I 

118TH CONGRESS 

1ST SESSION H. R. 6686 

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

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 7, 2023 

Mr. PANETTA (for himself and Mr. CAREY) introduced the following bill; 

which was referred to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

a credit for middle-income housing, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Workforce Housing 

5 Tax Credit Act’’. 

6 SEC. 2. SENSE OF CONGRESS RELATING TO THE MIDDLE7 INCOME HOUSING TAX CREDIT. 

8 It is the sense of Congress that— 

9 (1) the middle-income housing tax credit under 

10 section 42 of the Internal Revenue Code of 1986 is 

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1 a critically important Federal Government policy 

2 tool to encourage the production of affordable hous3 ing for low-income families; and 

4 (2) Congress should further improve and en5 hance the middle-income housing tax credit by pass6 ing the Affordable Housing Credit Improvement Act 

7 of 2023 as a base. 

8 SEC. 3. MIDDLE-INCOME HOUSING TAX CREDIT. 

9 (a) IN GENERAL.—Subpart D of part IV of sub10 chapter A of chapter 1 of the Internal Revenue Code of 

11 1986 is amended by inserting after section 42 the fol12 lowing new section: 

13 ‘‘SEC. 42A. MIDDLE-INCOME HOUSING CREDIT. 

14 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

15 amount of the middle-income housing credit determined 

16 under this section for any taxable year in the credit period 

17 shall be an amount equal to— 

18 ‘‘(1) the applicable percentage, of 

19 ‘‘(2) the qualified basis of each qualified mid20 dle-income building. 

21 ‘‘(b) APPLICABLE PERCENTAGE.— 

22 ‘‘(1) DETERMINATION OF APPLICABLE PER23 CENTAGE.—For purposes of this section— 

24 ‘‘(A) IN GENERAL.—The term ‘applicable 

25 percentage’ means, with respect to any building, 

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1 the appropriate percentage prescribed by the 

2 Secretary for the earlier of— 

3 ‘‘(i) the month in which such building 

4 is placed in service, or 

5 ‘‘(ii) at the election of the taxpayer, 

6 the month in which the taxpayer and the 

7 housing credit agency enter into an agree8 ment with respect to such building (which 

9 is binding on such agency, the taxpayer, 

10 and all successors in interest) as to the 

11 housing credit dollar amount to be allo12 cated to such building. 

13 A month may be elected under clause (ii) only 

14 if the election is made not later than the 5th 

15 day after the close of such month. Such an elec16 tion, once made, shall be irrevocable. 

17 ‘‘(B) METHOD OF PRESCRIBING PERCENT18 AGES.—The percentages prescribed by the Sec19 retary for any month shall be percentages which 

20 will yield over a 15-year period amounts of 

21 credit under subsection (a) which have a 

22 present value equal to— 

23 ‘‘(i) 50 percent of the qualified basis 

24 of a new building which is not Federally 

25 subsidized for the taxable year, and 

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1 ‘‘(ii) 20 percent of the qualified basis 

2 of a building not described in clause (i). 

3 ‘‘(C) METHOD OF DISCOUNTING.—The 

4 present value under subparagraph (B) shall be 

5 determined— 

6 ‘‘(i) as of the last day of the 1st year 

7 of the 15-year period referred to in sub8 paragraph (B), 

9 ‘‘(ii) by using a discount rate equal to 

10 72 percent of the average of the annual 

11 Federal mid-term rate and the annual 

12 Federal long-term rate applicable under 

13 section 1274(d)(1) to the month applicable 

14 under clause (i) or (ii) of subparagraph 

15 (A) and compounded annually, and 

16 ‘‘(iii) by assuming that the credit al17 lowable under this section for any year is 

18 received on the last day of such year. 

19 ‘‘(2) MINIMUM CREDIT RATE.— 

20 ‘‘(A) IN GENERAL.—The applicable per21 centage for any building which is not Federally 

22 subsidized for the taxable year shall not be less 

23 than 5 percent. 

24 ‘‘(B) MINIMUM CREDIT RATE FOR FEDER25 ALLY SUBSIDIZED BUILDINGS.—In the case of 

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1 any building to which subparagraph (A) does 

2 not apply, except as provided in paragraph (3), 

3 the applicable percentage shall not be less than 

4 2 percent. 

5 ‘‘(3) EXCEPTION FOR CERTAIN FEDERALLY

6 SUBSIDIZED BUILDINGS.—In the case of any build7 ing to which paragraph (2)(A) does not apply, the 

8 applicable percentage is zero unless— 

9 ‘‘(A) a credit is allowed under section 42 

10 with respect to such building for the taxable 

11 year, and 

12 ‘‘(B) such building is financed by tax-ex13 empt bonds as described in section 42(h)(4). 

14 ‘‘(4) CROSS REFERENCES.— 

15 ‘‘(A) For treatment of certain rehabilita16 tion expenditures as separate new buildings, see 

17 subsection (e). 

18 ‘‘(B) For determination of applicable per19 centage for increases in qualified basis after the 

20 1st year of the credit period, see subsection 

21 (f)(3). 

22 ‘‘(C) For authority of housing credit agen23 cy to limit applicable percentage and qualified 

24 basis which may be taken into account under 

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1 this section with respect to any building, see 

2 subsection (h)(6). 

3 ‘‘(c) QUALIFIED BASIS; QUALIFIED MIDDLE-INCOME

4 BUILDING.—For purposes of this section— 

5 ‘‘(1) QUALIFIED BASIS.— 

6 ‘‘(A) DETERMINATION.—The qualified 

7 basis of any qualified middle-income building 

8 for any taxable year is an amount equal to— 

9 ‘‘(i) the applicable fraction (deter10 mined as of the close of such taxable year) 

11 of 

12 ‘‘(ii) the eligible basis of such building 

13 (determined under subsection (d)). 

14 ‘‘(B) APPLICABLE FRACTION.—For pur15 poses of subparagraph (A), the term ‘applicable 

16 fraction’ means the smaller of the unit fraction 

17 or the floor space fraction. 

18 ‘‘(C) UNIT FRACTION.—For purposes of 

19 subparagraph (B), the term ‘unit fraction’ 

20 means the fraction— 

21 ‘‘(i) the numerator of which is the 

22 number of middle-income units in the 

23 building, and 

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1 ‘‘(ii) the denominator of which is the 

2 number of residential rental units (whether 

3 or not occupied) in such building. 

4 ‘‘(D) FLOOR SPACE FRACTION.—For pur5 poses of subparagraph (B), the term ‘floor 

6 space fraction’ means the fraction— 

7 ‘‘(i) the numerator of which is the 

8 total floor space of the middle-income units 

9 in such building, and 

10 ‘‘(ii) the denominator of which is the 

11 total floor space of the residential rental 

12 units (whether or not occupied) in such 

13 building. 

14 ‘‘(2) QUALIFIED MIDDLE-INCOME BUILDING.— 

15 The term ‘qualified middle-income building’ means 

16 any building which is part of a qualified middle-in17 come housing project at all times during the pe18 riod— 

19 ‘‘(A) beginning on the 1st day in the credit 

20 period on which such building is part of such a 

21 project, and 

22 ‘‘(B) ending on the last day of the credit 

23 period with respect to such building. 

24 ‘‘(d) ELIGIBLE BASIS.—For purposes of this sec25 tion— 

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1 ‘‘(1) NEW BUILDINGS.—The eligible basis of a 

2 new building is its adjusted basis as of the close of 

3 the 1st taxable year of the credit period. 

4 ‘‘(2) EXISTING BUILDINGS.— 

5 ‘‘(A) IN GENERAL.—The eligible basis of 

6 an existing building is— 

7 ‘‘(i) in the case of a building which 

8 meets the requirements of subparagraph 

9 (B), its adjusted basis as of the close of 

10 the 1st taxable year of the credit period, 

11 and 

12 ‘‘(ii) zero in any other case. 

13 ‘‘(B) REQUIREMENTS.—A building meets 

14 the requirements of this subparagraph if— 

15 ‘‘(i) the building is acquired by pur16 chase (as defined in section 179(d)(2)), 

17 ‘‘(ii) there is a period of at least 10 

18 years between the date of its acquisition by 

19 the taxpayer and the date the building was 

20 last placed in service, 

21 ‘‘(iii) the building was not previously 

22 placed in service by the taxpayer or by any 

23 person who was a related person with re24 spect to the taxpayer as of the time pre25 viously placed in service, and 

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1 ‘‘(iv) except as provided in subsection 

2 (f)(5), a credit is allowable under sub3 section (a) by reason of subsection (e) with 

4 respect to the building. 

5 ‘‘(C) ADJUSTED BASIS.—For purposes of 

6 subparagraph (A), the adjusted basis of any 

7 building shall not include so much of the basis 

8 of such building as is determined by reference 

9 to the basis of other property held at any time 

10 by the person acquiring the building. 

11 ‘‘(D) SPECIAL RULES.— 

12 ‘‘(i) SPECIAL RULES FOR CERTAIN

13 TRANSFERS.—For purposes of determining 

14 under subparagraph (B)(ii) when a build15 ing was last placed in service, there shall 

16 not be taken into account any placement in 

17 service— 

18 ‘‘(I) in connection with the acqui19 sition of the building in a transaction 

20 in which the basis of the building in 

21 the hands of the person acquiring it is 

22 determined in whole or in part by ref23 erence to the adjusted basis of such 

24 building in the hands of the person 

25 from whom acquired, 

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1 ‘‘(II) by a person whose basis in 

2 such building is determined under sec3 tion 1014(a) (relating to property ac4 quired from a decedent), 

5 ‘‘(III) by any governmental unit 

6 or qualified nonprofit organization if 

7 the requirements of subparagraph 

8 (B)(ii) are met with respect to the 

9 placement in service by such unit or 

10 organization and all the income from 

11 such property is exempt from Federal 

12 income taxation, 

13 ‘‘(IV) by any person who ac14 quired such building by foreclosure 

15 (or by instrument in lieu of fore16 closure) of any purchase-money secu17 rity interest held by such person if the 

18 requirements of subparagraph (B)(ii) 

19 are met with respect to the placement 

20 in service by such person and such 

21 building is resold within 12 months 

22 after the date such building is placed 

23 in service by such person after such 

24 foreclosure, or 

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1 ‘‘(V) of a single-family residence 

2 by any individual who owned and used 

3 such residence for no other purpose 

4 than as his principal residence. 

5 ‘‘(ii) RELATED PERSON.—For pur6 poses of subparagraph (B)(iii), a person 

7 (hereinafter in this subclause referred to as 

8 the ‘related person’) is related to any per9 son if the related person bears a relation10 ship to such person specified in section 

11 267(b) or 707(b)(1), or the related person 

12 and such person are engaged in trades or 

13 businesses under common control (within 

14 the meaning of subsections (a) and (b) of 

15 section 52). 

16 ‘‘(3) SPECIAL RULES RELATING TO DETER17 MINATION OF ADJUSTED BASIS.—For purposes of 

18 this subsection— 

19 ‘‘(A) IN GENERAL.—Except as provided in 

20 subparagraph (B), the adjusted basis of any 

21 building shall be determined without regard to 

22 the adjusted basis of any property which is not 

23 residential rental property. 

