II 

108TH CONGRESS 

1ST SESSION S. 198

To amend the Internal Revenue Code of 1986 to allow an income tax credit 

for the provision of homeownership and community development, and 

for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 21, 2003

Mr. SMITH (for himself, Ms. STABENOW, and Mr. SANTORUM) 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 allow an 

income tax credit for the provision of homeownership 

and community development, 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; ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘New Homestead Economic Opportunity Act’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 SEC. 2. COMMUNITY HOMEOWNERSHIP CREDIT. 

4 (a) IN GENERAL.—Subpart D of part IV of sub5 chapter A of chapter 1 is amended by inserting after sec6 tion 42 the following new section: 

7 ‘‘SEC. 42A. HOMEOWNERSHIP CREDIT. 

8 ‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec9 tion 38, the amount of the homeownership credit deter10 mined under this section for any taxable year in the credit 

11 period shall be an amount equal to the applicable percent12 age of the eligible basis of each qualified residence. 

13 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 

14 this section—

15 ‘‘(1) IN GENERAL.—The term ‘applicable per16 centage’ means the appropriate percentage pre17 scribed by the Secretary for the month in which the 

18 taxpayer and the homeownership credit agency enter 

19 into an agreement with respect to such residence 

20 (which is binding on such agency, the taxpayer, and 

21 all successors in interest) as to the homeownership 

22 credit dollar amount to be allocated to such resi23 dence. 

24 ‘‘(2) METHOD OF PRESCRIBING PERCENT25 AGE.—The percentage prescribed by the Secretary 
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1 for any month shall be the percentage which will 

2 yield over a 5-year period amounts of credit under 

3 subsection (a) which have a present value equal to 

4 50 percent of the eligible basis of a qualified resi5 dence. 

6 ‘‘(3) METHOD OF DISCOUNTING.—The present 

7 value under paragraph (2) shall be determined—

8 ‘‘(A) as of the last day of the 1st year of 

9 the 5-year period referred to in paragraph (2), 

10 ‘‘(B) by using a discount rate equal to 72 

11 percent of the annual Federal mid-term rate 

12 applicable under section 1274(d)(1) to the 

13 month applicable under paragraph (1) and com14 pounded annually, and 

15 ‘‘(C) by assuming that the credit allowable 

16 under this section for any year is received on 

17 the last day of such year. 

18 ‘‘(c) QUALIFIED RESIDENCE.—For purposes of this 

19 section—

20 ‘‘(1) IN GENERAL.—The term ‘qualified resi21 dence’ means any residence—

22 ‘‘(A) which is located—

23 ‘‘(i) in a census tract which has a me24 dian gross income which does not exceed 
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1 80 percent of the greater of area or state2 wide median gross income, or 

3 ‘‘(ii) in an area of chronic economic 

4 distress, and 

5 ‘‘(B) which is purchased by a qualified 

6 buyer. 

7 For purposes of clause (ii) of subparagraph (A), an 

8 area is an area of chronic economic distress if it is 

9 approved for designation as such under section 

10 143(j)(3), except that such designation shall not re11 quire the approval of the Secretary and shall cease 

12 to apply after the end of the 5th calendar year after 

13 the calendar year in which the designation is made. 

14 ‘‘(2) RESIDENCE.—For purposes of paragraph 

15 (1), the term ‘residence’ means—

16 ‘‘(A) a single-family home containing 1 to 

17 4 housing units, 

18 ‘‘(B) a condominium unit, 

19 ‘‘(C) stock in a cooperative housing cor20 poration (as defined in section 216(b)), or 

21 ‘‘(D) any factory-made housing which is 

22 permanently affixed to real property. 

23 In the case of a single-family home described in sub24 paragraph (A) which contains more than 1 housing 

25 unit, the term ‘residence’ shall not include any new 
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1 residence and shall include only the portion of such 

2 home which is to be occupied by the owner thereof 

3 (based on the percentage of the total area of such 

4 home which is to be occupied by the owner). 

