II 

109TH CONGRESS 

1ST SESSION S. 859 

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 

APRIL 20, 2005 

Mr. SANTORUM (for himself, Mr. KERRY, Mr. SMITH, Ms. STABENOW, Mr. 

ALLARD, and Mr. SARBANES) 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 ‘‘Community Development Homeownership Tax Credit 

6 Act’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment 
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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 SEC. 2. COMMUNITY HOMEOWNERSHIP CREDIT. 

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 is amended by inserting after sec7 tion 42 the following new section: 

8 ‘‘SEC. 42A. COMMUNITY HOMEOWNERSHIP CREDIT. 

9 ‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec10 tion 38, the amount of the homeownership credit deter11 mined under this section for any taxable year in the credit 

12 period shall be an amount equal to the applicable percent13 age of the eligible basis of each qualified residence. 

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

15 this section— 

16 ‘‘(1) IN GENERAL.—The term ‘applicable per17 centage’ means the appropriate percentage pre18 scribed by the Secretary for the month in which the 

19 taxpayer and the homeownership credit agency enter 

20 into an agreement with respect to such residence 

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

22 all successors in interest) as to the homeownership 

23 credit dollar amount to be allocated to such resi24 dence. 
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1 ‘‘(2) METHOD OF PRESCRIBING PERCENT2 AGE.—The percentage prescribed by the Secretary 

3 for any month shall be the percentage which will 

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

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

6 50 percent of the eligible basis of a qualified resi7 dence. 

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

9 value under paragraph (2) shall be determined— 

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

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

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

13 percent of the annual Federal mid-term rate 

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

15 month applicable under paragraph (1) and com16 pounded annually, and 

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

18 under this section for any year is received on 

19 the last day of such year. 

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

21 section— 

22 ‘‘(1) IN GENERAL.—The term ‘qualified resi23 dence’ means any residence— 

24 ‘‘(A) which is located— 
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1 ‘‘(i) in a census tract which has a me2 dian gross income which does not exceed 

3 80 percent of the greater of area or state4 wide median gross income, 

5 ‘‘(ii) in a rural area (as defined under 

6 section 520 of the Housing Act of 1949), 

7 ‘‘(iii) on a reservation for a federally 

8 recognized Indian tribe, or 

9 ‘‘(iv) in an area of chronic economic 

10 distress, and 

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

12 buyer. 

13 For purposes of subparagraph (A)(iv), an area is an 

14 area of chronic economic distress if it is approved 

15 for designation as such under section 143(j)(3); ex16 cept that such designation shall not require the ap17 proval of the Secretary, shall be deemed to be ap18 proved by the Secretary of Housing and Urban De19 velopment if not approved or disapproved by the 

20 Secretary of Housing and Urban Development with21 in 90 days after submission for approval for pur22 poses of section 143(j)(3)(A)(ii), and shall cease to 

23 apply after the end of the 5th calendar year after 

24 the calendar year in which the designation is made. 

25 ‘‘(2) RESIDENCE.— 
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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (1), the term ‘residence’ means— 

3 ‘‘(i) a single-family home containing 1 

4 to 4 housing units, 

5 ‘‘(ii) a condominium unit, or 

6 ‘‘(iii) stock in a cooperative housing 

7 corporation (as defined in section 216(b)). 

8 ‘‘(B) FACTORY-BUILT HOMES IN9 CLUDED.—For purposes of clause (i), (ii), or 

10 (iii) of subparagraph (A), such term shall in11 clude any factory-built home. 

12 ‘‘(3) TIMING OF DETERMINATION.—For pur13 poses of paragraph (1), the determination of wheth14 er a residence is a qualified residence shall be made 

15 at the time a binding commitment for an allocation 

16 of credit is awarded by the homeownership credit 

17 agency; except that the determination of whether a 

18 purchaser is a qualified buyer shall be made at the 

19 time the residence is sold. 

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

21 this section, median gross income shall be deter22 mined consistent with section 143(f)(2). 