24 ‘‘(B) BASIS OF PROPERTY IN COMMON

25 AREAS, ETC., INCLUDED.— 

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1 ‘‘(i) IN GENERAL.—Except as pro2 vided in clause (ii), the adjusted basis of 

3 any building shall be determined by taking 

4 into account the adjusted basis of property 

5 (of a character subject to the allowance for 

6 depreciation) used in common areas or 

7 provided as comparable amenities to all 

8 residential rental units in such building. 

9 ‘‘(ii) SPECIAL RULE.—In the case of 

10 any building for which the low-income 

11 housing tax credit is allowable under sec12 tion 42, the adjusted basis of the building 

13 under this section shall be determined 

14 without regard to property used in com15 mon areas or provided as comparable 

16 amenities to all residential rental units in 

17 such building. 

18 ‘‘(C) NO REDUCTION FOR DEPRECIA19 TION.—The adjusted basis of any building shall 

20 be determined without regard to paragraphs (2) 

21 and (3) of section 1016(a). 

22 ‘‘(4) SPECIAL RULES FOR DETERMINING ELIGI23 BLE BASIS.— 

24 ‘‘(A) FEDERAL GRANTS NOT TAKEN INTO

25 ACCOUNT IN DETERMINING ELIGIBLE BASIS.— 

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1 The eligible basis of a building shall not include 

2 any costs financed with the proceeds of a Fed3 erally funded grant. 

4 ‘‘(B) INCREASE IN CREDIT FOR BUILDINGS

5 IN HIGH COST AREAS.— 

6 ‘‘(i) IN GENERAL.—In the case of any 

7 building located in a difficult development 

8 area which is designated for purposes of 

9 this subparagraph— 

10 ‘‘(I) in the case of a new build11 ing, the eligible basis of such building 

12 shall be 130 percent of such basis de13 termined without regard to this sub14 paragraph, and 

15 ‘‘(II) in the case of an existing 

16 building, the rehabilitation expendi17 tures taken into account under sub18 section (e) shall be 130 percent of 

19 such expenditures determined without 

20 regard to this subparagraph. 

21 ‘‘(ii) LIMITATION.—Clause (i) shall 

22 not apply to any building if paragraph (1) 

23 of subsection (h) does not apply to any 

24 portion of the eligible basis of such buildVerDate Sep 11 2014 02:03 Dec 29, 2023 Jkt 049200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\H6686.IH H6686
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1 ing by reason of paragraph (9) of such 

2 subsection. 

3 ‘‘(iii) DIFFICULT DEVELOPMENT

4 AREAS.— 

5 ‘‘(I) IN GENERAL.—The term 

6 ‘difficult development areas’ means 

7 any area designated by the Secretary 

8 of Housing and Urban Development 

9 as an area which has high construc10 tion, land, or utility costs relative to 

11 area median gross income, any rural 

12 area, and any Indian area. 

13 ‘‘(II) RURAL AREA.—For pur14 poses of subclause (I), the term ‘rural 

15 area’ means any non-metropolitan 

16 area, or any rural area as defined by 

17 section 520 of the Housing Act of 

18 1949, which is identified by the quali19 fied allocation plan under subsection 

20 (m)(1)(B). 

21 ‘‘(III) INDIAN AREA.—For pur22 poses of subclause (I), the term ‘In23 dian area’ means any Indian area (as 

24 defined in section 4(11) of the Native 

25 American Housing Assistance and 

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1 Self Determination Act of 1996 (25 

2 U.S.C. 4103(11))). 

3 ‘‘(IV) SPECIAL RULE FOR BUILD4 INGS IN INDIAN AREAS.—In the case 

5 of an area which is a difficult develop6 ment area solely because it is an In7 dian area, a building shall not be 

8 treated as located in such area unless 

9 such building is assisted or financed 

10 under the Native American Housing 

11 Assistance and Self Determination 

12 Act of 1996 (25 U.S.C. 4101 et seq.) 

13 or the project sponsor is an Indian 

14 tribe (as defined in section 

15 45A(c)(6)), a tribally designated hous16 ing entity (as defined in section 4(22) 

17 of such Act (25 U.S.C. 4103(22))), or 

18 wholly owned or controlled by such an 

19 Indian tribe or tribally designated 

20 housing entity. 

21 ‘‘(V) LIMIT ON AREAS DES22 IGNATED.—The portions of metropoli23 tan statistical areas which may be 

24 designated for purposes of this sub25 paragraph shall not exceed an aggreVerDate Sep 11 2014 02:03 Dec 29, 2023 Jkt 049200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\H6686.IH H6686
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1 gate area having 20 percent of the 

2 population of such metropolitan sta3 tistical areas. A comparable rule shall 

4 apply to nonmetropolitan areas. 

5 ‘‘(iv) SPECIAL RULES AND DEFINI6 TIONS.—For purposes of this subpara7 graph— 

8 ‘‘(I) population shall be deter9 mined on the basis of the most recent 

10 decennial census for which data are 

11 available, 

12 ‘‘(II) area median gross income 

13 shall be determined in accordance 

14 with subsection (g)(4), 

15 ‘‘(III) the term ‘metropolitan sta16 tistical area’ has the same meaning as 

17 when used in section 143(k)(2)(B), 

18 and 

19 ‘‘(IV) the term ‘nonmetropolitan 

20 area’ means any county (or portion 

21 thereof) which is not within a metro22 politan statistical area. 

23 ‘‘(v) BUILDINGS DESIGNATED BY

24 STATE HOUSING CREDIT AGENCY.—Any 

25 building which is designated by the State 

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1 housing credit agency as requiring the in2 crease in credit under this subparagraph in 

3 order for such building to be financially 

4 feasible as part of a qualified middle-in5 come housing project shall be treated for 

6 purposes of this subparagraph as located 

7 in a difficult development area which is 

8 designated for purposes of this subpara9 graph. 

10 ‘‘(5) CREDIT ALLOWABLE FOR CERTAIN BUILD11 INGS ACQUIRED DURING 10-YEAR PERIOD.—On ap12 plication by the taxpayer, the Secretary may waive 

13 paragraph (2)(B)(ii) with respect to any building ac14 quired from an insured depository institution in de15 fault (as defined in section 3 of the Federal Deposit 

16 Insurance Act) or from a receiver or conservator of 

17 such an institution. 

18 ‘‘(6) ACQUISITION OF BUILDING BEFORE END

19 OF PRIOR CREDIT PERIOD.— 

20 ‘‘(A) IN GENERAL.—Under regulations 

21 prescribed by the Secretary, in the case of a 

22 building described in subparagraph (B) (or in23 terest therein) which is acquired by the tax24 payer— 

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1 ‘‘(i) paragraph (2)(B) shall not apply, 

2 but 

3 ‘‘(ii) the credit allowable by reason of 

4 subsection (a) to the taxpayer for any pe5 riod after such acquisition shall be equal to 

6 the amount of credit which would have 

7 been allowable under subsection (a) for 

8 such period to the prior owner referred to 

9 in subparagraph (B) had such owner not 

10 disposed of the building. 

11 ‘‘(B) DESCRIPTION OF BUILDING.—A 

12 building is described in this subparagraph if— 

13 ‘‘(i) a credit was allowed by reason of 

14 subsection (a) to any prior owner of such 

15 building, and 

16 ‘‘(ii) the taxpayer acquired such build17 ing before the end of the credit period for 

18 such building with respect to such prior 

19 owner (determined without regard to any 

20 disposition by such prior owner). 

21 ‘‘(e) REHABILITATION EXPENDITURES TREATED AS

22 SEPARATE NEW BUILDING.— 

23 ‘‘(1) IN GENERAL.—Rehabilitation expenditures 

24 paid or incurred by the taxpayer with respect to any 

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1 building shall be treated for purposes of this section 

2 as a separate new building. 

3 ‘‘(2) REHABILITATION EXPENDITURES.—For 

4 purposes of paragraph (1)— 

5 ‘‘(A) IN GENERAL.—The term ‘rehabilita6 tion expenditures’ means amounts chargeable to 

7 capital account and incurred for property (or 

8 additions or improvements to property) of a 

9 character subject to the allowance for deprecia10 tion in connection with the rehabilitation of a 

11 building. 

12 ‘‘(B) COST OF ACQUISITION, ETC., NOT IN13 CLUDED.—Such term does not include the cost 

14 of acquiring any building (or interest therein) 

15 or any amount not permitted to be taken into 

16 account under paragraph (3) of subsection (d). 

17 ‘‘(C) CERTAIN RELOCATION COSTS.—In 

18 the case of a rehabilitation of a building to 

19 which section 280B does not apply, costs relat20 ing to the relocation of occupants, including— 

21 ‘‘(i) amounts paid to occupants, 

22 ‘‘(ii) amounts paid to third parties for 

23 services relating to such relocation, and 

24 ‘‘(iii) amounts paid for temporary 

25 housing for occupants, 

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1 shall be treated as chargeable to capital account 

2 and taken into account as rehabilitation ex3 penditures. 

4 ‘‘(3) MINIMUM EXPENDITURES TO QUALIFY.— 

5 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

6 apply to rehabilitation expenditures with respect 

7 to any building only if— 

8 ‘‘(i) the expenditures are allocable to 

9 1 or more middle-income units or substan10 tially benefit such units, and 

11 ‘‘(ii) the amount of such expenditures 

12 during any 24-month period meets the re13 quirements of whichever of the following 

14 subclauses requires the greater amount of 

15 such expenditures: 

16 ‘‘(I) The requirement of this sub17 clause is met if such amount is not 

18 less than 20 percent of the adjusted 

19 basis of the building (determined as of 

20 the 1st day of such period and with21 out regard to paragraphs (2) and (3) 

22 of section 1016(a)). 

23 ‘‘(II) The requirement of this 

24 subclause is met if the qualified basis 

25 attributable to such amount, when diVerDate Sep 11 2014 02:03 Dec 29, 2023 Jkt 049200 PO 00000 Frm 00020 Fmt 6652 Sfmt 6201 E:\BILLS\H6686.IH H6686
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1 vided by the number of middle-income 

2 units in the building, is equal to or 

3 greater than the dollar amount in ef4 fect under section 42(e)(3)(A)(ii)(II) 

5 for the calendar year in which such 

6 expenditures are treated as placed in 

7 service under paragraph (4). 

8 ‘‘(B) DATE OF DETERMINATION.—The de9 termination under subparagraph (A) shall be 

10 made as of the close of the 1st taxable year in 

11 the credit period with respect to such expendi12 tures. 

13 ‘‘(4) SPECIAL RULES.—For purposes of apply14 ing this section with respect to expenditures which 

15 are treated as a separate building by reason of this 

16 subsection— 

17 ‘‘(A) such expenditures shall be treated as 

18 placed in service at the close of the 24-month 

19 period referred to in paragraph (3)(A), and 

20 ‘‘(B) the applicable fraction under sub21 section (c)(1) shall be the applicable fraction for 

22 the building (without regard to paragraph (1)) 

23 with respect to which the expenditures were in24 curred. 

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1 Nothing in subsection (d)(2) shall prevent a credit 

2 from being allowed by reason of this subsection. 

