I 
119TH CONGRESS 
1ST SESSION H. R. 6900 
To amend the Internal Revenue Code of 1986 to address the nation’s cost- 
of-living crisis. 
IN THE HOUSE OF REPRESENTATIVES 
DECEMBER 18, 2025 
Mr. THOMPSON of California (for himself, Mr. LARSON of Connecticut, Mr. 
DAVIS of Illinois, Ms. SA´NCHEZ, Ms. SEWELL, Ms. DELBENE, Ms. CHU, 
Ms. MOORE of Wisconsin, Mr. BOYLE of Pennsylvania, Mr. BEYER, Mr. 
EVANS of Pennsylvania, Mr. SCHNEIDER, Mr. PANETTA, Mr. GOMEZ, Mr. 
HORSFORD, Ms. PLASKETT, Mr. SUOZZI, Mr. BELL, Ms. CRAIG, Ms. 
DELAURO, Mr. GARAMENDI, Mr. GOLDMAN of New York, Ms. JOHNSON 
of Texas, Mr. KENNEDY of New York, Ms. MATSUI, Ms. MCBRIDE, Ms. 
MCDONALD RIVET, Mr. MCGARVEY, Mr. MRVAN, Mr. QUIGLEY, Ms. SA-
LINAS, Ms. TITUS, and Ms. SCHOLTEN) introduced the following bill; 
which was referred to the Committee on Ways and Means, and in addi-
tion to the Committees on Education and Workforce, and Energy and 
Commerce, for a period to be subsequently determined by the Speaker, 
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to address 
the nation’s cost-of-living crisis. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘American Affordability Act of 2025’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment is expressed in terms of an amendment to a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Rev-
enue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows: 
Sec. 1. Short title; etc. 
TITLE I—HOUSING AND MUNICIPAL INFRASTRUCTURE 
Subtitle A—Low-income Housing Credit 
PART 1—REFORM OF STATE ALLOCATION FORMULAS 
Sec. 11101. Increases in State allocations. 
PART 2—REFORMS RELATING TO TENANT ELIGIBILITY 
Sec. 11201. Average income test applicability to exempt facility bonds. 
Sec. 11202. Codification of rules relating to increased tenant income. 
Sec. 11203. Modification of student occupancy rules. 
Sec. 11204. Tenant voucher payments taken into account as rent for certain 
purposes. 
Sec. 11205. Requirement that low-income housing credit-supported housing 
protect victims of domestic abuse. 
Sec. 11206. Clarification of general public use requirement relating to veterans, 
etc. 
PART 3—RULES RELATING TO CREDIT ELIGIBILITY AND DETERMINATION 
Sec. 11301. Reconstruction or replacement period after casualty loss. 
Sec. 11302. Modification of previous ownership rules; limitation on acquisition 
basis. 
Sec. 11303. Certain relocation costs taken into account as rehabilitation ex-
penditures. 
Sec. 11304. Repeal of qualified census tract population cap. 
Sec. 11305. Determination of community revitalization plan to be made by 
housing credit agency. 
Sec. 11306. Prohibition of local approval and contribution requirements. 
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Sec. 11307. Increase in credit for certain projects designated to serve extremely 
low-income households. 
Sec. 11308. Increase in credit for bond-financed projects designated by State 
agency. 
Sec. 11309. Elimination of basis reduction for low-income housing properties 
energy efficient commercial building deduction. 
Sec. 11310. Restriction of planned foreclosures. 
Sec. 11311. Increase of population cap for difficult development areas. 
Sec. 11312. Increased cost oversight and accountability. 
PART 4—REFORMS RELATING TO NATIVE AMERICAN ASSISTANCE 
Sec. 11401. Selection criteria under qualified allocation plans. 
Sec. 11402. Inclusion of Indian areas as difficult development areas for pur-
poses of certain buildings. 
PART 5—REFORMS RELATING TO RURAL ASSISTANCE 
Sec. 11501. Inclusion of rural areas as difficult development areas. 
Sec. 11502. Uniform income eligibility for rural projects. 
PART 6—EXEMPT FACILITY BONDS 
Sec. 11601. Revision and clarification of the treatment of refunding issues. 
PART 7—REFORMS RELATING TO DISABLED VETERANS 
Sec. 11701. Treatment of veteran disability compensation or pension payments 
for purposes of low income housing tax credit and residential 
rental project bonds. 
PART 8—REFORMS RELATING TO CERTAIN OTHER POPULATIONS 
Sec. 11801. Additional housing credit allocations for certain populations who 
face unique barriers to affordable housing. 
PART 9—QUALIFIED CONTRACTS AND RIGHT OF FIRST REFUSAL 
Sec. 11901. Repeal of qualified contract option. 
Sec. 11902. Modification and clarification of rights relating to building pur-
chase. 
Subtitle B—Additional Housing Incentives 
Sec. 12001. Investment credit for conversion of non-residential buildings to af-
fordable housing. 
Sec. 12002. Neighborhood homes credit. 
Sec. 12003. Modification of historic rehabilitation tax credit. 
Sec. 12004. Increase of exclusion of gain from sale of principal residence. 
Sec. 12005. Middle-income housing tax credit. 
Subtitle C—Affording the American Dream 
Sec. 13001. First-time homebuyer refundable tax credit. 
Sec. 13002. Refundable credit for rent paid for principal residence. 
TITLE II—LOWERING ENERGY COSTS 
Subtitle A—Lowering Costs Through an All-of-the-above Energy Policy 
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Sec. 21001. Clean energy production credit. 
Sec. 21002. Clean electricity investment credit. 
Sec. 21003. Advanced manufacturing production credit. 
Sec. 21004. Repeal of restriction on the extension of advance energy project 
credit program. 
Sec. 21005. Reversion of construction date for clean hydrogen production cred-
it. 
Sec. 21006. Reversion of termination for residential clean energy credit. 
Sec. 21007. Reinstatement of special rate for sustainable aviation fuel. 
Subtitle B—Lowering Costs Through Energy Efficiency 
Sec. 22001. Energy efficient home improvement credit. 
Sec. 22002. New energy efficient home credit. 
Sec. 22003. Repeal of termination of new energy efficient commercial buildings 
deduction. 
Sec. 22004. Restoration of cost recovery for energy property. 
Subtitle C—Lowering Costs for Electric Vehicles and Charging Infrastructure 
Sec. 23001. Reversion of termination date for previously-owned vehicle credit. 
Sec. 23002. Reversion of termination date for clean vehicle credit. 
Sec. 23003. Qualified commercial clean vehicles credit. 
Sec. 23004. Reversion of termination date for alternative fuel vehicle refueling 
property credit. 
Sec. 23005. Credit for certain new electric bicycles. 