5 ‘‘(3) TIMING OF DETERMINATION.—For pur6 poses of paragraph (1), the determination of wheth7 er a residence is a qualified residence shall be made 

8 at the time a binding commitment for an allocation 

9 of credit is awarded by the homeownership credit 

10 agency, except that the determination of whether a 

11 buyer is a qualified buyer shall be made at the time 

12 the residence is sold. 

13 ‘‘(4) MEDIAN GROSS INCOME.—For purposes of 

14 this section, median gross income shall be deter15 mined consistent with section 143(f)(2). 

16 ‘‘(d) ELIGIBLE BASIS.—For purposes of this sec17 tion—

18 ‘‘(1) NEW QUALIFIED RESIDENCES.—

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

20 new qualified residence is—

21 ‘‘(i) in the case of a qualified resi22 dence which is sold in a transaction which 

23 meets the requirements of subparagraph 

24 (B), its adjusted basis (excluding land) im25 mediately before such sale, and
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1 ‘‘(ii) zero in any other case. 

2 ‘‘(B) REQUIREMENTS.—A sale of a quali3 fied residence meets the requirements of this 

4 subparagraph if—

5 ‘‘(i) the buyer acquires the qualified 

6 residence by purchase (as defined in sec7 tion 179(d)(2)), 

8 ‘‘(ii) the buyer of the qualified resi9 dence is not a related person with respect 

10 to the seller, and 

11 ‘‘(iii) the buyer’s debt financing is 

12 originated by a 3rd party who is not a re13 lated person with respect to the seller. 

14 ‘‘(2) EXISTING QUALIFIED RESIDENCES.—

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

16 an existing qualified residence is—

17 ‘‘(i) in the case of a qualified resi18 dence which is sold in a transaction which 

19 meets the requirements of subparagraph 

20 (B), the adjusted basis of the rehabilitation 

21 expenditures with respect to the qualified 

22 residence which are paid or incurred in 

23 connection with such sale, and 

24 ‘‘(ii) zero in any other case. 
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1 ‘‘(B) REQUIREMENTS.—A sale of a quali2 fied residence meets the requirements of this 

3 subparagraph if—

4 ‘‘(i) the buyer acquires the qualified 

5 residence by purchase (as defined in sec6 tion 179(d)(2)), 

7 ‘‘(ii) the qualified residence has un8 dergone substantial rehabilitation in con9 nection with the sale described in clause 

10 (i), 

11 ‘‘(iii) the buyer of the qualified resi12 dence is not a related person with respect 

13 to the seller, and 

14 ‘‘(iv) the buyer’s debt financing is 

15 originated by a 3rd party who is not a re16 lated person with respect to the seller. 

17 ‘‘(C) SUBSTANTIAL REHABILITATION.—

18 ‘‘(i) IN GENERAL.—For purposes of 

19 subparagraph (B), substantial rehabilita20 tion means rehabilitation expenditures paid 

21 or incurred with respect to a qualified resi22 dence which are at least $25,000. 

23 ‘‘(ii) INFLATION ADJUSTMENT.—In 

24 the case of a calendar year after 2003, the 
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1 dollar amount contained in clause (i) shall 

2 be increased by an amount equal to—

3 ‘‘(I) such dollar amount, multi4 plied by 

5 ‘‘(II) the cost-of-living adjust6 ment determined under section 1(f)(3) 

7 for such calendar year by substituting 

8 ‘calendar year 2002’ for ‘calendar 

9 year 1992’ in subparagraph (B) there10 of. 

11 Any increase under this clause which is not 

12 a multiple of $1,000 shall be rounded to 

13 the next lowest multiple of $1,000. 

14 ‘‘(3) EFFECT OF SUBSEQUENT SALE, ETC.—A 

15 subsequent sale, assignment, rental, or refinancing 

16 of the qualified residence by the buyer or the subse17 quent sale, assignment, or pooling of the buyer’s fi18 nancing by the originator shall not be considered in 

19 determining whether or not the prior sales trans20 action satisfied the requirements of subparagraph 

21 (B) of paragraph (1) or (2). 