3 ‘‘(5) NO DOUBLE COUNTING.—Rehabilitation 

4 expenditures may, at the election of the taxpayer, be 

5 taken into account under this subsection or sub6 section (d)(2)(A)(i) but not under both such sub7 sections. 

8 ‘‘(6) REGULATIONS TO APPLY SUBSECTION

9 WITH RESPECT TO GROUP OF UNITS IN BUILDING.— 

10 The Secretary may prescribe regulations, consistent 

11 with the purposes of this subsection, treating a 

12 group of units with respect to which rehabilitation 

13 expenditures are incurred as a separate new build14 ing. 

15 ‘‘(f) DEFINITION AND SPECIAL RULES RELATING TO

16 CREDIT PERIOD.— 

17 ‘‘(1) CREDIT PERIOD DEFINED.—For purposes 

18 of this section, the term ‘credit period’ means, with 

19 respect to any building, the period of 15 taxable 

20 years beginning with— 

21 ‘‘(A) the taxable year in which the building 

22 is placed in service, or 

23 ‘‘(B) at the election of the taxpayer, the 

24 succeeding taxable year, 

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1 but only if the building is a qualified middle-income 

2 building as of the close of the 1st year of such pe3 riod. The election under subparagraph (B), once 

4 made, shall be irrevocable. 

5 ‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT

6 PERIOD.— 

7 ‘‘(A) IN GENERAL.—The credit allowable 

8 under subsection (a) with respect to any build9 ing for the 1st taxable year of the credit period 

10 shall be determined by substituting for the ap11 plicable fraction under subsection (c)(1) the 

12 fraction— 

13 ‘‘(i) the numerator of which is the 

14 sum of the applicable fractions determined 

15 under subsection (c)(1) as of the close of 

16 each full month of such year during which 

17 such building was in service, and 

18 ‘‘(ii) the denominator of which is 12. 

19 ‘‘(B) DISALLOWED 1ST-YEAR CREDIT AL20 LOWED IN 16TH YEAR.—Any reduction by rea21 son of subparagraph (A) in the credit allowable 

22 (without regard to subparagraph (A)) for the 

23 1st taxable year of the credit period shall be al24 lowable under subsection (a) for the 1st taxable 

25 year following the credit period. 

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1 ‘‘(3) DETERMINATION OF APPLICABLE PER2 CENTAGE WITH RESPECT TO INCREASES IN QUALI3 FIED BASIS AFTER 1ST YEAR OF CREDIT PERIOD.— 

4 ‘‘(A) IN GENERAL.—In the case of any 

5 building which was a qualified middle-income 

6 building as of the close of the 1st year of the 

7 credit period, if— 

8 ‘‘(i) as of the close of any taxable year 

9 in the credit period (after the 1st year of 

10 such period) the qualified basis of such 

11 building, exceeds 

12 ‘‘(ii) the qualified basis of such build13 ing as of the close of the 1st year of the 

14 credit period, 

15 the applicable percentage which shall apply 

16 under subsection (a) for the taxable year to 

such excess shall be the percentage equal to 2 17 ⁄3

18 of the applicable percentage which (after the 

19 application of subsection (h)) would but for this 

20 paragraph apply to such basis. 

21 ‘‘(B) 1ST YEAR COMPUTATION APPLIES.— 

22 A rule similar to the rule of paragraph (2)(A) 

23 shall apply to any increase in qualified basis to 

24 which subparagraph (A) applies for the 1st year 

25 of such increase. 

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1 ‘‘(4) DISPOSITIONS OF PROPERTY.—If a build2 ing (or an interest therein) is disposed of during any 

3 year for which credit is allowable under subsection 

4 (a), such credit shall be allocated between the par5 ties on the basis of the number of days during such 

6 year the building (or interest) was held by each. 

7 ‘‘(5) CREDIT PERIOD FOR EXISTING BUILDINGS

8 NOT TO BEGIN BEFORE REHABILITATION CREDIT

9 ALLOWED.— 

10 ‘‘(A) IN GENERAL.—The credit period for 

11 an existing building shall not begin before the 

12 1st taxable year of the credit period for reha13 bilitation expenditures with respect to the build14 ing. 

15 ‘‘(B) ACQUISITION CREDIT ALLOWED FOR

16 CERTAIN BUILDINGS NOT ALLOWED A REHA17 BILITATION CREDIT.— 

18 ‘‘(i) IN GENERAL.—In the case of a 

19 building described in clause (ii)— 

20 ‘‘(I) subsection (d)(2)(B)(iv) 

21 shall not apply, and 

22 ‘‘(II) the credit period for such 

23 building shall not begin before the 

24 taxable year which would be the 1st 

25 taxable year of the credit period for 

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1 rehabilitation expenditures with re2 spect to the building under the modi3 fications described in clause (ii)(II). 

4 ‘‘(ii) BUILDING DESCRIBED.—A build5 ing is described in this clause if— 

6 ‘‘(I) a waiver is granted under 

7 subsection (d)(4) with respect to the 

8 acquisition of the building, and 

9 ‘‘(II) a credit would be allowed 

10 for rehabilitation expenditures with 

11 respect to such building if subsection 

12 (e)(3)(A)(ii)(I) did not apply and if 

13 the dollar amount in effect under sub14 section (e)(3)(A)(ii)(II) were two15 thirds of such amount. 

16 ‘‘(g) QUALIFIED MIDDLE-INCOME HOUSING

17 PROJECT.—For purposes of this section— 

18 ‘‘(1) IN GENERAL.—The term ‘qualified middle19 income housing project’ means any project for resi20 dential rental property if— 

21 ‘‘(A) 60 percent or more of the residential 

22 units in such project are both rent-restricted 

23 and occupied by individuals whose income is 

24 100 percent or less of area median gross in25 come, and 

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1 ‘‘(B) not less than 20 percent of the resi2 dential units in such project are units which— 

3 ‘‘(i) are described in subparagraph 

4 (A), and 

5 ‘‘(ii) are not residential units which 

6 are taken into account under section 42. 

7 ‘‘(2) RENT-RESTRICTED UNITS.— 

8 ‘‘(A) IN GENERAL.—For purposes of para9 graph (1), a residential unit is rent-restricted if 

10 the gross rent with respect to such unit does 

11 not exceed 30 percent of the imputed income 

12 limitation applicable to such unit. For purposes 

13 of the preceding sentence, the amount of the in14 come limitation under paragraph (1) applicable 

15 for any period shall not be less than such limi16 tation applicable for the earliest period the 

17 building (which contains the unit) was included 

18 in the determination of whether the project is 

19 a qualified middle-income housing project. 

20 ‘‘(B) GROSS RENT.—For purposes of sub21 paragraph (A), gross rent— 

22 ‘‘(i) includes any utility allowance de23 termined by the Secretary after taking into 

24 account such determinations under section 

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1 8 of the United States Housing Act of 

2 1937, 

3 ‘‘(ii) does not include any fee for a 

4 supportive service which is paid to the 

5 owner of the unit (on the basis of the mid6 dle-income status of the tenant of the unit) 

7 by any governmental program of assistance 

8 (or by an organization described in section 

9 501(c)(3) and exempt from tax under sec10 tion 501(a)) if such program (or organiza11 tion) provides assistance for rent and the 

12 amount of assistance provided for rent is 

13 not separable from the amount of assist14 ance provided for supportive services, and 

15 ‘‘(iii) does not include any rental pay16 ment to the owner of the unit to the extent 

17 such owner pays an equivalent amount to 

18 the Farmers’ Home Administration under 

19 section 515 of the Housing Act of 1949. 

20 For purposes of clause (ii), the term ‘supportive 

21 service’ means any service provided under a 

22 planned program of services designed to enable 

23 residents of a residential rental property to re24 main independent and avoid placement in a 

25 hospital, nursing home, or intermediate care faVerDate Sep 11 2014 02:03 Dec 29, 2023 Jkt 049200 PO 00000 Frm 00028 Fmt 6652 Sfmt 6201 E:\BILLS\H6686.IH H6686
29 

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1 cility for the mentally or physically handi2 capped. 

3 ‘‘(C) IMPUTED INCOME LIMITATION APPLI4 CABLE TO UNIT.—For purposes of this para5 graph, the imputed income limitation applicable 

6 to a unit is the income limitation which would 

7 apply under paragraph (1) to individuals occu8 pying the unit if the number of individuals oc9 cupying the unit were as follows: 

10 ‘‘(i) In the case of a unit which does 

11 not have a separate bedroom, 1 individual. 

12 ‘‘(ii) In the case of a unit which has 

13 1 or more separate bedrooms, 1.5 individ14 uals for each separate bedroom. 

15 In the case of a project with respect to which 

16 a credit is allowable by reason of this section 

17 and for which financing is provided by a bond 

18 described in section 142(a)(7), the imputed in19 come limitation shall apply in lieu of the other20 wise applicable income limitation for purposes 

21 of applying section 142(d)(4)(B)(ii). 

22 ‘‘(D) TREATMENT OF UNITS OCCUPIED BY

23 INDIVIDUALS WHOSE INCOMES RISE ABOVE

24 LIMIT.— 

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1 ‘‘(i) IN GENERAL.—Except as pro2 vided in clause (ii), notwithstanding an in3 crease in the income of the occupants of a 

4 middle-income unit above the income limi5 tation applicable under paragraph (1), 

6 such unit shall continue to be treated as a 

7 middle-income unit if the income of such 

8 occupants initially met such income limita9 tion and such unit continues to be rent-re10 stricted. 

11 ‘‘(ii) NEXT AVAILABLE UNIT MUST BE

12 RENTED TO MIDDLE-INCOME TENANT IF

13 INCOME RISES ABOVE 140 PERCENT OF IN14 COME LIMIT.—If the income of the occu15 pants of the unit increases above 140 per16 cent of the income limitation applicable 

17 under paragraph (1), clause (i) shall cease 

18 to apply to such unit if any residential 

19 rental unit in the building (of a size com20 parable to, or smaller than, such unit) is 

21 occupied by a new resident whose income 

22 exceeds such income limitation. 

23 ‘‘(3) DATE FOR MEETING REQUIREMENTS.— 

24 ‘‘(A) IN GENERAL.—Except as otherwise 

25 provided in this paragraph, a building shall be 

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1 treated as a qualified middle-income building 

2 only if the project (of which such building is a 

3 part) meets the requirements of paragraph (1) 

4 not later than the close of the 1st year of the 

5 credit period for such building. 

6 ‘‘(B) BUILDINGS WHICH RELY ON LATER

7 BUILDINGS FOR QUALIFICATION.— 

8 ‘‘(i) IN GENERAL.—In determining 

9 whether a building (hereinafter in this sub10 paragraph referred to as the ‘prior build11 ing’) is a qualified middle-income building, 

12 the taxpayer may take into account 1 or 

13 more additional buildings placed in service 

14 during the 12-month period described in 

15 subparagraph (A) with respect to the prior 

16 building only if the taxpayer elects to apply 

17 clause (ii) with respect to each additional 

18 building taken into account. 