23 ‘‘(d) ELIGIBLE BASIS.—For purposes of this sec24 tion— 

25 ‘‘(1) NEW QUALIFIED RESIDENCES.— 
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1 ‘‘(A) IN GENERAL.—The eligible basis of a 

2 new qualified residence is— 

3 ‘‘(i) in the case of a qualified resi4 dence which is sold in a transaction which 

5 meets the requirements of subparagraph 

6 (B), its adjusted basis (excluding land) im7 mediately before such sale, and 

8 ‘‘(ii) zero in any other case. 

9 ‘‘(B) REQUIREMENTS.—A sale of a quali10 fied residence meets the requirements of this 

11 subparagraph if— 

12 ‘‘(i) the buyer acquires the qualified 

13 residence by purchase (as defined in sec14 tion 179(d)(2)), 

15 ‘‘(ii) the buyer of the qualified resi16 dence is not a related person with respect 

17 to the seller, and 

18 ‘‘(iii) in the case of a seller who mate19 rially participates in the development of 

20 the residence, the buyer’s debt financing is 

21 originated by a third party who is not a re22 lated person with respect to the seller. 

23 ‘‘(2) EXISTING QUALIFIED RESIDENCES.— 

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

25 an existing qualified residence is— 
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1 ‘‘(i) in the case of a qualified resi2 dence which is sold in a transaction which 

3 meets the requirements of subparagraph 

4 (B), its adjusted basis (excluding land) im5 mediately before such sale, and 

6 ‘‘(ii) zero in any other case. 

7 ‘‘(B) REQUIREMENTS.—A sale of a quali8 fied residence meets the requirements of this 

9 subparagraph if— 

10 ‘‘(i) the buyer acquires the qualified 

11 residence by purchase (as defined in sec12 tion 179(d)(2)), 

13 ‘‘(ii) the qualified residence has un14 dergone substantial rehabilitation in con15 nection with the sale described in clause 

16 (i), 

17 ‘‘(iii) the buyer of the qualified resi18 dence is not a related person with respect 

19 to the seller, and 

20 ‘‘(iv) in the case of a seller who mate21 rially participates in the development of 

22 the residence, the buyer’s debt financing is 

23 originated by a third party who is not a re24 lated person with respect to the seller. 

25 ‘‘(C) SUBSTANTIAL REHABILITATION.— 
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1 ‘‘(i) IN GENERAL.—For purposes of 

2 subparagraph (B), substantial rehabilita3 tion means rehabilitation expenditures paid 

4 or incurred with respect to a qualified resi5 dence that are at least $25,000. 

6 ‘‘(ii) INFLATION ADJUSTMENT.—In 

7 the case of a calendar year after 2005, the 

8 dollar amount contained in clause (i) shall 

9 be increased by an amount equal 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 2004’ for ‘calendar 

16 year 1992’ in subparagraph (B) there17 of. 

18 Any increase under this clause (ii) which is 

19 not a multiple of $1,000 shall be rounded 

20 to the next lowest multiple of $1,000. 

21 ‘‘(D) LIMITATION OF ACQUISITION

22 BASIS.—The eligible basis of an existing quali23 fied residence may not exceed 150 percent of 

24 the qualified rehabilitation expenditures. 
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1 ‘‘(3) EFFECT OF SUBSEQUENT SALE, ETC.—A 

2 subsequent sale, assignment, rental, or refinancing 

3 of the qualified residence by the buyer or the subse4 quent sale, assignment, or pooling of the buyer’s fi5 nancing by the originator shall not be considered in 

6 determining whether or not the prior sales trans7 action satisfied the requirements of subparagraph 

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

9 ‘‘(4) SPECIAL RULES RELATING TO DETER10 MINATION OF ADJUSTED BASIS.—For purposes of 

11 this subsection— 

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

13 subparagraph (B), the adjusted basis of any 

14 qualified residence— 

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

16 basis of such qualified residence as is de17 termined by reference to the basis of other 

18 property held at any time by the person 

19 acquiring the residence, and 

20 ‘‘(ii) shall be determined without re21 gard to the adjusted basis of any property 

22 which is not part of such qualified resi23 dence. 