22 ‘‘(4) SPECIAL RULES RELATING TO DETER23 MINATION OF ADJUSTED BASIS.—For purposes of 

24 this subsection—
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 subparagraph (B), the adjusted basis of any 

3 qualified residence (or any rehabilitation ex4 penditures in respect thereof)—

5 ‘‘(i) shall not include so much of the 

6 basis of such qualified residence (or reha7 bilitation expenditures) as is determined by 

8 reference to the basis of other property 

9 held at any time by the person acquiring 

10 the residence, and 

11 ‘‘(ii) shall be determined without re12 gard to the adjusted basis of any property 

13 which is not part of such qualified resi14 dence. 

15 ‘‘(B) BASIS OF PROPERTY IN COMMON

16 AREAS, ETC., INCLUDED.—The adjusted basis 

17 of any qualified residence shall be determined 

18 by taking into account (on a pro rata basis) the 

19 adjusted basis of property (of a character sub20 ject to the allowance for depreciation) used in 

21 common areas or provided as comparable amen22 ities to all residences within a project. 

23 ‘‘(5) SPECIAL RULES FOR DETERMINING ELIGI24 BLE BASIS.—
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1 ‘‘(A) RELATED PERSON, ETC.—For pur2 poses of this section, a person (in this clause re3 ferred to as the ‘related person’) is related to 

4 any person if the related person bears a rela5 tionship to such person specified in section 

6 267(b) or 707(b)(1), or the related person and 

7 such person are engaged in trades or businesses 

8 under common control (within the meaning of 

9 subsections (a) and (b) of section 52). For pur10 poses of the preceding sentence, in applying 

11 section 267(b) or 707(b)(1), ‘10 percent’ shall 

12 be substituted for ‘50 percent’. 

13 ‘‘(B) NONRESIDENTIAL SPACE EX14 CLUDED.—No portion of the eligible basis of a 

15 qualified residence shall include costs attrib16 utable to nonresidential space. 

17 ‘‘(C) LIMITATION.—The eligible basis of 

18 any residence may not exceed the mortgage 

19 limit for Federal Housing Administration in20 sured mortgages in the area in which such resi21 dence is located. 

22 ‘‘(e) DEFINITION AND SPECIAL RULES RELATING TO

23 CREDIT PERIOD.—

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

25 of this section, the term ‘credit period’ means, with
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1 respect to any qualified residence, the period of 5 

2 taxable years beginning with the taxable year in 

3 which the sale of the qualified residence occurs satis4 fying the requirements of subsection (d)(1)(B) or 

5 (d)(2)(B). 

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

7 PERIOD.—

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

9 under subsection (a) with respect to any quali10 fied residence for the 1st taxable year of the 

11 credit period shall be determined by multiplying 

12 the eligible basis under subsection (d) by the 

13 fraction—

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

15 sum of the number of remaining whole 

16 months in such 1st taxable year after the 

17 sale of the qualified residence, and 

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

19 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL20 LOWED IN 6TH YEAR.—Any reduction by reason 

21 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 ‘‘(f) LIMITATION ON AGGREGATE CREDIT ALLOW2 ABLE WITH RESPECT TO QUALIFIED RESIDENCES LO3 CATED IN A STATE.—

4 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT DOLLAR

5 AMOUNT ALLOCATED TO QUALIFIED RESIDENCE.—

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

7 credit determined under this section for any 

8 taxable year with respect to any qualified resi9 dence shall not exceed the homeownership cred10 it dollar amount allocated to such qualified resi11 dence under this subsection. 

12 ‘‘(B) TIME FOR MAKING ALLOCATION.—

13 ‘‘(i) GENERAL RULE.—An allocation 

14 shall be taken into account under subpara15 graph (A) only if it is made not later than 

16 the close of the calendar year in which the 

17 qualified residence is sold, and only if the 

18 qualified residence is sold within 1 year 

19 after the residence (or the rehabilitation 

20 expenditures, as applicable) is completed. 