19 ‘‘(ii) TREATMENT OF ELECTED

20 BUILDINGS.—In the case of a building 

21 which the taxpayer elects to take into ac22 count under clause (i), the period under 

23 subparagraph (A) for such building shall 

24 end at the close of the 12-month period ap25 plicable to the prior building. 

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1 ‘‘(iii) DATE PRIOR BUILDING IS

2 TREATED AS PLACED IN SERVICE.—For 

3 purposes of determining the credit period 

4 for the prior building, the prior building 

5 shall be treated for purposes of this section 

6 as placed in service on the most recent 

7 date any additional building elected by the 

8 taxpayer (with respect to such prior build9 ing) was placed in service. 

10 ‘‘(C) SPECIAL RULE.—A building— 

11 ‘‘(i) other than the 1st building placed 

12 in service as part of a project, and 

13 ‘‘(ii) other than a building which is 

14 placed in service during the 12-month pe15 riod described in subparagraph (A) with 

16 respect to a prior building which becomes 

17 a qualified middle-income building, 

18 shall in no event be treated as a qualified mid19 dle-income building unless the project is a 

20 qualified middle-income housing project (with21 out regard to such building) on the date such 

22 building is placed in service. 

23 ‘‘(D) PROJECTS WITH MORE THAN 1

24 BUILDING MUST BE IDENTIFIED.—For pur25 poses of this section, a project shall be treated 

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1 as consisting of only 1 building unless, before 

2 the close of the 1st calendar year in the project 

3 period (as defined in subsection (h)(1)(F)(ii)), 

4 each building which is (or will be) part of such 

5 project is identified in such form and manner 

6 as the Secretary may provide. 

7 ‘‘(4) CERTAIN RULES MADE APPLICABLE.— 

8 Paragraphs (2) (other than subparagraph (A) there9 of), (3), and (7) of section 142(d), and section 

10 6652(j), shall apply for purposes of determining 

11 whether any project is a qualified middle-income 

12 housing project and whether any unit is a middle-in13 come unit; except that, in applying such provisions 

14 for such purposes— 

15 ‘‘(A) the term ‘gross rent’ shall have the 

16 meaning given such term by paragraph (2)(B) 

17 of this subsection, and 

18 ‘‘(B) the term ‘applicable income limit’ 

19 means the limitation under paragraph (1) of 

20 this subsection. 

21 ‘‘(5) ELECTION TO TREAT BUILDING AFTER

22 CREDIT PERIOD AS NOT PART OF A PROJECT.—For 

23 purposes of this section, the taxpayer may elect to 

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34 

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1 income housing project for any period beginning 

2 after the credit period for such building. 

3 ‘‘(6) SPECIAL RULE WHERE DE MINIMIS EQ4 UITY CONTRIBUTION.—Property shall not be treated 

5 as failing to be residential rental property for pur6 poses of this section merely because the occupant of 

7 a residential unit in the project pays (on a voluntary 

8 basis) to the lessor a de minimis amount to be held 

9 toward the purchase by such occupant of a residen10 tial unit in such project if— 

11 ‘‘(A) all amounts so paid are refunded to 

12 the occupant on the cessation of his occupancy 

13 of a unit in the project, and 

14 ‘‘(B) the purchase of the unit is not per15 mitted until after the close of the credit period 

16 with respect to the building in which the unit 

17 is located. 

18 Any amount paid to the lessor as described in the 

19 preceding sentence shall be included in gross rent 

20 under paragraph (2) for purposes of determining 

21 whether the unit is rent-restricted. 

22 ‘‘(7) SCATTERED SITE PROJECTS.—Buildings 

23 which would (but for their lack of proximity) be 

24 treated as a project for purposes of this section shall 

25 be so treated if all of the dwelling units in each of 

35 

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1 the buildings are rent-restricted (within the meaning 

2 of paragraph (2)) residential rental units. 

3 ‘‘(8) WAIVER OF CERTAIN RECERTIFI4 CATIONS.—On application by the taxpayer, the Sec5 retary may waive any annual recertification of ten6 ant income for purposes of this subsection, if the en7 tire building is occupied by middle-income tenants. 

8 ‘‘(9) CLARIFICATION OF GENERAL PUBLIC USE

9 REQUIREMENT.—A project does not fail to meet the 

10 general public use requirement solely because of oc11 cupancy restrictions or preferences that favor ten12 ants— 

13 ‘‘(A) with special needs, or 

14 ‘‘(B) who are members of a specified group 

15 under a Federal program or State program or 

16 policy that supports housing for such a speci17 fied group. 

18 ‘‘(h) LIMITATION ON AGGREGATE CREDIT ALLOW19 ABLE WITH RESPECT TO PROJECTS LOCATED IN A

20 STATE.— 

21 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT

22 AMOUNT ALLOCATED TO BUILDING.— 

23 ‘‘(A) IN GENERAL.—The amount of the 

24 credit determined under this section for any 

25 taxable year with respect to any building shall 

36 

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1 not exceed the housing credit dollar amount al2 located to such building under this subsection. 

3 ‘‘(B) TIME FOR MAKING ALLOCATION.— 

4 Except in the case of an allocation which meets 

5 the requirements of subparagraph (C), (D), 

6 (E), or (F), an allocation shall be taken into ac7 count under subparagraph (A) only if it is 

8 made not later than the close of the calendar 

9 year in which the building is placed in service. 

10 ‘‘(C) EXCEPTION WHERE BINDING COM11 MITMENT.—An allocation meets the require12 ments of this subparagraph if there is a binding 

13 commitment (not later than the close of the cal14 endar year in which the building is placed in 

15 service) by the housing credit agency to allocate 

16 a specified housing credit dollar amount to such 

17 building beginning in a specified later taxable 

18 year. 

19 ‘‘(D) EXCEPTION WHERE INCREASE IN

20 QUALIFIED BASIS.— 

21 ‘‘(i) IN GENERAL.—An allocation 

22 meets the requirements of this subpara23 graph if such allocation is made not later 

24 than the close of the calendar year in 

25 which ends the taxable year to which it will 

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1 1st apply but only to the extent the 

2 amount of such allocation does not exceed 

3 the limitation under clause (ii). 

4 ‘‘(ii) LIMITATION.—The limitation 

5 under this clause is the amount of credit 

6 allowable under this section (without re7 gard to this subsection) for a taxable year 

8 with respect to an increase in the qualified 

9 basis of the building equal to the excess 

10 of— 

11 ‘‘(I) the qualified basis of such 

12 building as of the close of the 1st tax13 able year to which such allocation will 

14 apply, over 

15 ‘‘(II) the qualified basis of such 

16 building as of the close of the 1st tax17 able year to which the most recent 

18 prior housing credit allocation with re19 spect to such building applied. 

20 ‘‘(iii) HOUSING CREDIT DOLLAR

21 AMOUNT REDUCED BY FULL ALLOCA22 TION.—Notwithstanding clause (i), the full 

23 amount of the allocation shall be taken 

24 into account under paragraph (2). 

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1 ‘‘(E) EXCEPTION WHERE 10 PERCENT OF

2 COST INCURRED.— 

3 ‘‘(i) IN GENERAL.—An allocation 

4 meets the requirements of this subpara5 graph if such allocation is made with re6 spect to a qualified building which is 

7 placed in service not later than the close of 

8 the second calendar year following the cal9 endar year in which the allocation is made. 

10 ‘‘(ii) QUALIFIED BUILDING.—For pur11 poses of clause (i), the term ‘qualified 

12 building’ means any building which is part 

13 of a project if the taxpayer’s basis in such 

14 project (as of the date which is 1 year 

15 after the date that the allocation was 

16 made) is more than 10 percent of the tax17 payer’s reasonably expected basis in such 

18 project (as of the close of the second cal19 endar year referred to in clause (i)). Such 

20 term does not include any existing building 

21 unless a credit is allowable under sub22 section (e) for rehabilitation expenditures 

23 paid or incurred by the taxpayer with re24 spect to such building for a taxable year 

25 ending during the second calendar year reVerDate Sep 11 2014 02:03 Dec 29, 2023 Jkt 049200 PO 00000 Frm 00038 Fmt 6652 Sfmt 6201 E:\BILLS\H6686.IH H6686
39 

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1 ferred to in clause (i) or the prior taxable 

2 year. 

3 ‘‘(F) ALLOCATION OF CREDIT ON A

4 PROJECT BASIS.— 

5 ‘‘(i) IN GENERAL.—In the case of a 

6 project which includes (or will include) 

7 more than 1 building, an allocation meets 

8 the requirements of this subparagraph if— 

9 ‘‘(I) the allocation is made to the 

10 project for a calendar year during the 

11 project period, 

12 ‘‘(II) the allocation only applies 

13 to buildings placed in service during 

14 or after the calendar year for which 

15 the allocation is made, and 

16 ‘‘(III) the portion of such alloca17 tion which is allocated to any building 

18 in such project is specified not later 

19 than the close of the calendar year in 

20 which the building is placed in service. 

21 ‘‘(ii) PROJECT PERIOD.—For pur22 poses of clause (i), the term ‘project pe23 riod’ means the period— 

24 ‘‘(I) beginning with the 1st cal25 endar year for which an allocation 

40 

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1 may be made for the 1st building 

2 placed in service as part of such 

3 project, and 

4 ‘‘(II) ending with the calendar 

5 year the last building is placed in 

6 service as part of such project. 

7 ‘‘(2) ALLOCATED CREDIT AMOUNT TO APPLY

8 TO ALL TAXABLE YEARS ENDING DURING OR AFTER

9 CREDIT ALLOCATION YEAR.—Any housing credit dol10 lar amount allocated to any building for any cal11 endar year— 

12 ‘‘(A) shall apply to such building for all 

13 taxable years in the credit period ending during 

14 or after such calendar year, and 

15 ‘‘(B) shall reduce the aggregate housing 

16 credit dollar amount of the allocating agency 

17 only for such calendar year. 

18 ‘‘(3) HOUSING CREDIT DOLLAR AMOUNT FOR

19 AGENCIES.— 

20 ‘‘(A) IN GENERAL.—The aggregate hous21 ing credit dollar amount which a housing credit 

22 agency may allocate for any calendar year is 

23 the portion of the State housing credit ceiling 

24 allocated under this paragraph for such cal25 endar year to such agency. 

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1 ‘‘(B) STATE CEILING INITIALLY ALLO2 CATED TO STATE HOUSING CREDIT AGEN3 CIES.—Except as provided in subparagraph 

4 (D), the State housing credit ceiling for each 

5 calendar year shall be allocated to the housing 

6 credit agency of such State. If there is more 

7 than 1 housing credit agency of a State, all 

8 such agencies shall be treated as a single agen9 cy. 

10 ‘‘(C) STATE HOUSING CREDIT CEILING.— 

11 The State housing credit ceiling applicable to 

12 any State for any calendar year shall be an 

13 amount equal to the sum of— 

14 ‘‘(i) the unused State housing credit 

15 ceiling (if any) of such State for the pre16 ceding calendar year, 

17 ‘‘(ii) the greater of— 

18 ‘‘(I) $1.00 multiplied by the 

19 State population, or 

20 ‘‘(II) $1,500,000, plus 

21 ‘‘(iii) the amount of State housing 

22 credit ceiling returned in the calendar year. 