Subtitle D—Lowering Costs of Clean Infrastructure and Resiliency 
Sec. 24001. Qualifying water reuse project credit. 
Sec. 24002. Recycling property investment credit. 
Sec. 24003. Exclusion of amounts received from State-based catastrophe loss 
mitigation programs. 
Sec. 24004. Exclusion from gross income of certain emergency agricultural as-
sistance. 
Sec. 24005. Credit for disaster mitigation expenditures. 
Sec. 24006. Establishment of electric power transmission line credit. 
Sec. 24007. Qualifying advanced battery project credit. 
TITLE III—CHILD AND DEPENDENT CARE 
Subtitle A—Child Tax Credit 
Sec. 31001. Establishment of refundable child tax credit with monthly advance 
payment. 
Subtitle B—Child and Dependent Care 
Sec. 32001. Enhancement of Child and Dependent Care Tax Credit. 
Sec. 32002. Increased maximum contribution to dependent care assistance pro-
grams. 
Sec. 32003. Credit for working family caregivers. 
Sec. 32004. Licensed family child care credit. 
Subtitle C—Ensuring Affordable Adoptions 
Sec. 33001. Refundable adoption tax credit. 
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TITLE IV—EDUCATION AND WORKFORCE TRAINING 
Subtitle A—Ensuring Affordable Higher Education 
Sec. 41001. American opportunity credit expanded to 6 years, made tempo-
rarily fully refundable. 
Sec. 41002. Expansion of Pell Grant exclusion from gross income. 
Sec. 41003. Expansion of American Opportunity and Lifetime Learning Cred-
its. 
Sec. 41004. Elimination of denial of American Opportunity Tax Credit for stu-
dents convicted of a felony drug offense. 
Sec. 41005. Modification of treatment of student loan forgiveness. 
Sec. 41006. Student loan interest deduction limitation applied separately to 
each spouse. 
Subtitle B—Supporting Our Workforce 
Sec. 42001. Educator expense deduction to include early childhood educators. 
Sec. 42002. Allowance of deduction for certain expenses of the trade or busi-
ness of being an employee. 
Sec. 42003. Modification of deduction for cash tips. 
Sec. 42004. Deduction for certain overtime compensation. 
Sec. 42005. Above-the-line deduction of expenses of performing artists. 
Sec. 42006. Permanent extension of earned income credit rules for individuals 
without qualifying children. 
Sec. 42007. Application of earned income credit to possessions of the United 
States. 
Sec. 42008. Election to use prior year earned income for earned income tax 
credit. 
TITLE V—HEALTHCARE 
Sec. 50001. Increase in eligibility for health insurance premium assistance tax 
credit. 
Sec. 50002. Filling the coverage gap. 
Sec. 50003. Freeze of premium adjustment percentage increase. 
Sec. 50004. Requiring coverage of certain immunizations recommended by the 
Advisory Committee on Immunization Practices. 
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TITLE I—HOUSING AND 
MUNICIPAL INFRASTRUCTURE 
Subtitle A—Low-income Housing 
Credit 
PART 1—REFORM OF STATE ALLOCATION 
FORMULAS 
SEC. 11101. INCREASES IN STATE ALLOCATIONS. 
(a) IN GENERAL.—Clause (ii) of section 42(h)(3)(C) 
of the Internal Revenue Code of 1986 is amended— 
(1) in subclause (I), by striking ‘‘$1.75’’ and 
inserting ‘‘the per capita amount’’, and 
(2) in subclause (II), by striking ‘‘$2,000,000’’ 
and inserting ‘‘the minimum amount’’. 
(b) PER CAPITA AMOUNT; MINIMUM AMOUNT.—Sec-
tion 42(h)(3) of the Internal Revenue Code of 1986 is 
amended by striking subparagraphs (H) and (I) and in-
serting the following: 
‘‘(H) PER CAPITA AMOUNT.—For purposes 
of subparagraph (C)(ii)(I), the per capita 
amount shall be determined as follows: 
‘‘(i) CALENDAR YEAR 2026.—For cal-
endar year 2026, the per capita amount is 
$4.25. 
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‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for such calendar year, determined by 
substituting ‘calendar year 2026’ for 
‘calendar year 2016’ in subparagraph 
(A)(ii) thereof. 
Any amount increased under the preceding 
sentence which is not a multiple of $5,000 
shall be rounded to the next lowest mul-
tiple of $5,000.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning after 
December 31, 2025. 
PART 2—REFORMS RELATING TO TENANT 
ELIGIBILITY 
SEC. 11201. AVERAGE INCOME TEST APPLICABILITY TO EX-
EMPT FACILITY BONDS. 
(a) IN GENERAL.—Paragraph (1) of section 142(d) 
is amended— 
(1) by striking ‘‘(A) or (B)’’ and inserting ‘‘(A), 
(B), or (C)’’, and 
(2) by inserting after subparagraph (B) the fol-
lowing new subparagraph: 
‘‘(C) AVERAGE INCOME TEST.—A project 
meets the requirements of this subparagraph if 
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it meets the minimum requirements of section 
42(g)(1)(C).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to elections made under section 
142(d)(1) of the Internal Revenue Code of 1986 after 
March 23, 2018. 
SEC. 11202. CODIFICATION OF RULES RELATING TO IN-
CREASED TENANT INCOME. 
(a) IN GENERAL.—Clause (i) of section 42(g)(2)(D) 
is amended by striking ‘‘clauses (ii), (iii), and (iv)’’ and 
all that follows and inserting ‘‘clauses (ii), (iii), (iv), and 
(vi), notwithstanding an increase in the income of the oc-
cupants above the income limitation applicable under 
paragraph (1)— 
‘‘(I) a low-income unit shall con-
tinue to be treated as a low-income 
unit if the income of such occupants 
initially was 60 percent or less of area 
median gross income and such unit 
continues to be rent-restricted, and 
‘‘(II) a unit to which, at the time 
of initial occupancy by such occu-
pants, any Federal, State, or local 
government income restriction ap-
plied, and which subsequently becomes 
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part of a building with respect to 
which rehabilitation expenditures are 
taken into account under subsection 
(e), shall be treated as a low-income 
unit if the income of such occupants 
initially was 60 percent or less of area 
median gross income and does not ex-
ceed 120 percent of area median gross 
income as of the date of acquisition of 
the property by the taxpayer.’’. 
(b) EXCEPTION.—Subparagraph (D) of section 
42(g)(2) is amended by adding at the end the following 
new clause: 
‘‘(vi) EXCEPTION TO RULE RELATING 
TO INCREASED TENANT INCOME.—In the 
case of an occupant of a low-income unit 
who initially qualified to occupy such unit 
by reason of paragraph (1)(C) with an in-
come in excess of 60 percent of area me-
dian gross income but not in excess of 80 
percent of area median gross income, 
clause (i) shall be applied for substituting 
‘80 percent’ for ‘60 percent’ each place it 
appears.’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2025. 