21 ‘‘(ii) EARLIER ALLOCATION BY AGEN22 CY.—A homeownership credit agency may 

23 allocate available homeownership credit 

24 dollar amounts to a qualified residence 
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1 prior to the year of sale of such qualified 

2 residence if—

3 ‘‘(I) the taxpayer owns fee title 

4 or a leasehold interest of not less than 

5 50 years in the site of the qualified 

6 residence as of the later of the date 

7 which is 6 months after the date that 

8 the allocation was made or the close 

9 of the calendar year in which the allo10 cation is made, and 

11 ‘‘(II) such qualified residence is 

12 completed not later than the close of 

13 the 2nd calendar year following the 

14 calendar year in which the allocation 

15 was made. 

16 ‘‘(C) VESTED RIGHT TO CREDIT DOLLAR

17 AMOUNT.—Once a homeownership credit alloca18 tion is received by a taxpayer, the right to such 

19 credit is vested in such taxpayer and is not sub20 ject to recapture, except as provided in para21 graph (4)(B). 

22 ‘‘(2) HOMEOWNERSHIP CREDIT DOLLAR

23 AMOUNT FOR AGENCIES.—

24 ‘‘(A) IN GENERAL.—The aggregate home25 ownership credit dollar amount which a home-
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1 ownership credit agency may allocate for any 

2 calendar year is the portion of the State home3 ownership credit ceiling allocated under this 

4 paragraph for such calendar year to such agen5 cy. 

6 ‘‘(B) STATE CEILING INITIALLY ALLO7 CATED TO STATE HOMEOWNERSHIP CREDIT

8 AGENCIES.—Except as provided in subpara9 graphs (D) and (E), the State homeownership 

10 credit ceiling for each calendar year shall be al11 located to the homeownership credit agency of 

12 such State. If there is more than 1 homeowner13 ship credit agency of a State, all such agencies 

14 shall be treated as a single agency. 

15 ‘‘(C) STATE HOMEOWNERSHIP CREDIT

16 CEILING.—The State homeownership credit ceil17 ing applicable to any State for any calendar 

18 year before 2003 shall be zero and for any cal19 endar year after 2002 shall be an amount equal 

20 to the sum of—

21 ‘‘(i) the unused State homeownership 

22 credit ceiling (if any) of such State for the 

23 preceding calendar year, 

24 ‘‘(ii) the greater of—
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1 ‘‘(I) $1.75 multiplied by the 

2 State population, or 

3 ‘‘(II) $2,000,000, 

4 ‘‘(iii) the amount of State homeowner5 ship credit ceiling returned in the calendar 

6 year, plus 

7 ‘‘(iv) the amount (if any) allocated 

8 under subparagraph (D) to such State by 

9 the Secretary. 

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

11 homeownership credit ceiling for any calendar 

12 year is the excess (if any) of the sum of the 

13 amounts described in clauses (ii) through (iv) 

14 over the aggregate homeownership credit dollar 

15 amount allocated for such year, except that 

16 such amount shall be zero for 2003. For pur17 poses of clause (iii), the amount of State home18 ownership credit ceiling returned in the cal19 endar year equals the homeownership credit 

20 dollar amount previously allocated within the 

21 State to any qualified residence with respect to 

22 which an allocation is canceled by mutual con23 sent of the homeownership credit agency and 

24 the allocation recipient.
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1 ‘‘(D) UNUSED HOMEOWNERSHIP CREDIT

2 CARRYOVERS ALLOCATED AMONG CERTAIN

3 STATES.—

4 ‘‘(i) IN GENERAL.—The unused home5 ownership credit carryover of a State for 

6 any calendar year shall be assigned to the 

7 Secretary for allocation among qualified 

8 States for the succeeding calendar year. 

9 ‘‘(ii) UNUSED HOMEOWNERSHIP

10 CREDIT CARRYOVER.—For purposes of this 

11 subparagraph, the unused homeownership 

12 credit carryover of a State for any calendar 

13 year is the excess (if any) of the unused 

14 State homeownership credit ceiling for 

15 such year (as defined in subparagraph 

16 (C)(i)) over the excess (if any) of—

17 ‘‘(I) the unused State home18 ownership credit ceiling for the year 

19 preceding such year, over 

20 ‘‘(II) the aggregate homeowner21 ship credit dollar amount allocated for 

22 such year. 