24 ‘‘(B) BASIS OF PROPERTY IN COMMON

25 AREAS, ETC., INCLUDED.—The adjusted basis 
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1 of any qualified residence shall be determined 

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

3 adjusted basis of property (other than land) 

4 used in common areas or provided as com5 parable amenities to all residences within a 

6 project. 

7 ‘‘(5) SPECIAL RULES FOR DETERMINING ELIGI8 BLE BASIS.— 

9 ‘‘(A) RELATED PERSON, ETC.—For pur10 poses of this section, a person (in this clause re11 ferred to as the ‘related person’) is related to 

12 any person if the related person bears a rela13 tionship to such person specified in section 

14 267(b) or 707(b)(1), or the related person and 

15 such person are engaged in trades or businesses 

16 under common control (within the meaning of 

17 subsections (a) and (b) of section 52). For pur18 poses of the preceding sentence, in applying 

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

20 be substituted for ‘50 percent’. 

21 ‘‘(B) NONRESIDENTIAL SPACE EX22 CLUDED.—No portion of the eligible basis of a 

23 qualified residence shall include costs attrib24 utable to nonresidential space. 
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1 ‘‘(C) LIMITATION.—The eligible basis of 

2 any residence may not exceed the mortgage 

3 limit for Federal Housing Administration in4 sured mortgages for single family homes in the 

5 area in which such residence is located. 

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

7 CREDIT PERIOD.— 

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

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

10 respect to any qualified residence, the period of 5 

11 taxable years beginning with the taxable year in 

12 which the sale of the qualified residence occurs satis13 fying the requirements of subsection (d)(1)(B) or 

14 (d)(2)(B). 

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

16 PERIOD.— 

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

18 under subsection (a) with respect to any quali19 fied residence for the 1st taxable year of the 

20 credit period shall be determined by multiplying 

21 the eligible basis under subsection (d) by the 

22 fraction— 

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

24 sum of the number of remaining whole 
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1 months in such 1st taxable year after the 

2 sale of the qualified residence, and 

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

4 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL5 LOWED IN 6TH YEAR.—Any reduction by reason 

6 of subparagraph (A) in the credit allowable 

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

8 1st taxable year of the credit period shall be al9 lowable under subsection (a) for the 1st taxable 

10 year following the credit period. 

11 ‘‘(f) LIMITATION ON AGGREGATE CREDIT ALLOW12 ABLE WITH RESPECT TO QUALIFIED RESIDENCES LO13 CATED IN A STATE.— 

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

15 AMOUNT ALLOCATED TO QUALIFIED RESIDENCE.— 

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

17 credit determined under this section for any 

18 taxable year with respect to any qualified resi19 dence shall not exceed the homeownership cred20 it dollar amount allocated to such qualified resi21 dence under this subsection. 

22 ‘‘(B) TIME FOR MAKING ALLOCATION.— 

23 ‘‘(i) An allocation shall be taken into 

24 account under subparagraph (A) only if it 

25 is made not later than the close of the cal-
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1 endar year in which the qualified residence 

2 is sold. 

3 ‘‘(ii) A homeownership credit agency 

4 may allocate available homeownership cred5 it dollar amounts to a qualified residence 

6 prior to the year of sale of such qualified 

7 residence if— 

8 ‘‘(I) the taxpayer owns fee title 

9 or a leasehold interest of not less than 

10 50 years in the site of the qualified 

11 residence as of the later of the date 

12 which is 6 months after the date that 

13 the allocation was made or the close 

14 of the calendar year in which the allo15 cation is made, and 

16 ‘‘(II) such qualified residence is 

17 completed not later than the close of 

18 the second calendar year following the 

19 calendar year in which the allocation 

20 was made. 

21 ‘‘(C) VESTED RIGHT TO CREDIT DOLLAR

22 AMOUNT.—Once a homeownership credit alloca23 tion is received by a taxpayer, the right to such 

24 credit is vested in such taxpayer and is not sub-
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1 ject to recapture, except as provided in para2 graph (5)(B). 