SEC. 11203. MODIFICATION OF STUDENT OCCUPANCY 
RULES. 
(a) IN GENERAL.—Subparagraph (D) of section 
42(i)(3) is amended to read as follows: 
‘‘(D) RULES RELATING TO STUDENTS.— 
‘‘(i) IN
GENERAL.—A unit occupied 
solely by individuals who— 
‘‘(I) have not attained age 24, 
and 
‘‘(II) are enrolled in a full-time 
course of study at an institution of 
higher education (as defined in section 
3304(f)), 
shall not be treated as a low-income unit. 
‘‘(ii) EXCEPTION FOR CERTAIN FED-
ERAL PROGRAMS.—In the case of a feder-
ally-assisted building (as defined in sub-
section (d)(6)(C)(i)), clause (i) shall not 
apply to a unit all of the occupants of 
which meet all applicable requirements 
under the housing program described in 
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such subsection through which the building 
is assisted, financed, or operated. 
‘‘(iii) OTHER EXCEPTIONS.—An indi-
vidual shall not be treated as described in 
clause (i) if the individual meets the in-
come limitation applicable under subsection 
(g)(1) to the project of which the building 
is a part and— 
‘‘(I) is married, 
‘‘(II) is a person with disabilities 
(as defined in section 3(b)(3)(E) of 
the United States Housing Act of 
1937), 
‘‘(III) is a veteran (as defined in 
section 101(2) of title 38, United 
States Code), 
‘‘(IV) has 1 or more qualifying 
children 
(as 
defined 
in 
section 
152(c)), 
‘‘(V) is or has been a victim or 
threatened victim of domestic violence, 
dating violence, sexual assault, or 
stalking (as defined in section 40002 
of the Violence Against Women Act of 
1994), 
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‘‘(VI) is or has been a victim of 
any form of human trafficking, or 
‘‘(VII) is, or was prior to attain-
ing the age of majority— 
‘‘(aa) an emancipated minor 
or in legal guardianship as deter-
mined by a court of competent 
jurisdiction in the individual’s 
State of legal residence, 
‘‘(bb) under the care and 
placement responsibility of the 
State agency responsible for ad-
ministering a plan under part B 
or part E of title IV of the Social 
Security Act, or 
‘‘(cc) 
an 
unaccompanied 
youth (within the meaning of sec-
tion 725(6) of the McKinney- 
Vento Homeless Assistance Act 
(42 U.S.C. 11434a(6))) or a 
homeless child or youth (within 
the meaning of section 725(2) of 
such 
Act 
(42 
U.S.C. 
11434a(2))). 
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For purposes of subclause (VI), an in-
dividual is or has been a victim of 
human trafficking if such individual 
was subjected to an act or practice de-
scribed in paragraph (11) or (12) of 
section 103 of the Trafficking Victims 
Protection Act of 2000.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2025. 
SEC. 11204. TENANT VOUCHER PAYMENTS TAKEN INTO AC-
COUNT AS RENT FOR CERTAIN PURPOSES. 
(a) IN GENERAL.—Subparagraph (B) of section 
42(g)(2) is amended by adding at the end the following 
new sentence: ‘‘In the case of a project with respect to 
which the taxpayer elects the requirements of subpara-
graph (C) of paragraph (1), or the portion of a project 
to which subsection (d)(5)(C) applies, clause (i) shall not 
apply with respect to any tenant-based assistance (as de-
fined in section 8(f)(7) of the United States Housing Act 
of 1937 (42 U.S.C. 1437f(f)(7))).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to rent paid in taxable years begin-
ning after December 31, 2025. 
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SEC. 11205. REQUIREMENT THAT LOW-INCOME HOUSING 
CREDIT-SUPPORTED HOUSING PROTECT VIC-
TIMS OF DOMESTIC ABUSE. 
(a) IN GENERAL.—Subparagraph (B) of section 
42(h)(6) is amended by striking ‘‘and’’ at the end of 
clause (v), by striking the period at the end of clause (vi) 
and inserting ‘‘, and’’, and by adding at the end the fol-
lowing new clause: 
‘‘(vii) which— 
‘‘(I) prohibits the refusal to lease 
to, or termination of a lease by, a per-
son solely on the basis of criminal ac-
tivity directly relating to domestic vio-
lence, dating violence, sexual assault, 
or stalking that is engaged in by a 
member of the household of the ten-
ant or any guest or other person 
under the control of the tenant, if the 
tenant or an affiliated individual of 
the tenant is the victim or threatened 
victim of such domestic violence, dat-
ing violence, sexual assault, or stalk-
ing, and 
‘‘(II) allows prospective, present, 
or former occupants of the building 
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the right to enforce in any State court 
the prohibition of subclause (I).’’. 
(b) BIFURCATION.— 
(1) IN GENERAL.—Subparagraph (B) of section 
42(h)(6), as amended by subsection (a), is further 
amended by adding at the end the following new 
flush sentence: 
‘‘For purposes of clause (vii)(I), rules similar to 
the rules of section 41411(b)(3)(B) of the Vio-
lence Against Women Act of 1994 shall apply 
with respect to the owner or manager of a 
building.’’. 
(2) EFFECT OF BIFURCATION.—Paragraph (2) 
of section 42(g) is amended by adding at the end the 
following new subparagraph: 
‘‘(F) TREATMENT
OF
BIFURCATION
IN 
CASES OF DOMESTIC VIOLENCE.—In any case 
in which— 
‘‘(i) an occupant is evicted or removed 
from a low-income unit because such occu-
pant has engaged in criminal activity di-
rectly relating to domestic violence, dating 
violence, sexual assault, or stalking against 
an affiliated individual or other individual 
on the basis of criminal activity directly re-
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lating to domestic violence, dating violence, 
sexual assault, or stalking, and 
‘‘(ii) the lease on such unit is bifur-
cated as provided in the last sentence of 
subsection (h)(6)(B), 
then the remaining occupants of such low-in-
come unit shall not be treated as a new tenant 
for purposes of this section.’’. 
(c) CLARIFICATION OF GENERAL PUBLIC USE RE-
QUIREMENT.—Paragraph (9) of section 42(g) is amended 
by striking ‘‘or’’ at the end of subparagraph (B), by strik-
ing the period at the end of subparagraph (C) and insert-
ing ‘‘, or’’, and by adding at the end the following new 
subparagraph: 
‘‘(D) who are victims or threatened victims 
of criminal activity directly relating to domestic 
violence, dating violence, sexual assault, or 
stalking.’’. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to agreements executed or modified on or 
after the date that is 30 days after the date of the 
enactment of this Act. 
