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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1988 Introduced in Senate (IS)]

104th CONGRESS
  2d Session
                                S. 1988

 To amend the Internal Revenue Code of 1986 to provide for individuals 
who are residents of the District of Columbia a maximum rate of tax of 
15 percent on income from sources within the District of Columbia, and 
                          for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             July 24, 1996

Mr. Mack (for himself, Mr. Lieberman, Mr. Abraham, Mr. Lott, Mr. Hatch, 
 and Mr. Bennett) 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 for individuals 
who are residents of the District of Columbia a maximum rate of tax of 
15 percent on income from sources within the District of Columbia, 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 ``District of Columbia Economic 
Recovery Act''.

SEC. 2. SPECIAL RULES FOR TAXATION OF INDIVIDUALS WHO ARE RESIDENTS OF 
              OR INVESTORS IN THE DISTRICT OF COLUMBIA.

    (a) In General.--Subchapter A of chapter 1 of the Internal Revenue 
Code of 1986 (relating to determination of tax liability) is amended by 
adding at the end the following new part:

    ``PART VIII--SPECIAL RULES FOR TAXATION OF INDIVIDUALS WHO ARE 
         RESIDENTS OF OR INVESTORS IN THE DISTRICT OF COLUMBIA

                              ``Sec. 59B. Limitation on tax imposed on 
                                        residents of the District of 
                                        Columbia.
                              ``Sec. 59C. Taxation of capital gains 
                                        sourced in the District of 
                                        Columbia.

``SEC. 59B. LIMITATION ON TAX IMPOSED ON RESIDENTS OF THE DISTRICT OF 
              COLUMBIA.

    ``(a) General Rule.--If a taxpayer elects the application of this 
section, the net income tax of an individual who is a resident of the 
District of Columbia for the taxable year shall not exceed the 
limitation determined under subsection (b) for such year.
    ``(b) Limitation.--
            ``(1) In general.--The limitation determined under this 
        subsection is the sum of the following amounts:
                    ``(A) 15-percent rate.--15 percent of so much of 
                District-sourced income as exceeds the exemption 
                amount.
                    ``(B) Average rate.--An amount equal to the average 
                rate of the non-District-sourced adjusted gross income.
            ``(2) District-sourced capital gains.--