3 ‘‘(2) HOMEOWNERSHIP CREDIT DOLLAR

4 AMOUNT FOR AGENCIES.— 

5 ‘‘(A) IN GENERAL.—The aggregate home6 ownership credit dollar amount which a home7 ownership credit agency may allocate for any 

8 calendar year is the portion of the State home9 ownership credit ceiling allocated under this 

10 paragraph for such calendar year to such agen11 cy. 

12 ‘‘(B) STATE CEILING INITIALLY ALLO13 CATED TO STATE HOMEOWNERSHIP CREDIT

14 AGENCIES.—Except as provided in subpara15 graphs (D) and (E), the State homeownership 

16 credit ceiling for each calendar year shall be al17 located to the homeownership credit agency of 

18 such State. If there is more than 1 homeowner19 ship credit agency of a State, all such agencies 

20 shall be treated as a single agency. 

21 ‘‘(C) STATE HOMEOWNERSHIP CREDIT

22 CEILING.—The State homeownership credit ceil23 ing applicable to any State for any calendar 

24 year shall be an amount equal to the sum of— 
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1 ‘‘(i) the unused State homeownership 

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

3 preceding calendar year, 

4 ‘‘(ii) the greater of— 

5 ‘‘(I) $1.80 multiplied by the 

6 State population, or 

7 ‘‘(II) $2,000,000, 

8 ‘‘(iii) the amount of State homeowner9 ship credit ceiling returned in the calendar 

10 year, plus 

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

12 under subparagraph (D) to such State by 

13 the Secretary. 

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

15 homeownership credit ceiling for any calendar 

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

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

18 over the aggregate homeownership credit dollar 

19 amount allocated for such year. For purposes of 

20 clause (iii), the amount of State homeownership 

21 credit ceiling returned in the calendar year 

22 equals the homeownership credit dollar amount 

23 previously allocated within the State to any 

24 qualified residence with respect to which an al25 location is canceled by mutual consent of the 
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1 homeownership credit agency and the allocation 

2 recipient. 

3 ‘‘(D) UNUSED HOMEOWNERSHIP CREDIT

4 CARRYOVERS ALLOCATED AMONG CERTAIN

5 STATES.— 

6 ‘‘(i) IN GENERAL.—The unused home7 ownership credit carryover of a State for 

8 any calendar year shall be assigned to the 

9 Secretary for allocation among qualified 

10 States for the succeeding calendar year. 

11 ‘‘(ii) UNUSED HOMEOWNERSHIP

12 CREDIT CARRYOVER.—For purposes of this 

13 subparagraph, the unused homeownership 

14 credit carryover of a State for any calendar 

15 year is the excess (if any) of— 

16 ‘‘(I) the unused State home17 ownership credit ceiling for the year 

18 preceding such year, over 

19 ‘‘(II) the aggregate homeowner20 ship credit dollar amount allocated for 

21 such year. 

22 ‘‘(iii) FORMULA FOR ALLOCATION OF

23 UNUSED HOMEOWNERSHIP CREDIT

24 CARRYOVERS AMONG QUALIFIED

25 STATES.—The amount allocated under this 
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1 subparagraph to a qualified State for any 

2 calendar year shall be the amount deter3 mined by the Secretary to bear the same 

4 ratio to the aggregate unused homeowner5 ship credit carryovers of all States for the 

6 preceding calendar year as such State’s 

7 population for the calendar year bears to 

8 the population of all qualified States for 

9 the calendar year. 

10 ‘‘(iv) QUALIFIED STATE.—For pur11 poses of this subparagraph, the term 

12 ‘qualified State’ means, with respect to a 

13 calendar year, any State— 

14 ‘‘(I) which allocated its entire 

15 State homeownership credit ceiling for 

16 the preceding calendar year, and 

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

18 (not later than May 1 of the calendar 

19 year) to receive an allocation under 

20 clause (iii). 

21 ‘‘(E) STATE MAY PROVIDE FOR DIF22 FERENT ALLOCATION.—Rules similar to the 

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

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

25 paragraph. 
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1 ‘‘(F) POPULATION.—For purposes of this 

2 paragraph, population shall be determined in 

3 accordance with section 146(j). 