23 ‘‘(iii) FORMULA FOR ALLOCATION OF

24 UNUSED HOMEOWNERSHIP CREDIT

25 CARRYOVERS AMONG QUALIFIED
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1 STATES.—The amount allocated under this 

2 subparagraph to a qualified State for any 

3 calendar year shall be the amount deter4 mined by the Secretary to bear the same 

5 ratio to the aggregate unused homeowner6 ship credit carryovers of all States for the 

7 preceding calendar year as such State’s 

8 population for the calendar year bears to 

9 the population of all qualified States for 

10 the calendar year. 

11 ‘‘(iv) QUALIFIED STATE.—For pur12 poses of this subparagraph, the term 

13 ‘qualified State’ means, with respect to a 

14 calendar year, any State—

15 ‘‘(I) which allocated its entire 

16 State homeownership credit ceiling for 

17 the preceding calendar year, and 

18 ‘‘(II) for which a request is made 

19 (not later than May 1 of the calendar 

20 year) to receive an allocation under 

21 clause (iii). 

22 ‘‘(E) STATE MAY PROVIDE FOR DIF23 FERENT ALLOCATION.—Rules similar to the 

24 rules of section 146(e) (other than paragraph 
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1 (2)(B) thereof) shall apply for purposes of this 

2 paragraph. 

3 ‘‘(F) POPULATION.—For purposes of this 

4 paragraph, population shall be determined in 

5 accordance with section 146(j). 

6 ‘‘(G) COST-OF-LIVING ADJUSTMENT.—

7 ‘‘(i) IN GENERAL.—In the case of a 

8 calendar year after 2003, the $2,000,000 

9 and $1.75 amounts in subparagraph (C) 

10 shall each be increased by an amount equal 

11 to—

12 ‘‘(I) such dollar amount, multi13 plied by 

14 ‘‘(II) the cost-of-living adjust15 ment determined under section 

16 1(f )(3) for such calendar year by sub17 stituting ‘calendar year 2002’ for ‘cal18 endar year 1992’ in subparagraph (B) 

19 thereof. 

20 ‘‘(ii) ROUNDING.—

21 ‘‘(I) In the case of the 

22 $2,000,000 amount, any increase 

23 under clause (i) which is not a mul24 tiple of $5,000 shall be rounded to the 

25 next lowest multiple of $5,000. 
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1 ‘‘(II) In the case of the $1.75 

2 amount, any increase under clause (i) 

3 which is not a multiple of 5 cents 

4 shall be rounded to the next lowest 

5 multiple of 5 cents. 

6 ‘‘(3) LIMITATION ON ALLOCATIONS TO AREAS

7 OF CHRONIC ECONOMIC DISTRESS.—Not more than 

8 50 percent of a homeownership credit agency’s por9 tion of the State homeownership credit ceiling for a 

10 calendar year may be allocated to residences located 

11 in areas which are designated as areas of chronic 

12 economic distress in accordance with paragraph (1) 

13 of subsection (c). 

14 ‘‘(4) SPECIAL RULES.—

15 ‘‘(A) RESIDENCE MUST BE LOCATED

16 WITHIN JURISDICTION OF CREDIT AGENCY.—A 

17 homeownership credit agency may allocate its 

18 aggregate homeownership credit dollar amount 

19 only to qualified residences located in the juris20 diction of the governmental unit of which such 

21 agency is a part. 

22 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

23 LIMIT.—If the aggregate homeownership credit 

24 dollar amounts allocated by a homeownership 

25 credit agency for any calendar year exceed the 
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1 portion of the State homeownership credit ceil2 ing allocated to such agency for such calendar 

3 year, the homeownership credit dollar amounts 

4 so allocated shall be reduced (to the extent of 

5 such excess) for residences in the reverse of the 

6 order in which the allocations of such amounts 

7 were made. 