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(2) PUBLIC USE REQUIREMENT.—The amend-
ments made by subsection (c) shall apply to build-
ings placed in service before, on, or after the date 
of the enactment of this Act. 
SEC. 11206. CLARIFICATION OF GENERAL PUBLIC USE RE-
QUIREMENT RELATING TO VETERANS, ETC. 
(a) IN GENERAL.—Paragraph (9) of section 42(g), 
as amended by section 11205, is further amended by add-
ing at the end the following flush language: 
‘‘Any veteran of the Armed Forces shall be treated 
as a member of a specified group under a Federal 
program for purposes of subparagraph (B).’’. 
(b) QUALIFIED RESIDENTIAL RENTAL PROJECTS.— 
Paragraph (2) of section 142(d) is amended by adding at 
the end the following new subparagraph: 
‘‘(F) CLARIFICATION OF GENERAL PUBLIC 
USE REQUIREMENT.—A unit shall not fail to 
meet the general public use requirement solely 
because of occupancy restrictions or pref-
erences, if such restrictions or preferences meet 
the general public use requirement of section 
42.’’. 
(c) EFFECTIVE DATES.— 
(1) IN
GENERAL.—The amendment made by 
subsection (a) shall apply to buildings placed in serv-
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ice before, on, or after the date of the enactment of 
this Act. 
(2) 
QUALIFIED
RESIDENTIAL
RENTAL 
PROJECTS.—The amendment made by subsection (b) 
shall apply to bonds issued before, on, or after the 
date of the enactment of this Act. 
PART 3—RULES RELATING TO CREDIT 
ELIGIBILITY AND DETERMINATION 
SEC. 11301. RECONSTRUCTION OR REPLACEMENT PERIOD 
AFTER CASUALTY LOSS. 
(a) NO RECAPTURE FOLLOWING CASUALTY LOSS.— 
Subparagraph (E) of section 42(j)(4) is amended to read 
as follows: 
‘‘(E) NO RECAPTURE BY REASON OF CAS-
UALTY LOSS.— 
‘‘(i) IN
GENERAL.—The increase in 
tax under this subsection shall not apply to 
a reduction in qualified basis by reason of 
a casualty loss to the extent such loss is 
restored by reconstruction or replacement 
within a reasonable period established by 
the applicable housing credit agency, not to 
exceed 25 months from the date on which 
the qualified casualty loss arises. 
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‘‘(ii) QUALIFIED CASUALTY LOSSES.— 
In the case of a qualified casualty loss, the 
period described in clause (i) may be ex-
tended, but not in excess of 12 months, if 
the applicable housing credit agency deter-
mines the qualified casualty arose by rea-
son of an event which was not discrete to 
the building and which made a reconstruc-
tion or replacement within 25 months im-
practical. In the event the applicable hous-
ing credit agency determines a period in 
excess of 25 months is necessary for such 
reconstruction or replacement, the compli-
ance period shall be increased by any such 
additional time. 
‘‘(iii) APPLICATION.—The determina-
tion under paragraph (1) shall not be 
made with respect to a property the basis 
of which is affected by a qualified casualty 
loss until the period described in clause (i) 
(as modified by clause (ii), if applicable) 
with respect to such property has expired. 
‘‘(iv) QUALIFIED
CASUALTY
LOSS.— 
For purposes of this subparagraph, the 
term ‘qualified casualty loss’ means a cas-
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ualty loss that is the result of a federally 
declared disaster (as defined in section 
165(i)(5)).’’. 
(b) 
QUALIFIED
BASIS
FOLLOWING
CASUALTY 
LOSS.—Paragraph (1) of section 42(c) is amended by 
adding at the end the following new subparagraph: 
‘‘(F) QUALIFIED BASIS FOLLOWING CAS-
UALTY LOSS.—If a casualty causes the qualified 
basis of a building in any year to be less than 
the qualified basis in the immediately preceding 
year then, in the year of such casualty and each 
succeeding year until such building or the units 
affected by the casualty are reconstructed or re-
placed (but only through the last year of the pe-
riod permitted for reconstruction or replace-
ment under subsection (j)(4)(E))— 
‘‘(i) the qualified basis of such build-
ing shall be equal to the qualified basis of 
such building as of the last day of the year 
preceding the year in which such casualty 
occurred, 
‘‘(ii) if such building is not recon-
structed or replaced by the expiration of 
the applicable period for such reconstruc-
tion or replacement under subsection 
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(j)(4), then the recapture amount provided 
for in subsection (j)(1) shall include the 
amount of any credit claimed under this 
section by reason of the application of 
clause (i), and 
‘‘(iii) a building which was a qualified 
low-income building as of the last day of 
the year preceding the year in which such 
casualty occurred shall not cease to be a 
qualified low-income building solely be-
cause of such casualty.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to casualties occurring after De-
cember 31, 2025. 
SEC. 11302. MODIFICATION OF PREVIOUS OWNERSHIP 
RULES; LIMITATION ON ACQUISITION BASIS. 
(a) IN GENERAL.—Clause (ii) of section 42(d)(2)(B) 
is amended by inserting ‘‘, or the taxpayer elects the appli-
cation of subparagraph (C)(ii)’’ after ‘‘service’’. 
(b) LIMITATION ON ACQUISITION BASIS.—Subpara-
graph (C) of section 42(d)(2) is amended— 
(1) by striking ‘‘For purposes of subparagraph 
(A), the adjusted basis’’ and inserting ‘‘For pur-
poses of subparagraph (A)— 
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‘‘(i) 
IN
GENERAL.—The 
adjusted 
basis’’, and 
(2) by adding at the end the following new 
clauses: 
‘‘(ii) BUILDINGS IN SERVICE WITHIN 
PREVIOUS
YEARS.—If the period be-
tween the date of acquisition of the build-
ing by the taxpayer and the date the build-
ing was last placed in service is less than 
10 years, the taxpayer’s basis attributable 
to the acquisition of the building which is 
taken into account in determining the ad-
justed basis shall not exceed the sum of— 
‘‘(I) the lowest amount paid for 
acquisition of the building by any per-
son during the 10 years preceding the 
date of the acquisition of the building 
by the taxpayer, adjusted as provided 
in clause (iii), and 
‘‘(II) the value of any capital im-
provements made by the person who 
sells the building to the taxpayer 
which are reflected in such seller’s 
basis. 
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‘‘(iii) ADJUSTMENT.—With respect to 
a basis determination made in any taxable 
year, the amount described in clause (ii)(I) 
shall be increased by an amount equal to— 
‘‘(I) such amount, multiplied by 
‘‘(II) a cost-of-living adjustment, 
determined in the same manner as 
under section 1(f)(3) for the calendar 
year in which the taxable year begins 
by taking into account the acquisition 
year in lieu of calendar year 1992. 