                                ``For exclusion from tax of capital 
gains, see section 59C.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Resident of district of columbia.--An individual is a 
        resident of the District of Columbia for the taxable year if--
                    ``(A) such individual used a residence in the 
                District of Columbia as a place of abode (and was 
                physically present at such place) for at least 183 days 
                of such taxable year, and
                    ``(B) such individual is subject to the District of 
                Columbia income tax for such taxable year.
            ``(2) Net income tax.--The term `net income tax' means--
                    ``(A) the sum of regular tax liability and the tax 
                imposed by section 55 (determined without regard to 
                this section), reduced by
                    ``(B) the aggregate credits allowable under part IV 
                (other than section 31).
            ``(3) Exemption amount.--The term `exemption amount' 
        means--
                    ``(A) $30,000 in the case of a joint return or a 
                surviving spouse,
                    ``(B) $15,000 in the case of--
                            ``(i) an individual who is not a married 
                        individual and is not a surviving spouse, and
                            ``(ii) a married individual filing a 
                        separate return, and
                    ``(C) $25,000 in the case of a head of a household.
            ``(4) Average rate.--The term `average rate' means the 
        percentage determined by dividing--
                    ``(A) the sum (determined without regard to this 
                section) of the taxpayer's regular tax liability and 
                the tax imposed by section 55, by
                    ``(B) the taxpayer's taxable income.
        If the percentage determined under the preceding sentence is 
        not a whole number of percentage points, such percentage shall 
        be rounded to the nearest whole number of percentage points.
            ``(5) Regular tax liability.--The term `regular tax 
        liability' has the meaning given to such term by section 26(b).
    ``(d) District-Sourced Income.--For purposes of this section, the 
term `District-sourced income' means adjusted gross income reduced by 
the sum of--
            ``(1) non-District-sourced adjusted gross income,
            ``(2) the deduction allowed by section 170, and
            ``(3) the deduction allowed by section 163 to the extent 
        attributable to qualified residence interest (as defined in 
        section 163(h)).
    ``(e) Non-District-Sourced Adjusted Gross Income.--For purposes of 
this section, the term `non-District-sourced adjusted gross income' 
means gross income of the taxpayer from sources outside the District of 
Columbia reduced (but not below zero) by the deductions taken into 
account in determining adjusted gross income which are allocable to 
such income.
    ``(f) Sources of Income.--For purposes of this section--
            ``(1) Retirement income and other income not sourced under 
        subsection.--The source of any income not specifically provided 
        for in this subsection shall be treated as from sources within 
        the District of Columbia.
            ``(2) Personal services.--
                    ``(A) In general.--Compensation (other than 
                retirement income) for services performed by the 
                taxpayer as an employee, and net earnings from self-
                employment (as defined in section 1402)), shall be 
                sourced at the place such services are performed.
                    ``(B) Services performed in washington-baltimore 
                area treated as performed in the district of 
                columbia.--Services performed in the Washington-
                Baltimore area shall be treated as performed in the 
                District of Columbia.
                    ``(C) Individuals performing 80 percent of services 
                within washington-baltimore area.--If, during any 
                taxable year, at least 80 percent of the hours of 
                service performed by an individual are performed within 
                the Washington-Baltimore area, all such service shall 
                be treated for purposes of this paragraph as performed 
                within the District of Columbia.
                    ``(D) Washington-baltimore area.--For purposes of 
                this paragraph, the term `Washington-Baltimore area' 
                means the area consisting of--
                            ``(i) the Washington/Baltimore Consolidated 
                        Metropolitan Statistical Area (as designated by 
                        the Office of Management and Budget), and
                            ``(ii) St. Mary's County, Maryland.
            ``(3) Interest.--
                    ``(A) In general.--Interest received or accrued 
                during the taxable year shall be treated as from 
                sources outside the District of Columbia.
                    ``(B) Exception for small amounts of non-district-
                sourced interest.--Interest which would (but for this 
                subparagraph) be treated as from sources outside the 
                District of Columbia shall be treated as from sources 
                in the District of Columbia to the extent the amount of 
                such interest does not exceed $400.
                    ``(C) Exception for interest paid by district of 
                columbia businesses and residents.--
                            ``(i) Businesses.--In the case of interest 
                        paid during a calendar year by a debtor which 
                        was required to file (and filed) a franchise 
                        tax return with the District of Columbia for 
                        the debtor's taxable year ending with or within 
                        the prior calendar year, an amount equal to the 
                        D.C. percentage (as shown on such return) of 
                        such interest shall be treated as from sources 
                        within the District of Columbia. The preceding 
                        sentence shall apply only if such percentage is 
                        furnished to the taxpayer in writing on or 
                        before January 31 of the year following the 
                        calendar year in which such interest is paid.
                            ``(ii) Others.--Interest shall be treated 
                        as from sources within the District of Columbia 
                        if the interest is paid during a calendar year 
                        by a debtor--
                                    ``(I) which was required to file 
                                (and filed) an income tax return with 
                                the District of Columbia for the 
                                debtor's taxable year ending with or 
                                within the prior calendar year, and
                                    ``(II) which is not required to 
                                file a franchise tax return with the 
                                District of Columbia for such taxable 
                                year.
                    ``(D) Special rule for determination of d.c. 
                percentage for new businesses.--Interest shall be 
                treated as from sources within the District of Columbia 
                if the interest is paid during a calendar year by a 
                debtor which was required to file (and filed) a 