23 For purposes of clause (i), the unused State 

24 housing credit ceiling for any calendar year is 

25 the excess (if any) of the sum of the amounts 

42 

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1 described in clauses (ii) (reduced by the aggre2 gate amounts described in paragraph (10)(A)(i) 

3 with respect to all elections made for such cal4 endar year) and (iii) over the aggregate housing 

5 credit dollar amount allocated for such year. 

6 For purposes of clause (iii), the amount of 

7 State housing credit ceiling returned in the cal8 endar year equals the housing credit dollar 

9 amount previously allocated within the State to 

10 any project which fails to meet the 10 percent 

11 test under paragraph (1)(E)(ii) on a date after 

12 the close of the calendar year in which the allo13 cation was made or which does not become a 

14 qualified middle-income housing project within 

15 the period required by this section or the terms 

16 of the allocation or to any project with respect 

17 to which an allocation is cancelled by mutual 

18 consent of the housing credit agency and the al19 location recipient. 

20 ‘‘(D) STATE MAY PROVIDE FOR DIF21 FERENT ALLOCATION.—Rules similar to the 

22 rules of section 146(e) (other than paragraph 

23 (2)(B) thereof) shall apply for purposes of this 

24 paragraph. 

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1 ‘‘(E) POPULATION.—For purposes of this 

2 paragraph, population shall be determined in 

3 accordance with section 146(j). 

4 ‘‘(F) COST-OF-LIVING ADJUSTMENT.— 

5 ‘‘(i) IN GENERAL.—In the case of a 

6 calendar year after 2024, the $1,500,000 

7 and $1.00 amounts in subparagraph (C) 

8 shall each be increased by an amount equal 

9 to— 

10 ‘‘(I) such dollar amount, multi11 plied by 

12 ‘‘(II) the cost-of-living adjust13 ment determined under section 1(f)(3) 

14 for such calendar year by substituting 

15 ‘calendar year 2023’ for ‘calendar 

16 year 2016’ in subparagraph (A)(ii) 

17 thereof. 

18 ‘‘(ii) ROUNDING.— 

19 ‘‘(I) In the case of the 

20 $1,140,000 amount, any increase 

21 under clause (i) which is not a mul22 tiple of $5,000 shall be rounded to the 

23 next lowest multiple of $5,000. 

24 ‘‘(II) In the case of the $1.00 

25 amount, any increase under clause (i) 

44 

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1 which is not a multiple of 5 cents 

2 shall be rounded to the next lowest 

3 multiple of 5 cents. 

4 ‘‘(4) PORTION OF STATE CEILING SET-ASIDE

5 FOR CERTAIN PROJECTS INVOLVING QUALIFIED

6 NONPROFIT ORGANIZATIONS.— 

7 ‘‘(A) IN GENERAL.—Not more than 90 

8 percent of the State housing credit ceiling (de9 termined without regard to paragraph (7)) for 

10 any State for any calendar year shall be allo11 cated to projects other than qualified middle-in12 come housing projects described in subpara13 graph (B). 

14 ‘‘(B) PROJECTS INVOLVING QUALIFIED

15 NONPROFIT ORGANIZATIONS.—For purposes of 

16 subparagraph (A), a qualified middle-income 

17 housing project is described in this subpara18 graph if a qualified nonprofit organization is to 

19 own an interest in the project (directly or 

20 through a partnership) and materially partici21 pate (within the meaning of section 469(h)) in 

22 the development and operation of the project 

23 throughout the credit period. 

24 ‘‘(C) QUALIFIED NONPROFIT ORGANIZA25 TION.—For purposes of this paragraph, the 

45 

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1 term ‘qualified nonprofit organization’ means 

2 any organization if— 

3 ‘‘(i) such organization is described in 

4 paragraph (3) or (4) of section 501(c) and 

5 is exempt from tax under section 501(a), 

6 ‘‘(ii) such organization is determined 

7 by the State housing credit agency not to 

8 be affiliated with or controlled by a for9 profit organization; and 

10 ‘‘(iii) one of the exempt purposes of 

11 such organization includes the fostering of 

12 middle-income housing. 

13 ‘‘(D) TREATMENT OF CERTAIN SUBSIDI14 ARIES.— 

15 ‘‘(i) IN GENERAL.—For purposes of 

16 this paragraph, a qualified nonprofit orga17 nization shall be treated as satisfying the 

18 ownership and material participation test 

19 of subparagraph (B) if any qualified cor20 poration in which such organization holds 

21 stock satisfies such test. 

22 ‘‘(ii) QUALIFIED CORPORATION.—For 

23 purposes of clause (i), the term ‘qualified 

24 corporation’ means any corporation if 100 

25 percent of the stock of such corporation is 

46 

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1 held by 1 or more qualified nonprofit orga2 nizations at all times during the period 

3 such corporation is in existence. 

4 ‘‘(E) STATE MAY NOT OVERRIDE SET5 ASIDE.—Nothing in subparagraph (E) of para6 graph (3) shall be construed to permit a State 

7 not to comply with subparagraph (A) of this 

8 paragraph. 

9 ‘‘(5) BUILDINGS ELIGIBLE FOR CREDIT ONLY

10 IF MINIMUM LONG-TERM COMMITMENT TO MIDDLE11 INCOME HOUSING.— 

12 ‘‘(A) IN GENERAL.—No credit shall be al13 lowed by reason of this section with respect to 

14 any building for the taxable year unless an ex15 tended middle-income housing commitment is in 

16 effect as of the end of such taxable year. 

17 ‘‘(B) EXTENDED MIDDLE-INCOME HOUS18 ING COMMITMENT.—For purposes of this para19 graph, the term ‘extended middle-income hous20 ing commitment’ means any agreement between 

21 the taxpayer and the housing credit agency— 

22 ‘‘(i) which requires that the applicable 

23 fraction (as defined in subsection (c)(1)) 

24 for the building for each taxable year in 

25 the extended use period will not be less 

47 

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1 than the applicable fraction specified in 

2 such agreement and which prohibits the 

3 actions described in subclauses (I) and (II) 

4 of subparagraph (E)(ii), 

5 ‘‘(ii) which allows individuals who 

6 meet the income limitation applicable to 

7 the building under subsection (g) (whether 

8 prospective, present, or former occupants 

9 of the building) the right to enforce in any 

10 State court the requirement and prohibi11 tions of clause (i), 

12 ‘‘(iii) which prohibits the disposition 

13 to any person of any portion of the build14 ing to which such agreement applies unless 

15 all of the building to which such agreement 

16 applies is disposed of to such person, 

17 ‘‘(iv) which prohibits the refusal to 

18 lease to a holder of a voucher or certificate 

19 of eligibility under section 8 of the United 

20 States Housing Act of 1937 because of the 

21 status of the prospective tenant as such a 

22 holder, 

23 ‘‘(v) which is binding on all successors 

24 of the taxpayer, and 

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1 ‘‘(vi) which, with respect to the prop2 erty, is recorded pursuant to State law as 

3 a restrictive covenant. 

4 ‘‘(C) ALLOCATION OF CREDIT MAY NOT

5 EXCEED AMOUNT NECESSARY TO SUPPORT

6 COMMITMENT.—The housing credit dollar 

7 amount allocated to any building may not ex8 ceed the amount necessary to support the appli9 cable fraction specified in the extended middle10 income housing commitment for such building, 

11 including any increase in such fraction pursu12 ant to the application of subsection (f)(3) if 

13 such increase is reflected in an amended mid14 dle-income housing commitment. 

15 ‘‘(D) EXTENDED USE PERIOD.—For pur16 poses of this paragraph, the term ‘extended use 

17 period’ means the period— 

18 ‘‘(i) beginning on the 1st day in the 

19 credit period on which such building is 

20 part of a qualified middle-income housing 

21 project, and 

22 ‘‘(ii) ending on the later of— 

23 ‘‘(I) the date specified by such 

24 agency in such agreement, or 

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1 ‘‘(II) the date which is 15 years 

2 after the close of the credit period. 

3 ‘‘(E) EXCEPTIONS IF FORECLOSURE OR IF

4 NO BUYER WILLING TO MAINTAIN MIDDLE-IN5 COME STATUS.— 

6 ‘‘(i) IN GENERAL.—The extended use 

7 period for any building shall terminate on 

8 the 61st day after the taxpayer (or a suc9 cessor in interest) provides notice to the 

10 Secretary and the housing credit agency 

11 that the building has been acquired by 

12 foreclosure (or instrument in lieu of fore13 closure) and that the taxpayer intends the 

14 termination of such period, unless, before 

15 such date, the Secretary or the housing 

16 credit agency determines that such acquisi17 tion is part of an arrangement with the 

18 taxpayer a purpose of which is to termi19 nate such period. 

20 ‘‘(ii) EVICTION, ETC., OF EXISTING

21 MIDDLE-INCOME TENANTS NOT PER22 MITTED.—The termination of an extended 

23 use period under clause (i) shall not be 

24 construed to permit before the close of the 

25 3-year period following such termination— 

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1 ‘‘(I) the eviction or the termi2 nation of tenancy (other than for good 

3 cause) of an existing tenant of any 

4 middle-income unit, or 

5 ‘‘(II) any increase in the gross 

6 rent with respect to such unit not oth7 erwise permitted under this section. 

8 ‘‘(F) EFFECT OF NONCOMPLIANCE.—If, 

9 during a taxable year, there is a determination 

10 that an extended middle-income housing agree11 ment was not in effect as of the beginning of 

12 such year, such determination shall not apply to 

13 any period before such year and subparagraph 

14 (A) shall be applied without regard to such de15 termination if the failure is corrected within 1 

16 year from the date of the determination. 

17 ‘‘(G) PROJECTS WHICH CONSIST OF MORE

18 THAN 1 BUILDING.—The application of this 

19 paragraph to projects which consist of more 

20 than 1 building shall be made under regulations 

21 prescribed by the Secretary. 

22 ‘‘(6) SPECIAL RULES.— 

23 ‘‘(A) BUILDING MUST BE LOCATED WITH24 IN JURISDICTION OF CREDIT AGENCY.—A hous25 ing credit agency may allocate its aggregate 

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•HR 6686 IH

1 housing credit dollar amount only to buildings 

2 located in the jurisdiction of the governmental 

3 unit of which such agency is a part. 

4 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

5 LIMIT.—If the aggregate housing credit dollar 

6 amounts allocated by a housing credit agency 

7 for any calendar year exceed the portion of the 

8 State housing credit ceiling allocated to such 

9 agency for such calendar year, the housing 

10 credit dollar amounts so allocated shall be re11 duced (to the extent of such excess) for build12 ings in the reverse of the order in which the al13 locations of such amounts were made. 

14 ‘‘(C) CREDIT REDUCED IF ALLOCATED

15 CREDIT DOLLAR AMOUNT IS LESS THAN CREDIT

16 WHICH WOULD BE ALLOWABLE WITHOUT RE17 GARD TO PLACED IN SERVICE CONVENTION, 

18 ETC.— 

19 ‘‘(i) IN GENERAL.—The amount of 

20 the credit determined under this section 

21 with respect to any building shall not ex22 ceed the clause (ii) percentage of the 

23 amount of the credit which would (but for 

24 this subparagraph) be determined under 

25 this section with respect to such building. 