For purposes of the preceding sentence, 
the acquisition year is the calendar year in 
which the lowest amount referenced in 
clause (ii)(I) was paid for the acquisition 
of the building.’’. 
(c) CONFORMING AMENDMENTS.—Clause (i) of sec-
tion 42(d)(2)(D) is amended— 
(1) by striking ‘‘FOR SUBPARAGRAPH (B)’’ in 
the heading, and 
(2) by striking ‘‘subparagraph (B)(ii)’’ in the 
matter preceding subclause (I) and inserting ‘‘sub-
paragraph (B)(ii) or (C)(ii)’’. 
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(d) MODIFICATION OF PLACED IN SERVICE RULE.— 
Clause (iii) of section 42(d)(2)(B) is amended to read as 
follows: 
‘‘(iii) the building was not owned by 
the taxpayer or by any person related (as 
of the date of acquisition by the taxpayer) 
to the taxpayer at any time during the 5- 
year period ending on the date of acquisi-
tion by the taxpayer, and’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to buildings placed in service after 
December 31, 2025. 
SEC. 11303. CERTAIN RELOCATION COSTS TAKEN INTO AC-
COUNT AS REHABILITATION EXPENDITURES. 
(a) IN GENERAL.—Paragraph (2) of section 42(e) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(C) CERTAIN
RELOCATION
COSTS.—In 
the case of a rehabilitation of a building to 
which section 280B does not apply, costs relat-
ing to the relocation of occupants, including— 
‘‘(i) amounts paid to occupants, 
‘‘(ii) amounts paid to third parties for 
services relating to such relocation, and 
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‘‘(iii) amounts paid for temporary 
housing for occupants, 
shall be treated as chargeable to capital account 
and taken into account as rehabilitation ex-
penditures.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to expenditures paid or incurred 
after December 31, 2025. 
(c) NO INFERENCE.—Nothing in the amendment 
made by this section shall be construed to create any infer-
ence with respect to the treatment of relocation costs paid 
or incurred before January 1, 2026. 
SEC. 11304. REPEAL OF QUALIFIED CENSUS TRACT POPU-
LATION CAP. 
(a) IN GENERAL.—Clause (ii) of section 42(d)(5)(B) 
is amended— 
(1) by striking subclauses (II) and (III), and 
(2) by striking ‘‘QUALIFIED CENSUS TRACT.— 
‘‘(I) IN GENERAL.—The term’’, 
and inserting ‘‘QUALIFIED
CENSUS
TRACT.—The 
term’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to designations of qualified census 
tracts under section 42(d)(5)(B)(ii) of the Internal Rev-
enue Code of 1986 after December 31, 2025. 
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SEC. 11305. DETERMINATION OF COMMUNITY REVITALIZA-
TION PLAN TO BE MADE BY HOUSING CREDIT 
AGENCY. 
(a) IN
GENERAL.—Subclause (III) of section 
42(m)(1)(B)(ii) is amended by inserting ‘‘, as determined 
by the housing credit agency according to criteria estab-
lished by such agency,’’ after ‘‘(d)(5)(B)(ii)) and’’. 
(b) CRITERIA.—Paragraph (1) of section 42(m) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(E) CRITERIA FOR DETERMINATION RE-
LATING TO CONCERTED COMMUNITY REVITAL-
IZATION PLAN.—For purposes of subparagraph 
(B)(ii)(III), the criteria which shall be estab-
lished by a housing credit agency for deter-
mining whether the development of a project 
contributes to a concerted community develop-
ment plan shall take into account any factors 
the agency deems appropriate, including the ex-
tent to which the proposed plan— 
‘‘(i) is geographically specific, 
‘‘(ii) outlines a clear plan for imple-
mentation and goals for outcomes, 
‘‘(iii) includes a strategy for applying 
for or obtaining commitments of public or 
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private investment (or both) in nonhousing 
infrastructure, amenities, or services, and 
‘‘(iv) demonstrates the need for com-
munity revitalization.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to allocations of housing credit dol-
lar amounts made under qualified allocation plans (as de-
fined in section 42(m)(1)(B) of the Internal Revenue Code 
of 1986) adopted after December 31, 2025. 
SEC. 11306. PROHIBITION OF LOCAL APPROVAL AND CON-
TRIBUTION REQUIREMENTS. 
(a) IN GENERAL.—Paragraph (1) of section 42(m), 
as amended by section 11305, is further amended— 
(1) by striking clause (ii) of subparagraph (A) 
and by redesignating clauses (iii) and (iv) thereof as 
clauses (ii) and (iii), and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(F) LOCAL APPROVAL OR CONTRIBUTION 
NOT TAKEN INTO ACCOUNT.—The selection cri-
teria under a qualified allocation plan shall not 
include consideration of— 
‘‘(i) any support or opposition with re-
spect to the project from local or elected 
officials, or 
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‘‘(ii) any local government contribu-
tion to the project, except to the extent 
such contribution is taken into account as 
part of a broader consideration of the 
project’s ability to leverage outside funding 
sources, and is not prioritized over any 
other source of outside funding.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to allocations of housing credit dol-
lar amounts made under qualified allocation plans (as de-
fined in section 42(m)(1)(B) of the Internal Revenue Code 
of 1986) adopted after December 31, 2025. 
SEC. 11307. INCREASE IN CREDIT FOR CERTAIN PROJECTS 
DESIGNATED TO SERVE EXTREMELY LOW-IN-
COME HOUSEHOLDS. 
(a) IN GENERAL.—Paragraph (5) of section 42(d) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(C) INCREASE IN CREDIT FOR PROJECTS 
DESIGNATED
TO
SERVE
EXTREMELY
LOW-IN-
COME HOUSEHOLDS.—In the case of any build-
ing— 
‘‘(i) 20 percent or more of the resi-
dential units (determined as if the imputed 
income limitation applicable to such units 
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were 30 percent of area median gross in-
come) in which are designated by the tax-
payer for occupancy by households the ag-
gregate household income of which does 
not exceed the greater of— 
‘‘(I) 30 percent of area median 
gross income, or 
‘‘(II) 100 percent of an amount 
equal to the Federal poverty line 
(within 
the 
meaning 
of 
section 
36B(d)(3)), and 
‘‘(ii) which is designated by the hous-
ing credit agency as requiring the increase 
in credit under this subparagraph in order 
for such building to be financially feasible 
as part of a qualified low-income housing 
project, 
subparagraph (B) shall not apply to the portion 
of such building which is comprised of such 
units (determined in a manner similar to the 
unit fraction under subsection (c)(1)(C)), and 
the eligible basis of such portion of the building 
shall be 150 percent of such basis determined 
without regard to this subparagraph.’’. 