                franchise tax return with the District of Columbia for 
                such debtor's taxable year ending with or within such 
                calendar year, but which was not required to file such 
                a return for such debtor's prior taxable year.
            ``(4) Dividends.--
                    ``(A) In general.--Dividends received or accrued 
                during the taxable year shall be treated as from 
                sources outside the District of Columbia.
                    ``(B) Exception for small amounts of non-district-
                sourced dividends.--Dividends which would (but for this 
                subparagraph) be treated as from sources outside the 
                District of Columbia shall be treated as from sources 
                in the District of Columbia to the extent the amount of 
                such dividends do not exceed $400.
                    ``(C) Exception for dividends paid by corporation 
                engaged in business in the district of columbia.--In 
                the case of dividends paid during a calendar year by a 
                corporation which was required to file (and filed) a 
                franchise tax return with the District of Columbia for 
                the corporation's taxable year ending with or within 
                the prior calendar year, an amount equal to the D.C. 
                percentage (as shown on such return) of such dividends 
                shall be treated as from sources within the District of 
                Columbia. The preceding sentence shall apply only if 
                such percentage is furnished to the taxpayer in writing 
                on or before January 31 of the year following the 
                calendar year in which such dividends are paid.
                    ``(D) Special rule for determination of d.c. 
                percentage for new businesses.--Dividends shall be 
                treated as from sources within the District of Columbia 
                if the dividends are paid during a calendar year by a 
                corporation which was required to file (and filed) a 
                franchise tax return with the District of Columbia for 
                such corporation's taxable year ending with or within 
                such calendar year, but which was not required to file 
                such a return for such corporation's prior taxable 
                year.
            ``(5) Disposition of tangible property.--Income, gain, or 
        loss from the disposition of tangible property shall be sourced 
        to the place such property is located at the time of the 
        disposition.
            ``(6) Disposition of intangible property.--
                    ``(A) In general.--Income, gain, or loss from the 
                disposition of intangible property shall be treated as 
                from sources outside the District of Columbia.
                    ``(B) Exception.-- If any portion of the most 
                recent income received or accrued by the taxpayer 
                before such disposition which was attributable to such 
                property was from sources within the District of 
                Columbia, a like portion of the income, gain, or loss 
                from such disposition shall be treated as from sources 
                within the District of Columbia.
            ``(7) Rentals.--Rents from property shall be sourced at the 
        place where such property is located.
            ``(8) Royalties.--Royalties shall be treated as from 
        sources outside the District of Columbia.
            ``(9) Income from proprietorship.--
                    ``(A) In general.--In the case of a trade or 
                business carried on by the taxpayer as a 
                proprietorship, income from such trade or business 
                (other than income which is included in net earnings 
                from self-employment by the taxpayer) shall be treated 
                as from sources outside the District of Columbia.
                    ``(B) Exception for district of columbia 
                businesses.--If the taxpayer is required to file (and 
                files) a franchise tax return with the District of 
                Columbia for the taxable year, subparagraph (A) shall 
                not apply to an amount equal to the D.C. percentage of 
                such income.
            ``(10) Income from partnership.--
                    ``(A) In general.--In the case of a taxpayer who is 
                a partner in a partnership, income from such 
                partnership (other than income which is included in net 
                earnings from self-employment by any partner) shall be 
                treated as from sources outside the District of 
                Columbia.
                    ``(B) Exceptions.--
                            ``(i) Subparagraph (A) shall not apply to a 
                        partnership which was required to file (and 
                        filed) a franchise tax return with the District 
                        of Columbia for the partnership's taxable year 
                        ending with or within the taxpayer's taxable 
                        year to the extent of the D.C. percentage of 
                        the taxpayer's distributive share of the 
                        partnership income.
                            ``(ii) Subparagraph (A) shall not apply to 
                        a partnership which was not required to file a 
                        franchise tax return with the District of 
                        Columbia for the partnership's taxable year 
                        ending with or within the taxpayer's taxable 
                        year to the extent of the taxpayer's 
                        distributive share of partnership income which 
                        is not (as determined under this subsection) 
                        from sources outside the District of Columbia.
            ``(11) Income in respect of a decedent; income from an 
        estate.--Income in respect of a decedent, and income from an 
        estate, shall be sourced at the place where the decedent was 
        domiciled at the time of his death.
            ``(12) Income from a trust.--Income (other than retirement 
        income) from a trust shall be treated as from the same sources 
        as the income of the trust to which it is attributable.
    ``(g) Definitions Relating to Subsection (f).--For purposes of 
subsection (f)--
            ``(1) Retirement income.--The term `retirement income' has 
        the meaning given such term by section 114(b)(1) of title 4, 
        United States Code (determined without regard to subparagraph 
        (I) thereof).
            ``(2) D.C. percentage.--The term `D.C. percentage' means 
        the percentage determined by dividing--
                    ``(A) the net income taxable in the District of 
                Columbia (as shown on the original return for the 
                taxable year), by
                    ``(B) total net income from all sources (as shown 
                on such return).
        The preceding sentence shall be applied based on amounts shown 
        on the original applicable District of Columbia franchise or 
        income tax return.
    ``(h) Section Not To Apply to Estates and Trusts.--This section 
shall not apply to an estate or trust.
    ``(i) Election.--The election provided in subsection (a) shall be 
made at such time and in such manner as the Secretary may by 
regulations prescribe. Any such election shall apply to the first 
taxable year for which such election was made and for each taxable year 
thereafter until such election is revoked by the taxpayer.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.