4 ‘‘(G) COST-OF-LIVING ADJUSTMENT.— 

5 ‘‘(i) IN GENERAL.—In the case of a 

6 calendar year after 2005, the $2,000,000 

7 and $1.80 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 2004’ for ‘calendar 

16 year 1992’ in subparagraph (B) there17 of. 

18 ‘‘(ii) ROUNDING.— 

19 ‘‘(I) In the case of the 

20 $2,000,000 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 $1.80 

25 amount, any increase under clause (i) 
19 

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

5 FOR CERTAIN PROJECTS INVOLVING QUALIFIED

6 NONPROFIT ORGANIZATIONS.— 

7 ‘‘(A) IN GENERAL.—Not more than 92.5 

8 percent of the State homeownership credit ceil9 ing for any State for any calendar year shall be 

10 allocated to projects other than qualified non11 profit housing projects described in subpara12 graph (B). 

13 ‘‘(B) PROJECTS INVOLVING QUALIFIED

14 NONPROFIT ORGANIZATIONS.—For purposes of 

15 subparagraph (A), a qualified nonprofit housing 

16 project is described in this subparagraph if a 

17 qualified nonprofit organization is to own an in18 terest in the project (directly or through a part19 nership) and materially participate (within the 

20 meaning of section 469(h)) in the development 

21 and operation of the project throughout the 

22 credit period. 

23 ‘‘(C) QUALIFIED NONPROFIT ORGANIZA24 TION.—For purposes of this paragraph, the 
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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 homeownership credit agency 

8 not to be affiliated with or controlled by a 

9 for-profit organization, and 

10 ‘‘(iii) 1 of the exempt purposes of 

11 such organization includes the fostering of 

12 low-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 
21 

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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 (2) shall be construed to permit a State 

7 not to comply with subparagraph (A) of this 

8 paragraph. 

9 ‘‘(4) LIMITATION ON ALLOCATIONS TO AREAS

10 OF CHRONIC ECONOMIC DISTRESS.—No more than 

11 50 percent of a homeownership credit agency’s por12 tion of the State homeownership credit ceiling for a 

13 calendar year may be allocated to residences located 

14 in areas that— 

15 ‘‘(A) are designated as areas of chronic 

16 economic distress in accordance with paragraph 

17 (1) of subsection (c), and 

18 ‘‘(B) do not meet the requirements of 

19 clause (i), (ii), or (iii) of subsection (c)(1)(A). 

20 ‘‘(5) SPECIAL RULES.— 

21 ‘‘(A) RESIDENCE MUST BE LOCATED

22 WITHIN JURISDICTION OF CREDIT AGENCY.—A 

23 homeownership credit agency may allocate its 

24 aggregate homeownership credit dollar amount 

25 only to qualified residences located in the juris-
22 

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1 diction of the governmental unit of which such 

2 agency is a part. 

3 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

4 LIMIT.—If the aggregate homeownership credit 

5 dollar amounts allocated by a homeownership 

6 credit agency for any calendar year exceed the 

7 portion of the State homeownership credit ceil8 ing allocated to such agency for such calendar 

9 year, the homeownership credit dollar amounts 

10 so allocated shall be reduced (to the extent of 

11 such excess) for residences in the reverse of the 

12 order in which the allocations of such amounts 

13 were made. 

14 ‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur15 poses of this section— 

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

17 means the point in time where a qualified residence 

18 is first placed in a condition or state of readiness 

19 and availability for occupancy. 

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

21 more residences together with functionally related 

22 and subordinate facilities developed and made avail23 able to inhabitants of such residences, including rec24 reational facilities and parking areas. To constitute 

25 a project, each residence must— 
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1 ‘‘(A) be developed by the same taxpayer 

2 pursuant to common planning and feasibility 

3 studies, 

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

5 of construction financing, and 

6 ‘‘(C) have common ownership prior to sale. 

7 For purposes of this paragraph, it is not necessary 

8 that all residences within a project be contiguous or 

9 that all residences consist only of either new resi10 dences or existing residences and it is not necessary 

11 that each residence within a project be a qualified 

12 residence. 