8 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur9 poses of this section—

10 ‘‘(1) COMPLETED.—The term ‘completed’ 

11 means the point in time where a qualified residence 

12 is first placed in a condition or state of readiness 

13 and availability for occupancy. 

14 ‘‘(2) PROJECT.—The term ‘project’ means 1 or 

15 more residences together with functionally related 

16 and subordinate facilities developed and made avail17 able to inhabitants of such residences, including rec18 reational facilities and parking areas. To constitute 

19 a project, each residence must—

20 ‘‘(A) be developed by the same taxpayer 

21 pursuant to common planning and feasibility 

22 studies, 

23 ‘‘(B) be financed through a common plan 

24 of construction financing, and 

25 ‘‘(C) have common ownership prior to sale.
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1 For purposes of this paragraph, it is not necessary 

2 that all residences within a project be contiguous or 

3 that all residences consist only of either new resi4 dences or existing residences and it is not necessary 

5 that each residence within a project be a qualified 

6 residence. 

7 ‘‘(3) QUALIFIED BUYER.—

8 ‘‘(A) IN GENERAL.—The term ‘qualified 

9 buyer’ means a buyer if at the time of the ac10 quisition of the qualified residence, the buyer—

11 ‘‘(i) is 1 or more individuals whose in12 come does not exceed 80 percent of the 

13 area median gross income (70 percent for 

14 families of less than 3 members), and 

15 ‘‘(ii) intends to occupy the residence 

16 as the buyer’s principal residence (within 

17 the meaning of section 121). 

18 ‘‘(B) SPECIAL RULES IN QUALIFIED CEN19 SUS TRACTS.—With respect to residences lo20 cated in qualified census tracts (as defined in 

21 section 42), subparagraph (A) shall be applied 

22 by substituting ‘100 percent’ for ‘80 percent’ 

23 and ‘90 percent’ for ‘70 percent’. 

24 ‘‘(C) DETERMINATION OF INCOME.—For 

25 purposes of this paragraph, a buyer’s income 
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1 shall be determined in accordance with section 

2 143(f)(4). 

3 ‘‘(4) NEW QUALIFIED RESIDENCE.—The term 

4 ‘new qualified residence’ means a qualified residence 

5 the original ownership of which begins with the tax6 payer. 

7 ‘‘(5) EXISTING QUALIFIED RESIDENCE.—The 

8 term ‘existing qualified residence’ means any quali9 fied residence which is not a new qualified residence. 

10 ‘‘(6) HOMEOWNERSHIP CREDIT AGENCY.—The 

11 term ‘homeownership credit agency’ means any 

12 agency authorized to carry out this section. 

13 ‘‘(7) POSSESSIONS TREATED AS STATES.—The 

14 term ‘State’ includes the District of Columbia and a 

15 possession of the United States. 

16 ‘‘(8) APPLICATION TO ESTATES AND TRUSTS.—

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

18 credit determined under subsection (a) shall be ap19 portioned between the estate or trust and the bene20 ficiaries on the basis of the income of the estate or 

21 trust allocable to each. 

22 ‘‘(h) REDUCTION IN TAX BENEFITS.—

23 ‘‘(1) RECAPTURE OF CREDIT.—If within the 

24 first 3 years after the original purchase of a quali25 fied residence, the residence is sold by the qualified 
23

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1 buyer to a buyer who does not qualify as a qualified 

2 buyer, the qualified buyer—

3 ‘‘(A) shall deduct and withhold an amount 

4 equal to the recapture amount from the amount 

5 realized on such sale, and 

6 ‘‘(B) shall transfer such amount to the 

7 homeownership credit agency which allocated 

8 the homeownership credit dollar amount to such 

9 residence. 

10 ‘‘(2) RECAPTURE AMOUNT.—For purposes of 

11 paragraph (1), the recapture amount is an amount 

12 equal to 50 percent of the gain resulting from such 

13 resale, reduced by 1/36th for each month the resale 

14 occurs after the original purchase. 