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(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to buildings which receive alloca-
tions of housing credit dollar amount after the date of en-
actment of this Act, or in the case of buildings that are 
described in section 42(h)(4)(B) of the Internal Revenue 
Code of 1986, for obligations that are part of an issue 
the issue date of which is after December 31, 2025. 
SEC. 11308. INCREASE IN CREDIT FOR BOND-FINANCED 
PROJECTS DESIGNATED BY STATE AGENCY. 
(a) IN GENERAL.—Clause (v) of section 42(d)(5)(B) 
is amended by striking the second sentence. 
(b) TECHNICAL AMENDMENT.—Clause (v) of section 
42(d)(5)(B), as amended by subsection (a), is further 
amended— 
(1) by striking ‘‘STATE’’ in the heading, and 
(2) by striking ‘‘State housing credit agency’’ 
and inserting ‘‘housing credit agency’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to buildings that are described in 
section 42(h)(4)(B) of the Internal Revenue Code of 1986, 
taking into account only obligations that are part of an 
issue the issue date of which is after December 31, 2025. 
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SEC. 11309. ELIMINATION OF BASIS REDUCTION FOR LOW- 
INCOME HOUSING PROPERTIES ENERGY EF-
FICIENT 
COMMERCIAL 
BUILDING 
DEDUC-
TION. 
(a) ENERGY EFFICIENT COMMERCIAL BUILDINGS 
DEDUCTION.—Subsection (e) of section 179D is amend-
ed— 
(1) by striking ‘‘REDUCTION.—For purposes’’ 
and inserting ‘‘REDUCTION.— 
‘‘(1) IN GENERAL.—For purposes’’, and 
(2) by adding at the end the following new 
paragraph: 
‘‘(2) EXCEPTION
FOR
AFFORDABLE
HOUSING 
PROPERTIES.—Paragraph (1) shall not apply for 
purposes of determining eligible basis under section 
42.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to buildings which receive alloca-
tions of housing credit dollar amount after the date of the 
enactment of this Act and to buildings that are described 
in section 42(h)(4)(B) of the Internal Revenue Code of 
1986 taking into account only obligations that are part 
of an issue the issue date of which is after December 31, 
2025. 
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SEC. 11310. RESTRICTION OF PLANNED FORECLOSURES. 
(a) 
IN
GENERAL.—Subclause 
(I) 
of 
section 
42(h)(6)(E)(i) is amended to read as follows: 
‘‘(I) on the 61st day after the 
taxpayer (or a successor in interest) 
provides notice to the Secretary and 
the housing credit agency that the 
building has been acquired by fore-
closure (or instrument in lieu of fore-
closure) and that the taxpayer intends 
the termination of such period, unless, 
before such date, the Secretary or the 
housing credit agency determines that 
such acquisition is part of an arrange-
ment with the taxpayer a purpose of 
which is to terminate such period, 
or’’. 
(b) CONFORMING AMENDMENT.—The second sen-
tence of clause (i) of section 42(h)(6)(E) is amended by 
striking ‘‘Subclause (II)’’ and inserting ‘‘Subclauses (I) 
and (II)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to acquisitions by foreclosure (or 
instrument in lieu of foreclosure) after December 31, 
2025. 
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SEC. 11311. INCREASE OF POPULATION CAP FOR DIF-
FICULT DEVELOPMENT AREAS. 
(a) 
IN
GENERAL.—Subclause 
(II) 
of 
section 
42(d)(5)(B)(iii) is amended by striking ‘‘20 percent’’ and 
inserting ‘‘30 percent’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to designations made under section 
42(d)(5)(B)(iii) of the Internal Revenue Code of 1986 
after December 31, 2025. 
SEC. 11312. INCREASED COST OVERSIGHT AND ACCOUNT-
ABILITY. 
(a) IN GENERAL.—Subparagraph (C) of section 
42(m)(1) is amended by striking ‘‘and’’ at the end of 
clause (ix), by striking the period at the end of clause (x) 
and inserting ‘‘, and’’, and by adding at the end the fol-
lowing new clause: 
‘‘(xi) the reasonableness of the devel-
opment costs of the project.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to allocations of credits under sec-
tion 42 of the Internal Revenue Code of 1986 made after 
December 31, 2025. 
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PART 4—REFORMS RELATING TO NATIVE 
AMERICAN ASSISTANCE 
SEC. 11401. SELECTION CRITERIA UNDER QUALIFIED ALLO-
CATION PLANS. 
(a) IN GENERAL.—Subparagraph (C) of section 
42(m)(1), as amended by section 11312, is further amend-
ed by striking ‘‘and’’ at the end of clause (x), by striking 
the period at the end of clause (xi) and inserting ‘‘, and’’, 
and by adding at the end the following new clause: 
‘‘(xii) the affordable housing needs of 
individuals in the State who are— 
‘‘(I) enrolled members of a tribe 
with respect to an Indian tribal gov-
ernment (including any agencies or in-
strumentalities of an Indian tribal 
government and any Alaska Native re-
gional or village corporation, as de-
fined in, or established pursuant to, 
the Alaska Native Claims Settlement 
Act (43 U.S.C. 1601 et seq.)), or 
‘‘(II) described in section 801(9) 
of the Native American Housing As-
sistance and Self-Determination Act 
of 1996 (25 U.S.C. 4221(9)).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to allocations of credits under sec-
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tion 42 of the Internal Revenue Code of 1986 made after 
December 31, 2025. 
SEC. 11402. INCLUSION OF INDIAN AREAS AS DIFFICULT 
DEVELOPMENT AREAS FOR PURPOSES OF 
CERTAIN BUILDINGS. 
(a) 
IN
GENERAL.—Subclause 
(I) 
of 
section 
42(d)(5)(B)(iii) is amended by inserting before the period 
the following: ‘‘, and any Indian area’’. 
(b) 
INDIAN
AREA.—Clause 
(iii) 
of 
section 
42(d)(5)(B) is amended by redesignating subclause (II) 
as subclause (III) and by inserting after subclause (I) the 
following new subclause: 
‘‘(II) INDIAN
AREA.—For pur-
poses of subclause (I), the term ‘In-
dian area’ means any Indian area (as 
defined in section 4(11) of the Native 
American Housing Assistance and 
Self Determination Act of 1996 (25 
U.S.C. 4103(11))) and any housing 
area (as defined in section 801(5) of 
such Act (25 U.S.C. 4221(5))).’’. 