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1 ‘‘(ii) DETERMINATION OF PERCENT2 AGE.—For purposes of clause (i), the 

3 clause (ii) percentage with respect to any 

4 building is the percentage which— 

5 ‘‘(I) the housing credit dollar 

6 amount allocated to such building, 

7 bears to 

8 ‘‘(II) the credit amount deter9 mined in accordance with clause (iii). 

10 ‘‘(iii) DETERMINATION OF CREDIT

11 AMOUNT.—The credit amount determined 

12 in accordance with this clause is the 

13 amount of the credit which would (but for 

14 this subparagraph) be determined under 

15 this section with respect to the building 

16 if— 

17 ‘‘(I) this section were applied 

18 without regard to paragraphs (2)(A) 

19 and (3)(B) of subsection (f), and 

20 ‘‘(II) subsection (f)(3)(A) were 

21 applied without regard to ‘the percentage equal to 2 22 ⁄3 of’. 

23 ‘‘(D) HOUSING CREDIT AGENCY TO SPECI24 FY APPLICABLE PERCENTAGE AND MAXIMUM

25 QUALIFIED BASIS.—In allocating a housing 

53 

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1 credit dollar amount to any building, the hous2 ing credit agency shall specify the applicable 

3 percentage and the maximum qualified basis 

4 which may be taken into account under this 

5 section with respect to such building. The appli6 cable percentage and maximum qualified basis 

7 so specified shall not exceed the applicable per8 centage and qualified basis determined under 

9 this section without regard to this subsection. 

10 ‘‘(7) INCREASE IN STATE CEILING DEDICATED

11 TO CERTAIN RURAL DEVELOPMENT PROJECTS.— 

12 ‘‘(A) IN GENERAL.—The State housing 

13 credit ceiling for any calendar year shall be in14 creased by an amount equal to 5 percent of the 

15 amount determined under paragraph (3)(C)(ii). 

16 ‘‘(B) USE OF INCREASED AMOUNT.— 

17 ‘‘(i) IN GENERAL.—The amount of 

18 the increase under subparagraph (A) for 

19 any calendar year may only be allocated to 

20 buildings located in a rural area. 

21 ‘‘(ii) RURAL AREA.—For purposes of 

22 clause (i), the term ‘rural area’ means any 

23 non-metropolitan area, or any rural area 

24 as defined by section 520 of the Housing 

25 Act of 1949, which is identified by the 

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1 qualified allocation plan under subsection 

2 (l)(1)(B). 

3 ‘‘(8) OTHER DEFINITIONS.—For purposes of 

4 this subsection— 

5 ‘‘(A) HOUSING CREDIT AGENCY.—The 

6 term ‘housing credit agency’ means any agency 

7 authorized to carry out this subsection. 

8 ‘‘(B) POSSESSIONS TREATED AS STATES.— 

9 The term ‘State’ includes a possession of the 

10 United States. 

11 ‘‘(9) CREDIT FOR BUILDINGS FINANCED BY

12 TAX-EXEMPT BONDS SUBJECT TO VOLUME CAP NOT

13 TAKEN INTO ACCOUNT.—Rules similar to the rules 

14 of subsections (h)(4), (m)(1)(D), and (m)(2)(D) of 

15 section 42 shall apply for purposes of this sub16 section. 

17 ‘‘(10) ELECTION TO TRANSFER STATE HOUSING

18 CREDIT CEILING FOR ALLOCATIONS TO LOW-INCOME

19 BUILDINGS.— 

20 ‘‘(A) IN GENERAL.—If a State housing 

21 credit agency makes an election under this 

22 paragraph with respect to a calendar year— 

23 ‘‘(i) the State housing credit ceiling 

24 for such calendar year under paragraph 

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1 graph (7)) shall be reduced by the amount 

2 specified in such election, 

3 ‘‘(ii) the amount determined under 

4 paragraph (7) for such calendar year shall 

5 be reduced by the amount specified in such 

6 election, and 

7 ‘‘(iii) the amount determined under 

8 section 42(h)(3)(C)(ii) for such calendar 

9 year shall be increased by the sum of the 

10 amounts specified in clauses (i) and (ii), 

11 except that any amount specified under 

12 clause (ii)— 

13 ‘‘(I) may only be allocated under 

14 such section to qualified low-income 

15 buildings (as defined in section 42) lo16 cated in a rural area (as defined in 

17 paragraph (7), and 

18 ‘‘(II) shall not be taken into ac19 count for purposes of determining the 

20 unused housing credit ceiling under 

21 the second sentence of section 

22 42(h)(3)(C). 

23 ‘‘(B) TIME AND MANNER FOR MAKING

24 ELECTION.— 

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1 ‘‘(i) IN GENERAL.—An election under 

2 this paragraph— 

3 ‘‘(I) shall be made before the end 

4 of the calendar year with respect to 

5 which such election applies, 

6 ‘‘(II) shall be made in such man7 ner as specified by the Secretary, and 

8 ‘‘(III) shall separately specify the 

9 amount of reductions to be made 

10 under paragraph (3) and paragraph 

11 (7). 

12 ‘‘(ii) FREQUENCY.—A State housing 

13 credit agency may make more than one 

14 election under this section with respect to 

15 any calendar year, and any such election, 

16 once made, shall be revocable only if such 

17 revocation is made before the end of the 

18 calendar year with respect to which such 

19 election is made. 

20 ‘‘(C) LIMITATION.—The aggregate amount 

21 specified in elections under this paragraph with 

22 respect to any State housing credit agency for 

23 calendar year shall not exceed the sum of— 

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1 ‘‘(i) the amount determined under 

2 paragraph (3)(C)(ii) for such calendar 

3 year, plus 

4 ‘‘(ii) the amount determined under 

5 paragraph (7) for such calendar year. 

6 ‘‘(i) DEFINITIONS AND SPECIAL RULES.—For pur7 poses of this section— 

8 ‘‘(1) MIDDLE-INCOME UNIT.— 

9 ‘‘(A) IN GENERAL.—The term ‘middle-in10 come unit’ means any unit in a building if— 

11 ‘‘(i) such unit is rent-restricted (as de12 fined in subsection (g)(2)), and 

13 ‘‘(ii) the individuals occupying such 

14 unit meet the income limitation applicable 

15 under subsection (g)(1) to the project of 

16 which such building is a part. 

17 ‘‘(B) EXCEPTIONS.— 

18 ‘‘(i) EXCLUSION OF LOW-INCOME

19 UNITS.—A unit shall not be treated as a 

20 middle-income unit if such unit is a low-in21 come unit (as defined under section 

22 42(i)(3)). 

23 ‘‘(ii) UNIT MUST BE SUITABLE FOR

24 PERMANENT OCCUPANCY.— 

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1 ‘‘(I) IN GENERAL.—A unit shall 

2 not be treated as a middle-income 

3 unit unless the unit is suitable for oc4 cupancy and used other than on a 

5 transient basis. 

6 ‘‘(II) SUITABILITY FOR OCCU7 PANCY.—For purposes of subclause 

8 (I), the suitability of a unit for occu9 pancy shall be determined under regu10 lations prescribed by the Secretary 

11 taking into account local health, safe12 ty, and building codes. 

13 ‘‘(III) SINGLE-ROOM OCCUPANCY

14 UNITS.—For purposes of subclause 

15 (I), a single-room occupancy unit shall 

16 not be treated as used on a transient 

17 basis merely because it is rented on a 

18 month-by-month basis. 

19 ‘‘(C) SPECIAL RULE FOR BUILDINGS HAV20 ING 4 OR FEWER UNITS.—In the case of any 

21 building which has 4 or fewer residential rental 

22 units, no unit in such building shall be treated 

23 as a middle-income unit if the units in such 

24 building are owned by— 

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1 ‘‘(i) any individual who occupies a res2 idential unit in such building, or 

3 ‘‘(ii) any person who is related (as de4 fined in subsection (d)(2)(D)(ii)) to such 

5 individual. 

6 ‘‘(D) RULES RELATING TO STUDENTS.— 

7 ‘‘(i) IN GENERAL.—A unit occupied 

8 solely by individuals who— 

9 ‘‘(I) have not attained age 24, 

10 and 

11 ‘‘(II) are enrolled in a full-time 

12 course of study at an institution of 

13 higher education (as defined in section 

14 3304(f)), 

15 shall not be treated as a middle-income 

16 unit. 

17 ‘‘(ii) EXCEPTION FOR CERTAIN FED18 ERAL PROGRAMS.—In the case of a Feder19 ally-assisted building (as defined in sub20 section (d)(6)(C)(i) of section 42), clause 

21 (i) shall not apply to a unit all of the occu22 pants of which meet all applicable require23 ments under the housing program de24 scribed in such subsection through which 

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1 the building is assisted, financed, or oper2 ated. 

3 ‘‘(iii) OTHER EXCEPTIONS.—Clause 

4 (i) shall not apply to a unit occupied by an 

5 individual who— 

6 ‘‘(I) is married, if such individ7 ual’s spouse also occupies the unit, 

8 ‘‘(II) is a person with disabilities 

9 (as defined in section 3(b)(3)(E) of 

10 the United States Housing Act of 

11 1937), 

12 ‘‘(III) is a veteran (as defined in 

13 section 101(2) of title 38, United 

14 States Code), 

15 ‘‘(IV) has one or more qualifying 

16 children (as defined in section 

17 152(c)), if such children also occupy 

18 the unit, the individual is not a de19 pendent (as defined in section 152, 

20 determined without regard to sub21 sections (b)(1), (b)(2), and (d)(1)(B) 

22 thereof) of another individual, and 

23 such children are not claimed as de24 pendents (as so defined) of another 

25 individual, or 

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1 ‘‘(V) is, or was immediately prior 

2 to attaining the age of majority— 

3 ‘‘(aa) an emancipated minor 

4 or in legal guardianship as deter5 mined by a court of competent 

6 jurisdiction in the individual’s 

7 State of legal residence, 

8 ‘‘(bb) under the care and 

9 placement responsibility of the 

10 State agency responsible for ad11 ministering a plan under part B 

12 or part E of title IV of the Social 

13 Security Act, or 

14 ‘‘(cc) was an unaccompanied 

15 youth (within the meaning of sec16 tion 725(6) of the McKinney17 Vento Homeless Assistance Act 

18 (42 U.S.C. 11434a(6))) or a 

19 homeless child or youth (within 

20 the meaning of section 725(2) of 

21 such Act (42 U.S.C. 

22 11434a(2))). 

23 ‘‘(E) OWNER-OCCUPIED BUILDINGS HAV24 ING 4 OR FEWER UNITS ELIGIBLE FOR CREDIT

25 WHERE DEVELOPMENT PLAN.— 

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1 ‘‘(i) IN GENERAL.—Subparagraph (C) 

2 shall not apply to the acquisition or reha3 bilitation of a building pursuant to a devel4 opment plan of action sponsored by a 

5 State or local government or a qualified 

6 nonprofit organization. 

7 ‘‘(ii) LIMITATION ON CREDIT.—In the 

8 case of a building to which clause (i) ap9 plies, the applicable fraction shall not ex10 ceed 80 percent of the unit fraction. 