15 ‘‘(3) DENIAL OF DEDUCTIONS IF CONVERTED

16 TO RENTAL HOUSING.—If a qualified residence is 

17 converted to rental housing within the first 3 years 

18 after the original purchase, no deduction under this 

19 chapter shall be permitted to offset rental income 

20 with respect to such residence during such period. 

21 ‘‘(i) APPLICATION OF AT-RISK RULES.—For pur22 poses of this section, rules of section 465 shall not apply 

23 in determining the eligible basis of any qualified residence. 

24 ‘‘(j) REPORTS TO THE SECRETARY.—
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1 ‘‘(1) FROM THE TAXPAYER.—The Secretary 

2 may require taxpayers to submit an information re3 turn (at such time and in such form and manner as 

4 the Secretary prescribes) for each taxable year set5 ting forth—

6 ‘‘(A) the eligible basis for the taxable year 

7 of each qualified residence with respect to which 

8 the taxpayer is claiming a credit under this sec9 tion, 

10 ‘‘(B) the amount of all homeownership 

11 credit allocations received by the taxpayer from 

12 any and all State homeownership credit agen13 cies, 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 return required by the Sec18 retary under the preceding sentence on the date pre19 scribed therefor. 

20 ‘‘(2) FROM HOMEOWNERSHIP CREDIT AGEN21 CIES.—Each agency which allocates any homeowner22 ship credit dollar amount to any residence for any 

23 calendar year shall submit to the Secretary (at such 

24 time and in such form and manner as the Secretary 

25 shall prescribe) an annual report specifying—
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1 ‘‘(A) the amount of the homeownership 

2 credit dollar amount allocated to each residence 

3 for such year, 

4 ‘‘(B) sufficient information to identify each 

5 such residence and the taxpayer initially enti6 tled to claim the credit under this section with 

7 respect thereto, and 

8 ‘‘(C) such other information as the Sec9 retary may require. 

10 ‘‘(k) RESPONSIBILITIES OF HOMEOWNERSHIP CRED11 IT AGENCIES.—

12 ‘‘(1) PLANS FOR ALLOCATION OF CREDIT

13 AMONG RESIDENCES.—

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

15 other provision of this section, the homeowner16 ship credit dollar amount with respect to any 

17 qualified residence shall be zero unless such 

18 amount was allocated pursuant to a qualified 

19 allocation plan of the homeownership credit 

20 agency which is approved by the governmental 

21 unit (in accordance with rules similar to the 

22 rules of section 147(f)(2) (other than subpara23 graph (B)(ii) thereof)) of which such agency is 

24 a part.
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1 ‘‘(B) QUALIFIED ALLOCATION PLAN.—For 

2 purposes of this paragraph, the term ‘qualified 

3 allocation plan’ means any plan which sets forth 

4 the homeownership development priorities of 

5 the homeownership credit agency. 

6 ‘‘(C) CERTAIN HOMEOWNERSHIP DEVEL7 OPMENT PRIORITIES MUST BE USED.—The de8 velopment priorities set forth in a qualified allo9 cation plan must include—

10 ‘‘(i) contribution of the development 

11 to community stability and revitalization, 

12 ‘‘(ii) community and local government 

13 support for the development, 

14 ‘‘(iii) need for homeownership develop15 ment within the area, 

16 ‘‘(iv) sponsor capability, and 

17 ‘‘(v) long-term sustainability of the 

18 project as owner-occupied residences. 

19 ‘‘(2) CREDIT ALLOCATED TO RESIDENCE NOT

20 TO EXCEED AMOUNT NECESSARY TO ASSURE FEASI21 BILITY.—

22 ‘‘(A) IN GENERAL.—The homeownership 

23 credit dollar amount allocated to a residence 

24 shall not exceed the amount the homeownership 
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1 credit agency determines is necessary for the 

2 feasibility of the residence. 