(c) ELIGIBLE BUILDINGS.—Clause (iii) of section 
42(d)(5)(B), as amended by subsection (b), is further 
amended by adding at the end the following new sub-
clause: 
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‘‘(IV) SPECIAL RULE FOR BUILD-
INGS IN INDIAN AREAS.—In the case 
of an area which is a difficult develop-
ment area solely because it is an In-
dian area, a building shall not be 
treated as located in such area unless 
such building is assisted or financed 
under the Native American Housing 
Assistance and Self Determination 
Act of 1996 (25 U.S.C. 4101 et seq.) 
or the project sponsor is an Indian 
tribe 
(as 
defined 
in 
section 
45A(c)(6)), a tribally designated hous-
ing entity (as defined in section 4(22) 
of such Act (25 U.S.C. 4103(22))), or 
wholly owned or controlled by such an 
Indian tribe or tribally designated 
housing entity.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to buildings placed in service after 
December 31, 2025. 
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PART 5—REFORMS RELATING TO RURAL 
ASSISTANCE 
SEC. 11501. INCLUSION OF RURAL AREAS AS DIFFICULT DE-
VELOPMENT AREAS. 
(a) 
IN
GENERAL.—Subclause 
(I) 
of 
section 
42(d)(5)(B)(iii), as amended by section 11402, is further 
amended by inserting ‘‘, any rural area’’ after ‘‘median 
gross income’’. 
(b) 
RURAL
AREA.—Clause 
(iii) 
of 
section 
42(d)(5)(B), as amended by section 11402, is further 
amended by redesignating subclause (III) as subclause 
(IV) and by inserting after subclause (II) the following 
new subclause: 
‘‘(III) RURAL
AREA.—For pur-
poses of subclause (I), the term ‘rural 
area’ means any non-metropolitan 
area, or any rural area as defined by 
section 520 of the Housing Act of 
1949, which is identified by the quali-
fied allocation plan under subsection 
(m)(1)(B).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to buildings placed in service after 
December 31, 2025. 
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SEC. 11502. UNIFORM INCOME ELIGIBILITY FOR RURAL 
PROJECTS. 
(a) IN GENERAL.—Paragraph (8) of section 42(i) is 
amended by striking the second sentence. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2025. 
PART 6—EXEMPT FACILITY BONDS 
SEC. 11601. REVISION AND CLARIFICATION OF THE TREAT-
MENT OF REFUNDING ISSUES. 
(a) IN GENERAL.—Subparagraph (A) of section 
146(i)(6) is amended to read as follows: 
‘‘(A) IN GENERAL.—During the 12-month 
period beginning on the date of a repayment of 
a loan financed by an issue 95 percent or more 
of the net proceeds of which are used to provide 
projects described in section 142(d), if such re-
payment is used to provide a new loan for any 
project described in section 142(a)(7) or for 
any purpose described in subsection (a)(2)(A) 
or (b) of section 143, any bond which is issued 
to refinance such issue shall be treated as a re-
funding issue. Any issue treated as a refunding 
issue by reason of the preceding sentence shall 
be so treated only to the extent the principal 
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amount of such refunding issue does not exceed 
the principal amount of the bonds refunded.’’. 
(b) REMOVAL
OF ONE-REFUNDING LIMIT.—Sub-
paragraph (B) of section 146(i)(6) is amended— 
(1) by striking ‘‘4 years’’ in clause (i) and in-
serting ‘‘10 years’’, 
(2) by striking ‘‘was issued’’ in clause (ii) and 
inserting ‘‘is issued’’, 
(3) by redesignating clauses (i) (as so amend-
ed), (ii) (as so amended), and (iii) as subclauses (I), 
(II), and (III), respectively, and by moving such sub-
clauses 2 ems to the right, 
(4) by striking ‘‘LIMITATIONS.—Subparagraph 
(A) shall apply to only one refunding of the original 
issue and’’ and inserting ‘‘LIMITATIONS.— 
‘‘(i) IN GENERAL.—Subparagraph (A) 
shall apply to a bond’’, and 
(5) by adding at the end the following new 
clause: 
‘‘(ii) 
SOURCE
OF
LOAN
REPAY-
MENT.—Subparagraph (A) shall not apply 
to any repayment of a loan which is— 
‘‘(I) made by a repayment of an-
other loan, or 
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‘‘(II) financed by an issue treated 
as a refunding issue under subpara-
graph (A).’’. 
(c) CONFORMING AMENDMENT.—The heading of 
paragraph (6) of section 146(i) is amended by striking 
‘‘RESIDENTIAL RENTAL PROJECT BONDS AS REFUNDING 
BONDS
IRRESPECTIVE
OF
OBLIGOR’’ and inserting 
‘‘BONDS AS REFUNDING BONDS’’. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by 
subsections (a) and (c) shall apply to refunding 
issues described in section 146(i)(6)(A) of the Inter-
nal Revenue Code of 1986 issued on or after the 
date of the enactment of this Act. 
(2) REMOVAL OF ONE-REFUNDING LIMIT.—The 
amendments made by subsection (b) shall apply to 
repayments of loans received after July 30, 2008. 
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PART 7—REFORMS RELATING TO DISABLED 
VETERANS 
SEC. 11701. TREATMENT OF VETERAN DISABILITY COM-
PENSATION OR PENSION PAYMENTS FOR 
PURPOSES OF LOW INCOME HOUSING TAX 
CREDIT AND RESIDENTIAL RENTAL PROJECT 
BONDS. 
(a) IN GENERAL.—Section 142(d)(2)(B) is amended 
by adding at the end the following new clause: 
‘‘(v) VETERAN DISABILITY COMPENSA-
TION OR PENSION.—For purposes of deter-
mining income under this subparagraph, 
payments of disability compensation or 
pension under chapter 11 or 15 of title 38, 
United States Code, shall be disregarded.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to determinations made after the 
date of the enactment of this Act. 
PART 8—REFORMS RELATING TO CERTAIN 
OTHER POPULATIONS 
SEC. 11801. ADDITIONAL HOUSING CREDIT ALLOCATIONS 
FOR 
CERTAIN 
POPULATIONS 
WHO 
FACE 
UNIQUE BARRIERS TO AFFORDABLE HOUS-
ING. 
(a) IN GENERAL.—Section 42 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
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(n) as subsection (o) and by inserting after subsection (m) 
the following new subsection: 
‘‘(n) ADDITIONAL ALLOCATION FOR UNITS FOR CER-
TAIN POPULATIONS WHO FACE UNIQUE BARRIERS TO 
AFFORDABLE HOUSING.— 
‘‘(1) IN
GENERAL.—A housing credit agency 
may allocate, in any calendar year, an amount equal 
to 5 percent of the amount such housing credit 
agency may allocate under subsection (h)(3)(C) to 
projects which contain a unit described in paragraph 
(2). 