``SEC. 59C. EXCLUSION OF CAPITAL GAINS SOURCED IN THE DISTRICT OF 
              COLUMBIA.

    ``(a) Exclusion.--
            ``(1) General rule.--Except as provided in paragraph (2), 
        in the case of a taxpayer who is an individual, gross income 
        shall not include any qualified capital gain recognized on the 
        sale or exchange of a District asset held for more than 3 
        years.
            ``(2) Exception for certain gain of nonresidents.--In the 
        case of a taxpayer who is not a resident of the District of 
        Columbia for any taxable year, gross income shall not include 
        50 percent of the qualified capital gain recognized on the sale 
        or exchange of residential rental property (within the meaning 
        of section 168(e)(2)(A)) which is a District asset held for 
        more than 3 years and which is not taken into account under 
        section 1202.
    ``(b) District Asset.--For purposes of this section--
            ``(1) In general.--The term `District asset' means--
                    ``(A) any District stock,
                    ``(B) any District business property,
                    ``(C) any District partnership interest, and
                    ``(D) any principal residence (within the meaning 
                of section 1034).
            ``(2) District stock.--
                    ``(A) In general.--The term `District stock' means 
                any stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer on original issue from the corporation 
                        solely in exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was a District 
                        business (or, in the case of a new corporation, 
                        such corporation was being organized for 
                        purposes of being a District business), and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as a District business.
                    ``(B) Redemptions.--The term `District stock' shall 
                not include any stock acquired from a corporation which 
                made a substantial stock redemption or distribution 
                (without a bona fide business purpose therefor) in an 
                attempt to avoid the purposes of this section.
            ``(3) District business property.--
                    ``(A) In general.--The term `District business 
                property' means tangible property if--
                            ``(i) such property was acquired by the 
                        taxpayer by purchase (as defined in section 
                        179(d)(2)),
                            ``(ii) the original use of such property in 
                        the District of Columbia commences with the 
                        taxpayer, and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such property, 
                        substantially all of the use of such property 
                        was in a District business of the taxpayer.
                    ``(B) Special rule for substantial improvements.--
                            ``(i) In general.--The requirements of 
                        clauses (i) and (ii) of subparagraph (A) shall 
                        be treated as satisfied with respect to--
                                    ``(I) property which is 
                                substantially improved by the taxpayer, 
                                and
                                    ``(II) any land on which such 
                                property is located.
                            ``(ii) Substantial improvement.--For 
                        purposes of clause (i), property shall be 
                        treated as substantially improved by the 
                        taxpayer if, during any 24-month period 
                        beginning after the date of the enactment of 
                        this section, additions to basis with respect 
                        to such property in the hands of the taxpayer 
                        exceed the greater of--
                                    ``(I) an amount equal to the 
                                adjusted basis at the beginning of such 
                                24-month period in the hands of the 
                                taxpayer, or
                                    ``(II) $5,000.
                    ``(C) Limitation on land.--The term `District 
                business property' shall not include land which is not 
                an integral part of a District business.
            ``(4) District partnership interest.--The term `District 
        partnership interest' means any interest in a partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                from the partnership solely in exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was a District business (or, in the 
                case of a new partnership, such partnership was being 
                organized for purposes of being a District business), 
                and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as a District business.
        A rule similar to the rule of paragraph (2)(B) shall apply for 
        purposes of this paragraph.
            ``(5) Treatment of subsequent purchasers.--The term 
        `District asset' includes any property which would be a 
        District asset but for paragraph (2)(A)(i), (3)(A)(ii), or 
        (4)(A) in the hands of the taxpayer if such property was a 
        District asset in the hands of all prior holders.
            ``(6) 10-year safe harbor.--If any property ceases to be a 
        District asset by reason of paragraph (2)(A)(iii), (3)(A)(iii), 
        or (4)(C) after the 10-year period beginning on the date the 
        taxpayer acquired such property, such property shall continue 
        to be treated as meeting the requirements of such paragraph; 
        except that the amount of gain to which subsection (a) applies 
        on any sale or exchange of such property shall not exceed the 
        amount which would be qualified capital gain had such property 
        been sold on the date of such cessation.
    ``(c) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified capital gain.--Except as otherwise provided 
        in this subsection, the term `qualified capital gain' means any 
        long-term capital gain recognized on the sale or exchange of a 
        District asset held for more than 3 years.
            ``(2) Certain gain on real property not qualified.--The 