3 ‘‘(B) AGENCY EVALUATION.—In making 

4 the determination under subparagraph (A), the 

5 homeownership credit agency shall consider—

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

7 the total financing planned for the resi8 dence, 

9 ‘‘(ii) any proceeds or receipts expected 

10 to be generated by reason of tax benefits, 

11 ‘‘(iii) the anticipated appraised value 

12 of the residence, and 

13 ‘‘(iv) the reasonableness of the devel14 opmental costs of the residence. 

15 ‘‘(C) DETERMINATION MADE WHEN CRED16 IT DOLLAR AMOUNT APPLIED FOR.—A deter17 mination under subparagraph (A) shall be made 

18 as of each of the following times: 

19 ‘‘(i) The application for the home20 ownership credit dollar amount. 

21 ‘‘(ii) The allocation of the homeowner22 ship credit dollar amount. 

23 ‘‘(3) LIEN FOR RECAPTURE AMOUNT.—A home24 ownership credit dollar amount may be allocated by 

25 a homeownership credit agency to a residence only 
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1 if such agency has a lien on such residence for the 

2 payment of any amount potentially required to be 

3 paid under subsection (h) to such agency. 

4 ‘‘(l) REGULATIONS.—The Secretary shall prescribe 

5 such regulations as may be necessary or appropriate to 

6 carry out the purposes of this section, including regula7 tions—

8 ‘‘(1) dealing with—

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

10 residence or only a portion of a residence, and 

11 ‘‘(B) buildings which are completed in por12 tions, 

13 ‘‘(2) providing for the application of this section 

14 to short taxable years, 

15 ‘‘(3) preventing the avoidance of the rules of 

16 this section, and 

17 ‘‘(4) providing the opportunity for homeowner18 ship credit agencies to correct administrative errors 

19 and omissions with respect to allocations and record 

20 keeping within a reasonable period after their dis21 covery, taking into account the availability of regula22 tions and other administrative guidance from the 

23 Secretary.’’. 

24 (b) CURRENT YEAR BUSINESS CREDIT CALCULA25 TION.—Section 38(b) (relating to current year business 
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1 credit) is amended by striking ‘‘plus’’ at the end of para2 graph (14), by striking the period at the end of paragraph 

3 (15) and inserting ‘‘, plus’’, and by adding at the end the 

4 following: 

5 ‘‘(16) the homeownership credit determined 

6 under section 42A(a).’’. 

7 (c) LIMITATION ON CARRYBACK.—Subsection (d) of 

8 section 39 (relating to carryback and carryforward of un9 used credits) is amended by adding at the end the fol10 lowing: 

11 ‘‘(11) NO CARRYBACK OF HOMEOWNERSHIP

12 CREDIT BEFORE EFFECTIVE DATE.—No amount of 

13 unused business credit available under section 42A 

14 may be carried back to a taxable year beginning on 

15 or before the date of the enactment of this para16 graph.’’. 

17 (d) CONFORMING AMENDMENTS.—

18 (1) Section 55(c)(1) is amended by inserting 

19 ‘‘or subsection (h) or (i) of section 42A’’ after ‘‘sec20 tion 42’’. 

21 (2) Subsections (i)(3)(D), (i)(6)(B)(i), and 

22 (k)(1) of section 469 are each amended by inserting 

23 ‘‘or 42A’’ after ‘‘section 42’’. 

24 (3) Section 772(a) is amended by striking 

25 ‘‘and’’ at the end of paragraph (10), by redesig-
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1 nating paragraph (11) as paragraph (12), and by in2 serting after paragraph (10) the following: 

3 ‘‘(11) the homeownership credit determined 

4 under section 42A, and’’. 

5 (4) Section 774(b)(4) is amended by inserting 

6 ‘‘, 42A(h),’’ after ‘‘section 42(j)’’. 

7 (e) CLERICAL AMENDMENT.—The table of sections 

8 for subpart D of part IV of subchapter A of chapter 1 

9 is amended by inserting after the item relating to section 

10 42 the following:

‘‘Sec. 42A. Homeownership credit.’’.

11 (f) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to qualified residences sold after 

13 December 31, 2002.

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