11 ‘‘(iii) CERTAIN UNRENTED UNITS

12 TREATED AS OWNER-OCCUPIED.—In the 

13 case of a building to which clause (i) ap14 plies, any unit which is not rented for 90 

15 days or more shall be treated as occupied 

16 by the owner of the building as of the 1st 

17 day it is not rented. 

18 ‘‘(2) NEW BUILDING.—The term ‘new building’ 

19 means a building the original use of which begins 

20 with the taxpayer. 

21 ‘‘(3) EXISTING BUILDING.—The term ‘existing 

22 building’ means any building which is not a new 

23 building. 

24 ‘‘(4) APPLICATION TO ESTATES AND TRUSTS.— 

25 In the case of an estate or trust, the amount of the 

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1 credit determined under subsection (a) shall be ap2 portioned between the estate or trust and the bene3 ficiaries on the basis of the income of the estate or 

4 trust allocable to each. 

5 ‘‘(5) IMPACT OF TENANT’S OPTION TO ACQUIRE

6 PROPERTY.— 

7 ‘‘(A) IN GENERAL.—No Federal income 

8 tax benefit shall fail to be allowable to the tax9 payer with respect to any qualified middle-in10 come building merely by reason of an option 

11 held by the tenants (in cooperative form or oth12 erwise) or resident management corporation of 

13 such building or by a qualified nonprofit organi14 zation or government agency to purchase the 

15 property or all of the partnership interests 

16 (other than interests of the person exercising 

17 such option or a related party thereto (within 

18 the meaning of section 267(b) or 707(b)(1))) 

19 relating to the property after the close of the 

20 credit period for a price which is not less than 

21 the minimum purchase price determined under 

22 subparagraph (B). 

23 ‘‘(B) MINIMUM PURCHASE PRICE.—For 

24 purposes of subparagraph (A), the minimum 

25 purchase price under this subparagraph is an 

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1 amount equal to the principal amount of out2 standing indebtedness secured by the building 

3 (other than indebtedness incurred within the 5- 

4 year period ending on the date of the sale to 

5 the tenants). In the case of a purchase of a 

6 partnership interest, the minimum purchase 

7 price is an amount equal to such interest’s rat8 able share of the amount determined under the 

9 preceding sentence. 

10 ‘‘(6) TREATMENT OF RURAL PROJECTS.—For 

11 purposes of this section, in the case of any project 

12 for residential rental property located in a rural area 

13 (as defined in section 520 of the Housing Act of 

14 1949), any income limitation measured by reference 

15 to area median gross income shall be measured by 

16 reference to the greater of area median gross income 

17 or national non-metropolitan median income. 

18 ‘‘(7) DETERMINATION OF WHETHER BUILDING

19 IS FEDERALLY SUBSIDIZED.— 

20 ‘‘(A) IN GENERAL.—Except as otherwise 

21 provided in this paragraph, for purposes of this 

22 section, a project shall be treated as Federally 

23 subsidized for any taxable year if, at any time 

24 during such taxable year or any prior taxable 

25 year, there is or was outstanding any obligation 

65 

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1 the interest on which is exempt from tax under 

2 section 103 the proceeds of which are or were 

3 used (directly or indirectly) with respect to such 

4 project or the operation thereof. 

5 ‘‘(B) SPECIAL RULE FOR SUBSIDIZED CON6 STRUCTION FINANCING.—Subparagraph (A) 

7 shall not apply to any tax-exempt obligation 

8 used to provide construction financing for any 

9 building if— 

10 ‘‘(i) such obligation (when issued) 

11 identified the building for which the pro12 ceeds of such obligation would be used, 

13 and 

14 ‘‘(ii) such obligation is redeemed be15 fore such building is placed in service. 

16 ‘‘(8) REDUCTION IN BASIS.—In the case of any 

17 building for which a credit is allowable under this 

18 section and section 42, the basis of the building shall 

19 be reduced by the amount of such credit allowed 

20 under subsection (a). 

21 ‘‘(j) APPLICATION OF AT-RISK RULES.—For pur22 poses of this section— 

23 ‘‘(1) IN GENERAL.—Except as otherwise pro24 vided in this subsection, rules similar to the rules of 

25 section 49(a)(1) (other than subparagraphs 

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1 (D)(ii)(II) and (D)(iv)(I) thereof), section 49(a)(2), 

2 and section 49(b)(1) shall apply in determining the 

3 qualified basis of any building in the same manner 

4 as such sections apply in determining the credit base 

5 of property. 

6 ‘‘(2) SPECIAL RULES FOR DETERMINING QUALI7 FIED PERSON.—For purposes of paragraph (1)— 

8 ‘‘(A) IN GENERAL.—If the requirements of 

9 subparagraphs (B), (C), and (D) are met with 

10 respect to any financing borrowed from a quali11 fied nonprofit organization, the determination 

12 of whether such financing is qualified commer13 cial financing with respect to any qualified mid14 dle-income building shall be made without re15 gard to whether such organization— 

16 ‘‘(i) is actively and regularly engaged 

17 in the business of lending money, or 

18 ‘‘(ii) is a person described in section 

19 49(a)(1)(D)(iv)(II). 

20 ‘‘(B) FINANCING SECURED BY PROP21 ERTY.—The requirements of this subparagraph 

22 are met with respect to any financing if such fi23 nancing is secured by the qualified middle-in24 come building, except that this subparagraph 

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1 sisted building described in section 42(d)(6)(C) 

2 if— 

3 ‘‘(i) a security interest in such build4 ing is not permitted by a Federal agency 

5 holding or insuring the mortgage secured 

6 by such building, and 

7 ‘‘(ii) the proceeds from the financing 

8 (if any) are applied to acquire or improve 

9 such building. 

10 ‘‘(C) PORTION OF BUILDING ATTRIB11 UTABLE TO FINANCING.—The requirements of 

12 this subparagraph are met with respect to any 

13 financing for any taxable year in the credit pe14 riod if, as of the close of such taxable year, not 

15 more than 60 percent of the eligible basis of the 

16 qualified middle-income building is attributable 

17 to such financing (reduced by the principal and 

18 interest of any governmental financing which is 

19 part of a wrap-around mortgage involving such 

20 financing). 

21 ‘‘(D) REPAYMENT OF PRINCIPAL AND IN22 TEREST.—The requirements of this subpara23 graph are met with respect to any financing if 

24 such financing is fully repaid on or before the 

25 earliest of— 

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1 ‘‘(i) the date on which such financing 

2 matures, 

3 ‘‘(ii) the 90th day after the close of 

4 the credit period with respect to the quali5 fied middle-income building, or 

6 ‘‘(iii) the date of its refinancing or the 

7 sale of the building to which such financ8 ing relates. 

9 In the case of a qualified nonprofit organization 

10 which is not described in section 

11 49(a)(1)(D)(iv)(II) with respect to a building, 

12 clause (ii) of this subparagraph shall be applied 

13 as if the date described therein were the 90th 

14 day after the earlier of the date the building 

15 ceases to be a qualified middle-income building 

16 or the date which is 15 years after the close of 

17 a credit period with respect thereto. 

18 ‘‘(3) PRESENT VALUE OF FINANCING.—If the 

19 rate of interest on any financing described in para20 graph (2)(A) is less than the rate which is 1 per21 centage point below the applicable Federal rate as of 

22 the time such financing is incurred, then the quali23 fied basis (to which such financing relates) of the 

24 qualified middle-income building shall be the present 

25 value of the amount of such financing, using as the 

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•HR 6686 IH

1 discount rate such applicable Federal rate. For pur2 poses of the preceding sentence, the rate of interest 

3 on any financing shall be determined by treating in4 terest to the extent of government subsidies as not 

5 payable. 

6 ‘‘(4) FAILURE TO FULLY REPAY.— 

7 ‘‘(A) IN GENERAL.—To the extent that the 

8 requirements of paragraph (2)(D) are not met, 

9 then the taxpayer’s tax under this chapter for 

10 the taxable year in which such failure occurs 

11 shall be increased by an amount equal to the 

12 applicable portion of the credit under this sec13 tion with respect to such building, increased by 

14 an amount of interest for the period— 

15 ‘‘(i) beginning with the due date for 

16 the filing of the return of tax imposed by 

17 chapter 1 for the 1st taxable year for 

18 which such credit was allowable, and 

19 ‘‘(ii) ending with the due date for the 

20 taxable year in which such failure occurs, 

21 determined by using the underpayment rate and 

22 method under section 6621. 

23 ‘‘(B) APPLICABLE PORTION.—For pur24 poses of subparagraph (A), the term ‘applicable 

25 portion’ means the aggregate decrease in the 

70 

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1 credits allowed to a taxpayer under section 38 

2 for all prior taxable years which would have re3 sulted if the eligible basis of the building were 

4 reduced by the amount of financing which does 

5 not meet requirements of paragraph (2)(D). 

6 ‘‘(C) CERTAIN RULES TO APPLY.—Rules 

7 similar to the rules of subparagraphs (A) and 

8 (D) of section 42(j)(4) shall apply for purposes 

9 of this subsection. 

10 ‘‘(k) CERTIFICATIONS AND OTHER REPORTS TO SEC11 RETARY.— 

12 ‘‘(1) CERTIFICATION WITH RESPECT TO 1ST

13 YEAR OF CREDIT PERIOD.—Following the close of 

14 the 1st taxable year in the credit period with respect 

15 to any qualified middle-income building, the tax16 payer shall certify to the Secretary (at such time 

17 and in such form and in such manner as the Sec18 retary prescribes)— 

19 ‘‘(A) the taxable year, and calendar year, 

20 in which such building was placed in service, 

21 ‘‘(B) the adjusted basis and eligible basis 

22 of such building as of the close of the 1st year 

23 of the credit period, 

24 ‘‘(C) the maximum applicable percentage 

25 and qualified basis permitted to be taken into 

71 

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1 account by the appropriate housing credit agen2 cy under subsection (h), and 

3 ‘‘(D) such other information as the Sec4 retary may require. 

5 In the case of a failure to make the certification re6 quired by the preceding sentence on the date pre7 scribed therefor, unless it is shown that such failure 

8 is due to reasonable cause and not to willful neglect, 

9 no credit shall be allowable by reason of subsection 

10 (a) with respect to such building for any taxable 

11 year ending before such certification is made. 

12 ‘‘(2) ANNUAL REPORTS TO THE SECRETARY.— 

13 The Secretary may require taxpayers to submit an 

14 information return (at such time and in such form 

15 and manner as the Secretary prescribes) for each 

16 taxable year setting forth— 

17 ‘‘(A) the qualified basis for the taxable 

18 year of each qualified middle-income building of 

19 the taxpayer, 

20 ‘‘(B) the information described in para21 graph (1)(C) for the taxable year, and 

22 ‘‘(C) such other information as the Sec23 retary may require. 

24 The penalty under section 6652(j) shall apply to any 

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1 retary under the preceding sentence on the date pre2 scribed therefor. 