        term `qualified capital gain' shall not include any gain which 
        would be treated as ordinary income under section 1250 if 
        section 1250 applied to all depreciation rather than the 
        additional depreciation.
            ``(3) District business.--The term `District business' 
        means, with respect to any taxable year, any individual, 
        partnership, or corporation if for such year either--
                    ``(A)(i) at least 50 percent of the total gross 
                income of such individual, partnership, or corporation 
                is derived from the active conduct of a trade or 
                business in the District of Columbia,
                    ``(ii) substantially all of the use of the tangible 
                property of such individual, partnership, or 
                corporation (whether owned or leased) is within the 
                District of Columbia, and
                    ``(iii) at least 35 percent of the employees of 
                such individual, partnership, or corporation are 
                located in the District of Columbia, or
                    ``(B) at least 50 percent of the employees of such 
                individual, partnership, or corporation are located in 
                the District of Columbia.
    ``(d) Treatment of Pass-Thru Entities.--
            ``(1) Sales and exchanges.--Gain on the sale or exchange of 
        an interest in a pass-thru entity held by the taxpayer (other 
        than an interest in an entity which was a District business 
        during substantially all of the period the taxpayer held such 
        interest) for more than 3 years shall be treated as gain 
        described in subsection (a) to the extent such gain is 
        attributable to amounts which would be qualified capital gain 
        on District assets (determined as if such assets had been sold 
        on the date of the sale or exchange) held by such entity for 
        more than 3 years and throughout the period the taxpayer held 
        such interest. A rule similar to the rule of paragraph (2)(B) 
        shall apply for purposes of the preceding sentence.
            ``(2) Income inclusions.--
                    ``(A) In general.--Any amount included in income by 
                reason of holding an interest in a pass-thru entity 
                (other than an entity which was a District business 
                during substantially all of the period the taxpayer 
                held the interest to which such inclusion relates) 
                shall be treated as gain described in subsection (a) if 
                such amount meets the requirements of subparagraph (B).
                    ``(B) Requirements.--An amount meets the 
                requirements of this subparagraph if--
                            ``(i) such amount is attributable to 
                        qualified capital gain recognized on the sale 
                        or exchange by the pass-thru entity of property 
                        which is a District asset in the hands of such 
                        entity and which was held by such entity for 
                        the period required under subsection (a), and
                            ``(ii) such amount is includible in the 
                        gross income of the taxpayer by reason of the 
                        holding of an interest in such entity which was 
                        held by the taxpayer on the date on which such 
                        pass-thru entity acquired such asset and at all 
                        times thereafter before the disposition of such 
                        asset by such pass-thru entity.
                    ``(C) Limitation based on interest originally held 
                by taxpayer.--Subparagraph (A) shall not apply to any 
                amount to the extent such amount exceeds the amount to 
                which subparagraph (A) would have applied if such 
                amount were determined by reference to the interest the 
                taxpayer held in the pass-thru entity on the date the 
                District asset was acquired.
            ``(3) Pass-thru entity.--For purposes of this subsection, 
        the term `pass-thru entity' means--
                    ``(A) any partnership,
                    ``(B) any S corporation,
                    ``(C) any regulated investment company, and
                    ``(D) any common trust fund.
    ``(e) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which Are District Businesses.--In the case of the sale or 
exchange of an interest in a partnership, or of stock in an S 
corporation, which was a District business during substantially all of 
the period the taxpayer held such interest or stock, the amount of 
qualified capital gain shall be determined without regard to any 
intangible, and any land, which is not an integral part of the District 
business.
    ``(f) Certain Tax-Free and Other Transfers.--For purposes of this 
section--
            ``(1) In general.--In the case of a transfer of a District 
        asset to which this subsection applies, the transferee shall be 
        treated as--
                    ``(A) having acquired such asset in the same manner 
                as the transferor, and
                    ``(B) having held such asset during any continuous 
                period immediately preceding the transfer during which 
                it was held (or treated as held under this subsection) 
                by the transferor.
            ``(2) Transfers to which subsection applies.--This 
        subsection shall apply to any transfer--
                    ``(A) by gift,
                    ``(B) at death, or
                    ``(C) from a partnership to a partner thereof of a 
                District asset with respect to which the requirements 
                of subsection (d)(2) are met at the time of the 
                transfer (without regard to the 3-year holding 
                requirement).
            ``(3) Certain rules made applicable.--Rules similar to the 
        rules of section 1244(d)(2) shall apply for purposes of this 
        section.''
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 55(c) of such Code is amended 
        by adding at the end the following: ``Such regular tax shall be 
        determined without regard to section 59B.''
            (2) The table of parts for subchapter A of chapter 1 of 
        such Code is amended by adding at the end the following new 
        item:

