount of other 
                        subsidies.--Prior to each determination under 
                        clause (i), the taxpayer shall certify to the 
                        housing credit agency the full extent of all 
                        Federal, State, and local subsidies which apply 
                        (or which the taxpayer expects to apply) with 
                        respect to the building.
    ``(m) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including--
            ``(1) regulations dealing with--
                    ``(A) projects which include more than 1 building 
                or only a portion of a building, or
                    ``(B) buildings which are placed in service in 
                portions,
            ``(2) regulations providing for the application of this 
        section to short taxable years,
            ``(3) regulations preventing the avoidance of the rules of 
        this section,
            ``(4) regulations providing the opportunity for housing 
        credit agencies to correct administrative errors and omissions 
        with respect to allocations and record keeping within a 
        reasonable period after their discovery, taking into account 
        the availability of regulations and other administrative 
        guidance from the Secretary, and
            ``(5) in consultation with the Secretary of Housing and 
        Urban Development, regulations or guidance to promote uniform 
        definitions and to streamline requirements for with respect to 
        qualified middle-income buildings which receive funding from 
        programs administrated by the Department of Housing and Urban 
        Development, including programs authorized by Native American 
        Housing Assistance and Self-Determination Act of 1996 .''.
    (b) Treatment as Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 is amended by striking ``plus'' at 
the end of paragraph (40), by striking the period at the end of 
paragraph (41) and inserting ``, plus'', and by adding at the end the 
following new paragraph:
            ``(42) the middle-income housing credit determined under 
        section 42A(a).''.
    (c) Reduction in Basis.--Section 1016(a) of the Internal Revenue 
Code of 1986 is amended--
            (1) by striking ``and'' at the end of paragraph (37);
            (2) by redesignating paragraph (38) as paragraph (39); and
            (3) by inserting after paragraph (37) the following new 
        paragraph:
            ``(38) to the extent provided in section 42A(i)(8), and''.
    (d) Treatment Under Base Erosion Minimum Tax .--Section 59A(b)(4) 
of he Internal Revenue Code of 1986 is amended by redesignating 
subparagraphs (B) and (C) as subparagraphs (C) and (D), respectively, 
and by inserting after subparagraphs (A) the following new 
subparagraph:
                    ``(B) the middle-income housing credit determined 
                under section 42A(a),''.
    (e) Conforming Amendments Relating to Low-Income Housing Tax 
Credit.--Section 42(n) of the Internal Revenue Code of 1986 is 
amended--
            (1) by striking ``regulations'' in the matter preceding 
        paragraph (1),
            (2) by inserting ``regulations'' before ``dealing with'' in 
        paragraph (1),
            (3) by inserting ``regulations'' before ``providing'' in 
        paragraphs (2) and (4),
            (4) by inserting ``regulations'' before ``preventing'' in 
        paragraph (3),
            (5) by striking ``and''at the end of paragraph (3),
            (6) by striking the period at the end of paragraph (4) and 
        inserting ``, and'', and
            (7) by adding at the end the following new paragraph:
            ``(5) in consultation with the Secretary of Housing and 
        Urban Development, regulations or guidance to promote uniform 
        definitions and to streamline requirements for with respect to 
        qualified low-income buildings which receive funding from 
        programs administrated by the Department of Housing and Urban 
        Development, including programs authorized by Native American 
        Housing Assistance and Self-Determination Act of 1996.''.
    (f) Conforming Amendments.--
            (1) Section 45L(e) of the Internal Revenue Code of 1986 is 
        amended by inserting ``or 42A'' after ``42''.
            (2) Section 50(c)(3)(C) of such Code is amended by 
        inserting ``or 42A'' after ``42''.
            (3) Section 55(c)(1) of such Code is amended by inserting 
        ``42A(j),'' before ``45(e)(11)(C)''.
            (4) Subsections (i)(3)(C), (i)(6)(B)(i), and (k)(1) of 
        section 469 of such Code are each amended by inserting ``or 
        42A'' after ``42''.
            (5) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 42 the following new item:

``Sec. 42A. Middle-income housing credit.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to buildings placed in service after December 31, 2023, in 
taxable years ending after such date.
                                 <all>
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