3 ‘‘(3) ANNUAL REPORTS FROM HOUSING CREDIT

4 AGENCIES.—Each agency which allocates any hous5 ing credit amount to any building for any calendar 

6 year shall submit to the Secretary (at such time and 

7 in such manner as the Secretary shall prescribe) an 

8 annual report specifying— 

9 ‘‘(A) the amount of housing credit amount 

10 allocated to each building for such year, 

11 ‘‘(B) sufficient information to identify each 

12 such building and the taxpayer with respect 

13 thereto, and 

14 ‘‘(C) such other information as the Sec15 retary may require. 

16 The penalty under section 6652(j) shall apply to any 

17 failure to submit the report required by the pre18 ceding sentence on the date prescribed therefor. 

19 ‘‘(l) RESPONSIBILITIES OF HOUSING CREDIT AGEN20 CIES.— 

21 ‘‘(1) PLANS FOR ALLOCATION OF CREDIT

22 AMONG PROJECTS.— 

23 ‘‘(A) IN GENERAL.—Notwithstanding any 

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1 it dollar amount with respect to any building 

2 shall be zero unless— 

3 ‘‘(i) such amount was allocated pursu4 ant to a qualified allocation plan of the 

5 housing credit agency which is approved by 

6 the governmental unit (in accordance with 

7 rules similar to the rules of section 

8 42(m)(1)) of which such agency is a part, 

9 ‘‘(ii) a comprehensive market study of 

10 the housing needs of middle-income indi11 viduals in the area to be served by the 

12 project is conducted before the credit allo13 cation is made and at the developer’s ex14 pense by a disinterested party who is ap15 proved by such agency, and 

16 ‘‘(iii) a written explanation is available 

17 to the general public for any allocation of 

18 a housing credit dollar amount which is 

19 not made in accordance with established 

20 priorities and selection criteria of the hous21 ing credit agency. 

22 ‘‘(B) QUALIFIED ALLOCATION PLAN.—For 

23 purposes of this paragraph, the term ‘qualified 

24 allocation plan’ means any plan— 

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1 ‘‘(i) which sets forth selection criteria 

2 to be used to determine housing priorities 

3 of the housing credit agency which are ap4 propriate to local conditions, 

5 ‘‘(ii) which also gives preference in al6 locating housing credit dollar amounts 

7 among selected projects to— 

8 ‘‘(I) projects obligated to serve 

9 qualified tenants for the longest peri10 ods, 

11 ‘‘(II) projects in areas with insuf12 ficient supply of housing affordable to 

13 median income households, 

14 ‘‘(III) projects which target hous15 ing to tenants at a range of incomes 

16 between 60 and 100 percent of area 

17 median gross income, and 

18 ‘‘(IV) projects located near tran19 sit hubs, and 

20 ‘‘(iii) which provides a procedure that 

21 the agency (or an agent or other private 

22 contractor of such agency) will follow in 

23 monitoring for noncompliance with the 

24 provisions of this section and in notifying 

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1 compliance which such agency becomes 

2 aware of and in monitoring for noncompli3 ance with habitability standards through 

4 regular site visits. 

5 ‘‘(C) CERTAIN SELECTION CRITERIA MUST

6 BE USED.—The selection criteria set forth in a 

7 qualified allocation plan must include— 

8 ‘‘(i) project location, 

9 ‘‘(ii) housing needs characteristics, 

10 ‘‘(iii) project characteristics, including 

11 whether the project includes the use of ex12 isting housing as part of a community revi13 talization plan, 

14 ‘‘(iv) sponsor characteristics, 

15 ‘‘(v) tenant populations with special 

16 housing needs, 

17 ‘‘(vi) tenant populations of individuals 

18 with children, 

19 ‘‘(vii) projects intended for eventual 

20 tenant ownership, 

21 ‘‘(viii) the energy efficiency of the 

22 project, and 

23 ‘‘(ix) the historic nature of the 

24 project. 

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1 ‘‘(D) CERTAIN SELECTION CRITERIA PRO2 HIBITED.—The selection criteria set forth in a 

3 qualified allocation plan shall not include a re4 quirement of local approval or local contribu5 tions, either as a threshold qualification re6 quirement or as part of a point system to be 

7 considered for allocations of housing credit dol8 lar amount. 

9 ‘‘(2) CREDIT ALLOCATED TO BUILDING NOT TO

10 EXCEED AMOUNT NECESSARY TO ASSURE PROJECT

11 FEASIBILITY.— 

12 ‘‘(A) IN GENERAL.—The housing credit 

13 dollar amount allocated to a project shall not 

14 exceed the amount the housing credit agency 

15 determines is necessary for the financial feasi16 bility of the project and its viability as a quali17 fied middle-income housing project throughout 

18 the credit period. 

19 ‘‘(B) AGENCY EVALUATION.—In making 

20 the determination under subparagraph (A), the 

21 housing credit agency shall consider— 

22 ‘‘(i) the sources and uses of funds and 

23 the total financing planned for the project, 

24 ‘‘(ii) any proceeds or receipts expected 

25 to be generated by reason of tax benefits, 

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1 ‘‘(iii) the percentage of the housing 

2 credit dollar amount used for project costs 

3 other than the cost of intermediaries, and 

4 ‘‘(iv) the reasonableness of the devel5 opmental and operational costs of the 

6 project. 

7 Clause (iii) shall not be applied so as to impede 

8 the development of projects in hard-to-develop 

9 areas. Such a determination shall not be con10 strued to be a representation or warranty as to 

11 the feasibility or viability of the project. 

12 ‘‘(C) DETERMINATION MADE WHEN CRED13 IT AMOUNT APPLIED FOR AND WHEN BUILDING

14 PLACED IN SERVICE.— 

15 ‘‘(i) IN GENERAL.—A determination 

16 under subparagraph (A) shall be made as 

17 of each of the following times: 

18 ‘‘(I) The application for the 

19 housing credit dollar amount. 

20 ‘‘(II) The allocation of the hous21 ing credit dollar amount. 

22 ‘‘(III) The date the building is 

23 placed in service. 

24 ‘‘(ii) CERTIFICATION AS TO AMOUNT

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1 termination under clause (i), the taxpayer 

2 shall certify to the housing credit agency 

3 the full extent of all Federal, State, and 

4 local subsidies which apply (or which the 

5 taxpayer expects to apply) with respect to 

6 the building. 

7 ‘‘(m) REGULATIONS.—The Secretary shall prescribe 

8 such regulations as may be necessary or appropriate to 

9 carry out the purposes of this section, including— 

10 ‘‘(1) regulations dealing with— 

11 ‘‘(A) projects which include more than 1 

12 building or only a portion of a building, or 

13 ‘‘(B) buildings which are placed in service 

14 in portions, 

15 ‘‘(2) regulations providing for the application of 

16 this section to short taxable years, 

17 ‘‘(3) regulations preventing the avoidance of the 

18 rules of this section, 

19 ‘‘(4) regulations providing the opportunity for 

20 housing credit agencies to correct administrative er21 rors and omissions with respect to allocations and 

22 record keeping within a reasonable period after their 

23 discovery, taking into account the availability of reg24 ulations and other administrative guidance from the 

25 Secretary, and 

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1 ‘‘(5) in consultation with the Secretary of 

2 Housing and Urban Development, regulations or 

3 guidance to promote uniform definitions and to 

4 streamline requirements for with respect to qualified 

5 middle-income buildings which receive funding from 

6 programs administrated by the Department of Hous7 ing and Urban Development, including programs au8 thorized by Native American Housing Assistance 

9 and Self-Determination Act of 1996 .’’. 

10 (b) TREATMENT AS PART OF GENERAL BUSINESS

11 CREDIT.—Section 38(b) of the Internal Revenue Code of 

12 1986 is amended by striking ‘‘plus’’ at the end of para13 graph (40), by striking the period at the end of paragraph 

14 (41) and inserting ‘‘, plus’’, and by adding at the end the 

15 following new paragraph: 

16 ‘‘(42) the middle-income housing credit deter17 mined under section 42A(a).’’. 

18 (c) REDUCTION IN BASIS.—Section 1016(a) of the 

19 Internal Revenue Code of 1986 is amended— 

20 (1) by striking ‘‘and’’ at the end of paragraph 

21 (37); 

22 (2) by redesignating paragraph (38) as para23 graph (39); and 

24 (3) by inserting after paragraph (37) the fol25 lowing new paragraph: 

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1 ‘‘(38) to the extent provided in section 

2 42A(i)(8), and’’. 

3 (d) TREATMENT UNDER BASE EROSION MINIMUM

4 TAX.—Section 59A(b)(4) of he Internal Revenue Code of 

5 1986 is amended by redesignating subparagraphs (B) and 

6 (C) as subparagraphs (C) and (D), respectively, and by 

7 inserting after subparagraphs (A) the following new sub8 paragraph: 

9 ‘‘(B) the middle-income housing credit de10 termined under section 42A(a),’’. 

11 (e) CONFORMING AMENDMENTS RELATING TO LOW12 INCOME HOUSING TAX CREDIT.—Section 42(n) of the In13 ternal Revenue Code of 1986 is amended— 

14 (1) by striking ‘‘regulations’’ in the matter pre15 ceding paragraph (1), 

16 (2) by inserting ‘‘regulations’’ before ‘‘dealing 

17 with’’ in paragraph (1), 

18 (3) by inserting ‘‘regulations’’ before ‘‘pro19 viding’’ in paragraphs (2) and (4), 

20 (4) by inserting ‘‘regulations’’ before ‘‘pre21 venting’’ in paragraph (3), 

22 (5) by striking ‘‘and’’at the end of paragraph 

23 (3), 

24 (6) by striking the period at the end of para25 graph (4) and inserting ‘‘, and’’, and 

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1 (7) by adding at the end the following new 

2 paragraph 

3 ‘‘(5) in consultation with the Secretary of 

4 Housing and Urban Development, regulations or 

5 guidance to promote uniform definitions and to 

6 streamline requirements for with respect to qualified 

7 low-income buildings which receive funding from 

8 programs administrated by the Department of Hous9 ing and Urban Development, including programs au10 thorized by Native American Housing Assistance 

11 and Self-Determination Act of 1996.’’. 

12 (f) CONFORMING AMENDMENTS.— 

13 (1) Section 45L(e) of the Internal Revenue 

14 Code of 1986 is amended by inserting ‘‘or 42A’’ 

15 after ‘‘42’’. 

16 (2) Section 50(c)(3)(C) of such Code is amend17 ed by inserting ‘‘or 42A’’ after ‘‘42’’. 

18 (3) Section 55(c)(1) of such Code is amended 

19 by inserting ‘‘42A(j),’’ before ‘‘45(e)(11)(C)’’. 

20 (4) Subsections (i)(3)(C), (i)(6)(B)(i), and 

21 (k)(1) of section 469 of such Code are each amended 

22 by inserting ‘‘or 42A’’ after ‘‘42’’. 

23 (5) The table of sections for subpart D of part 

24 IV of subchapter A of chapter 1 of such Code is 

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1 amended by inserting after the item relating to sec2 tion 42 the following new item: 

‘‘Sec. 42A. Middle-income housing credit.’’. 

3 (g) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to buildings placed in service after 

5 December 31, 2023, in taxable years ending after such 

6 date. 

Æ