                              ``Part VIII. Special rules for taxation 
                                        of individuals who are 
                                        residents of or investors in 
                                        the District of Columbia.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 3. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS WITHIN THE 
              DISTRICT OF COLUMBIA.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS WITHIN THE 
              DISTRICT OF COLUMBIA.

    ``(a) In General.--A taxpayer may elect to treat any qualified 
environmental remediation expenditure which is paid or incurred by the 
taxpayer as an expense which is not chargeable to capital account. Any 
expenditure which is so treated shall be allowed as a deduction for the 
taxable year in which it is paid or incurred.
    ``(b) Qualified Environmental Remediation Expenditure.--For 
purposes of this section--
            ``(1) In general.--The term `qualified environmental 
        remediation expenditure' means any expenditure--
                    ``(A) which is otherwise chargeable to capital 
                account, and
                    ``(B) which is paid or incurred in connection with 
                the abatement or control of hazardous substances at a 
                qualified contaminated site.
            ``(2) Special rule for expenditures for depreciable 
        property.--Such term shall not include any expenditure for the 
        acquisition of property of a character subject to the allowance 
        for depreciation which is used in connection with the abatement 
        or control of hazardous substances at a qualified contaminated 
        site; except that the portion of the allowance under section 
        167 for such property which is otherwise allocated to such site 
        shall be treated as a qualified environmental remediation 
        expenditure.
    ``(c) Qualified Contaminated Site.--For purposes of this section--
            ``(1) In general.--The term `qualified contaminated site' 
        means any area within the District of Columbia--
                    ``(A) which is held by the taxpayer for use in a 
                trade or business or for the production of income, or 
                which is property described in section 1221(1) in the 
                hands of the taxpayer, and
                    ``(B) which contains (or potentially contains) any 
                hazardous substance.
            ``(2) Taxpayer must receive statement from environmental 
        agency.--An area shall be treated as a qualified contaminated 
        site with respect to expenditures paid or incurred during any 
        taxable year only if the taxpayer receives a statement from the 
        appropriate agency of the District of Columbia in which such 
        area is located that such area meets the requirements of 
        paragraph (1)(B).
            ``(3) Appropriate agency.-- For purposes of paragraph (2), 
        the appropriate agency of the District of Columbia is the 
        agency designated by the Administrator of the Environmental 
        Protection Agency for purposes of this section. If no agency is 
        designated under the preceding sentence, the appropriate agency 
        shall be the Environmental Protection Agency.
    ``(d) Hazardous substance.--For purposes of this section--
            ``(1) In general.--The term `hazardous substance' means--
                    ``(A) any substance which is a hazardous substance 
                as defined in section 101(14) of the Comprehensive 
                Environmental Response, Compensation, and Liability Act 
                of 1980, and
                    ``(B) any substance which is designated as a 
                hazardous substance under section 102 of such Act.
            ``(2) Exception.--Such term shall not include any substance 
        with respect to which a removal or remedial action is not 
        permitted under section 104 of such Act by reason of subsection 
        (a)(3) thereof.
    ``(e) Deduction Recaptured as Ordinary Income on Sale, Etc.--Solely 
for purposes of section 1245, in the case of property to which a 
qualified environmental remediation expenditure would have been 
capitalized but for this section--
            ``(1) the deduction allowed by this section for such 
        expenditure shall be treated as a deduction for depreciation, 
        and
            ``(2) such property (if not otherwise section 1245 
        property) shall be treated as section 1245 property solely for 
        purposes of applying section 1245 to such deduction.
    ``(f) Coordination With Other Provisions.--Sections 280B and 468 
shall not apply to amounts which are treated as expenses under this 
section.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 198. Expensing of environmental 
                                        remediation costs within the 
                                        District of Columbia.''
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred after the date of the enactment 
of this Act, in taxable years ending after such date.