13 ‘‘(3) QUALIFIED BUYER.— 

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

15 buyer’ means a buyer if at the time of the ac16 quisition of the qualified residence, the buyer— 

17 ‘‘(i) is 1 or more individuals whose in18 come does not exceed 80 percent of the 

19 area median gross income (70 percent for 

20 families of less than 3 members), and 

21 ‘‘(ii) intends to occupy the residence 

22 as the buyer’s principal residence (within 

23 the meaning of section 121). 

24 ‘‘(B) SPECIAL RULES IN QUALIFIED CEN25 SUS TRACTS.—With respect to residences lo-
24 

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1 cated in qualified census tracts (as defined in 

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

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

4 and ‘90 percent’ for ‘70 percent’. 

5 ‘‘(C) DETERMINATION OF INCOME.—For 

6 purposes of this paragraph, a buyer’s income 

7 shall be determined in accordance with section 

8 143(f)(4), except that subparagraph (B) of 

9 such section shall be applied substituting ‘the 

10 national median gross income’ for ‘the state11 wide median gross income for the State in 

12 which such residence is located’. 

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

14 ‘new qualified residence’ means a qualified residence 

15 the original ownership of which begins with the tax16 payer. 

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

18 term ‘existing qualified residence’ means any quali19 fied residence which is not a new qualified residence. 

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

21 term ‘homeownership credit agency’ means any 

22 agency authorized to carry out this section. 

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

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

25 possession of the United States. 
25 

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

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

3 credit determined under subsection (a) shall be ap4 portioned between the estate or trust and the bene5 ficiaries on the basis of the income of the estate or 

6 trust allocable to each. 

7 ‘‘(h) REDUCTION IN TAX BENEFITS.— 

8 ‘‘(1) RECAPTURE OF CREDIT.—If within the 5- 

9 year period beginning on the date of the original 

10 purchase of a qualified residence, the residence is 

11 sold, the qualified buyer— 

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

13 equal to the recapture amount from the amount 

14 realized on such sale, and 

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

16 homeownership credit agency which allocated 

17 the homeownership credit dollar amount to such 

18 residence. 

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

20 paragraph (1), the recapture amount is the amount 

21 equal to— 

22 ‘‘(A) 100 percent of the gain from the sale 

23 referred to in paragraph (1) in the 1st or 2nd 

24 year, 
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1 ‘‘(B) 80 percent of the gain from such sale 

2 in the 3rd year, 

3 ‘‘(C) 70 percent of the gain from such sale 

4 in the 4th year, or 

5 ‘‘(D) 60 percent of the gain from such sale 

6 in the 5th year. 

7 ‘‘(3) DENIAL OF DEDUCTIONS IF CONVERTED

8 TO RENTAL HOUSING.—If a qualified residence is 

9 converted to rental housing within the 5-year period 

10 beginning on the date of the original purchase of a 

11 qualified residence, no deduction for amortization or 

12 depreciation under this chapter shall be permitted 

13 with respect to such residence during such period. 

14 ‘‘(i) APPLICATION OF AT-RISK RULES.—For pur15 poses of this section, rules of section 465 shall not apply 

16 in determining the eligible basis of any qualified residence. 

17 ‘‘(j) REPORTS TO THE SECRETARY.— 

18 ‘‘(1) FROM THE TAXPAYER.—The Secretary 

19 may require taxpayers to submit an information re20 turn (at such time and in such form and manner as 

21 the Secretary prescribes) for each taxable year set22 ting forth— 

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

24 of each qualified residence with respect to which 
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1 the taxpayer is claiming a credit under this sec2 tion, 

3 ‘‘(B) the amount of all homeownership 

4 credit allocations received by the taxpayer from 

5 any and all State homeownership credit agen6 cies, and 

7 ‘‘(C) such other information as the Sec8 retary may require. 

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

10 failure to submit the return required by the Sec11 retary under the preceding sentence on the date pre12 scribed therefor. 