SEC. 4. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 22 the 
following new section:

``SEC. 23. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

    ``(a) Allowance of Credit.--In the case of an individual who is a 
first-time homebuyer of a principal residence in the District of 
Columbia during any taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to so much of the purchase price of the residence as does not 
exceed $5,000.
    ``(b) First-Time Homebuyer.--For purposes of this section--
            ``(1) In general.--The term `first-time homebuyer' means 
        any individual if--
                    ``(A) such individual (and if married, such 
                individual's spouse) had no present ownership interest 
                in a principal residence in the District of Columbia 
                during the 1-year period ending on the date of 
                acquisition of the principal residence to which this 
                section applies, and
                    ``(B) subsection (h) or (k) of section 1034 did 
                not, on the day before the close of such 1-year period, 
                suspend the running of any period of time specified in 
                section 1034 for such individual with respect to gain 
                on a principal residence in the District of Columbia.
            ``(2) One-time only.--If an individual is treated as a 
        first-time homebuyer with respect to any principal residence, 
        such individual may not be treated as a first-time homebuyer 
        with respect to any other principal residence.
            ``(3) Principal residence.--The term `principal residence' 
        has the meaning given such term by section 1034.
            ``(4) Date of acquisition.--The term `date of acquisition' 
        means the date--
                    ``(A) on which a binding contract to acquire the 
                principal residence to which this section applies to is 
                entered into, or
                    ``(B) on which construction or reconstruction of 
                such principal residence is commenced.
    ``(c) Carryover of Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under this 
subpart (other than this section and section 25), such excess shall be 
carried to the succeeding taxable year and added to the credit 
allowable under subsection (a) for such taxable year.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Allocation of dollar limitation.--
                    ``(A) Married individuals filing jointly.--In the 
                case of a husband and wife who file a joint return 
                under section 6013, the $5,000 limitation under 
                subsection (a) shall apply to the joint return.
                    ``(B) Married individuals filing separately.--In 
                the case of a married individual filing a separate 
                return, subsection (a) shall be applied by substituting 
                `$2,500' for `$5,000'.
                    ``(C) Other taxpayers.--If 2 or more individuals 
                who are not married purchase a principal residence, the 
                amount of the credit allowed under subsection (a) shall 
                be allocated among such individuals in such manner as 
                the Secretary may prescribe, except that the total 
                amount of the credits allowed to all such individuals 
                shall not exceed $5,000.
            ``(2) Purchase.--The term `purchase' means any acquisition, 
        but only if--
                    ``(A) the property is not acquired from a person 
                whose relationship to the person acquiring it would 
                result in the disallowance of losses under section 267 
                or 707(b) (but, in applying section 267 (b) and (c) for 
                purposes of this section, paragraph (4) of section 
                267(c) shall be treated as providing that the family of 
                an individual shall include only his spouse, ancestors, 
                and lineal descendants), and
                    ``(B) the basis of the property in the hands of the 
                person acquiring it is not determined--
                            ``(i) in whole or in part by reference to 
                        the adjusted basis of such property in the 
                        hands of the person from whom acquired, or
                            ``(ii) under section 1014(a) (relating to 
                        property acquired from a decedent).
            ``(3) Purchase price.--The term `purchase price' means the 
        adjusted basis of the principal residence on the date of 
        acquisition.''
    (b) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 22 the following new item:

                              ``Sec. 23. First-time homebuyer credit 
                                        for District of Columbia.''
    (c) Effective Date.--The amendments made by this section shall 
apply to purchases after the date of the enactment of this Act, in 
taxable years ending after such date.
                                 <all>
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