13 ‘‘(2) FROM HOMEOWNERSHIP CREDIT AGEN14 CIES.—Each agency which allocates any homeowner15 ship credit dollar amount to any residence for any 

16 calendar year shall submit to the Secretary (at such 

17 time and in such form and manner as the Secretary 

18 shall prescribe) an annual report specifying— 

19 ‘‘(A) the amount of the homeownership 

20 credit dollar amount allocated to each residence 

21 for such year, 

22 ‘‘(B) sufficient information to identify each 

23 such residence and the taxpayer initially enti24 tled to claim the credit under this section with 

25 respect thereto, and 
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1 ‘‘(C) such other information as the Sec2 retary may require. 

3 ‘‘(k) RESPONSIBILITIES OF HOMEOWNERSHIP CRED4 IT AGENCIES.— 

5 ‘‘(1) PLANS FOR ALLOCATION OF CREDIT

6 AMONG RESIDENCES.— 

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

8 other provision of this section, the homeowner9 ship credit dollar amount with respect to any 

10 qualified residence shall be zero unless such 

11 amount was allocated pursuant to a qualified 

12 allocation plan of the homeownership credit 

13 agency which is approved by the governmental 

14 unit (in accordance with rules similar to the 

15 rules of section 147(f)(2) (other than subpara16 graph (B)(ii) thereof)) of which such agency is 

17 a part. 

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

19 purposes of this paragraph, the term ‘qualified 

20 allocation plan’ means any plan which sets forth 

21 selection criteria to be used to determine the 

22 homeownership development priorities of the 

23 homeownership credit agency which are appro24 priate to local conditions. 
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1 ‘‘(C) CERTAIN HOMEOWNERSHIP DEVEL2 OPMENT CRITERIA MUST BE USED.—The devel3 opment criteria set forth in a qualified alloca4 tion plan must include— 

5 ‘‘(i) contribution of the development 

6 to community stability and revitalization, 

7 ‘‘(ii) community and local government 

8 support for the development, 

9 ‘‘(iii) need for homeownership develop10 ment within the area, 

11 ‘‘(iv) sponsor capability, and 

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

13 project as owner-occupied residences. 

14 ‘‘(2) CREDIT ALLOCATED TO RESIDENCE NOT

15 TO EXCEED AMOUNT NECESSARY TO ASSURE FEASI16 BILITY.— 

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

18 credit dollar amount allocated to a residence 

19 shall not exceed the amount the homeownership 

20 credit agency determines is necessary for the 

21 feasibility of the residence. 

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

23 the determination under subparagraph (A), the 

24 homeownership credit agency shall consider— 
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1 ‘‘(i) the sources and uses of funds and 

2 the total financing planned for the resi3 dence, 

4 ‘‘(ii) any proceeds or receipts expected 

5 to be generated by reason of tax benefits, 

6 ‘‘(iii) the anticipated appraised value 

7 of the residence, 

8 ‘‘(iv) the reasonableness of the devel9 opmental costs of the residence, 

10 ‘‘(v) the affordability to a reasonable 

11 range of prospective qualified buyers, and 

12 ‘‘(vi) whether the residence addresses 

13 the need for affordable homes for families 

14 with children. 

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 redesignating paragraphs (6) 

2 through (19) as paragraphs (7) through (20), respectively, 

3 and by inserting after paragraph (5) the following new 

4 paragraph: 

5 ‘‘(6) the homeownership credit determined 

6 under section 42A(a),’’. 

7 (c) CONFORMING AMENDMENTS.— 

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

9 ‘‘or subsection (h) or (i) of section 42A’’ after ‘‘sec10 tion 42’’. 

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

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

13 ‘‘or 42A’’ after ‘‘section 42’’. 

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

15 ‘‘and’’ at the end of paragraph (10), by redesig16 nating paragraph (11) as paragraph (12), and by in17 serting after paragraph (10) the following: 

18 ‘‘(11) the homeownership credit determined 

19 under section 42A, and’’. 

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

21 ‘‘, 42A(h),’’ after ‘‘section 42(j)’’. 

22 (d) CLERICAL AMENDMENT.—The table of sections 

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

24 is amended by inserting after the item relating to section 

25 42 the following: 

‘‘Sec. 42A. Community homeownership credit.’’. 
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1 (e) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to qualified residences sold in tax3 able years beginning after the date of the enactment of 

4 this Act. 

Æ