‘‘(2) UNIT DESCRIBED.—A unit is described in 
this paragraph if— 
‘‘(A) such unit is part of a low-income 
housing project, 
‘‘(B) the housing credit agency and the 
owner of such unit, not later than the first day 
of the second year of the credit period of such 
project, execute a compliance agreement, 
‘‘(C) the taxpayer prioritizes populations 
who face unique barriers to affordable housing 
for occupancy of such units, and 
‘‘(D) the taxpayer, in consultation with 
covered service providers, makes available to 
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any resident of such unit appropriate supportive 
services during the compliance period. 
‘‘(3) COMPLIANCE AGREEMENT.—For purposes 
of paragraph (2)(B), the term ‘compliance agree-
ment’ means an agreement which— 
‘‘(A) requires the owner of a unit to sub-
mit to the housing credit agency for approval a 
supportive service plan for each calendar year 
during the compliance period, 
‘‘(B) requires the approval of the housing 
credit agency with respect to any agreement be-
tween such owner and any covered service pro-
vider relating to services provided pursuant to 
this subsection, and 
‘‘(C) allows the housing credit agency to 
monitor compliance with such agreement and 
with the requirements of this subsection. 
‘‘(4) POPULATIONS
WHO
FACE
UNIQUE
BAR-
RIERS TO AFFORDABLE HOUSING.—For purposes of 
this subsection, the term ‘populations who face 
unique barriers to affordable housing’ means individ-
uals who are— 
‘‘(A) formerly justice-involved individuals, 
‘‘(B) current or former foster youths, or 
‘‘(C) kinship caregivers. 
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‘‘(5) COVERED SERVICE PROVIDER.—For pur-
poses of this subsection, the term ‘covered service 
provider’ means any entity with demonstrated expe-
rience providing supportive services to populations 
who face unique barriers to affordable housing. 
‘‘(6) 
FORMERLY
JUSTICE-INVOLVED
INDI-
VIDUAL.—For purposes of this paragraph, the term 
‘formerly justice-involved individual’ means an indi-
vidual who faces barriers to obtaining housing as a 
result of being arrested, charged, or convicted of any 
criminal offense. 
‘‘(7) CURRENT OR FORMER FOSTER YOUTH.— 
The term ‘current or former foster youth’ means an 
individual who was eligible at any time to receive 
services under section 477(a) of the Social Security 
Act. 
‘‘(8) NOT INCLUDED IN AGGREGATE HOUSING 
CREDIT
DOLLAR
AMOUNT.—An amount allocated 
under paragraph (1) shall not be included in the ag-
gregate housing credit dollar amount for any cal-
endar year of the State which made such allocation. 
‘‘(9) ENFORCEMENT.—The Secretary shall, in 
consultation with housing credit agencies, establish 
such mechanisms (including penalties) as the Sec-
retary determines appropriate to ensure that— 
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‘‘(A) each unit with respect to which a 
credit is allowed under paragraph (1) meets the 
requirements described in paragraph (2), and 
‘‘(B) each housing credit agency which 
makes an allocation under paragraph (1) is tak-
ing appropriate steps to enforce each compli-
ance agreement to which such housing credit 
agency is a party under paragraph (3).’’. 
(b) ALLOCATIONS ALLOWED IN ADDITION TO STATE 
CEILING.—Section 42(h)(1) of such Code is amended by 
striking ‘‘the housing credit dollar amount allocated to 
such building under this subsection’’ and inserting ‘‘the 
sum of the housing credit dollar amounts allocated to such 
building under this subsection and subsection (n)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning after 
2026. 
PART 9—QUALIFIED CONTRACTS AND RIGHT OF 
FIRST REFUSAL 
SEC. 11901. REPEAL OF QUALIFIED CONTRACT OPTION. 
(a) TERMINATION OF OPTION FOR CERTAIN BUILD-
INGS.— 
(1) IN
GENERAL.—Subclause (II) of section 
42(h)(6)(E)(i) is amended by inserting ‘‘in the case 
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of a building described in clause (iii),’’ before ‘‘on 
the last day’’. 
(2) 
BUILDINGS
DESCRIBED.—Subparagraph 
(E) of section 42(h)(6) is amended by adding at the 
end the following new clause: 
‘‘(iii) 
BUILDINGS
DESCRIBED.—A 
building described in this clause is a build-
ing— 
‘‘(I) which received its allocation 
of housing credit dollar amount before 
January 1, 2026, or 
‘‘(II) in the case of a building 
any portion of which is financed as 
described in paragraph (4), and which 
received before January 1, 2026, 
under the rules of paragraphs (1) and 
(2) of subsection (m), a determination 
from the issuer of the tax-exempt 
bonds or the housing credit agency 
that the building would be eligible 
under the qualified allocation plan to 
receive an allocation of housing credit 
dollar amount or that the credits to be 
earned are necessary for financial fea-
sibility of the project and its viability 
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as a qualified low-income housing 
project throughout the credit period.’’. 
(b) RULES RELATING TO EXISTING PROJECTS.— 
Subparagraph (F) of section 42(h)(6) is amended by strik-
ing ‘‘the nonlow-income portion’’ and all that follows and 
inserting ‘‘the nonlow-income portion and the low-income 
portion of the building for fair market value (determined 
by the housing credit agency by taking into account the 
rent restrictions required for the low-income portion of the 
building to continue to meet the standards of paragraphs 
(1) and (2) of subsection (g)). The Secretary shall pre-
scribe such regulations as may be necessary or appropriate 
to carry out this paragraph.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Paragraph (6) of section 42(h) is amended 
by striking subparagraph (G) and by redesignating 
subparagraphs (H), (I), (J), and (K) as subpara-
graphs (G), (H), (I), and (J), respectively. 
(2) Subclause (II) of section 42(h)(6)(E)(i) is 
amended by striking ‘‘subparagraph (I)’’ and insert-
ing ‘‘subparagraph (H)’’. 
(d) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
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shall take effect on the date of the enactment of this 
Act. 
(2) SUBSECTION (b).—The amendments made 
by subsection (b) shall apply to buildings with re-
spect to which a written request described in section 
42(h)(6)(H) of the Internal Revenue Code of 1986, 
as redesignated by subsection (c), is submitted after 
the date of the enactment of this Act. 
SEC. 
11902. 
MODIFICATION 
AND 
CLARIFICATION 
OF 
RIGHTS RELATING TO BUILDING PURCHASE. 
(a) MODIFICATION OF RIGHT OF FIRST REFUSAL.— 
(1) IN GENERAL.—Subparagraph (A) of section 
42(i)(7) is amended by striking ‘‘a right of 1st re-
fusal’’ and inserting ‘‘an option’’. 
(2) CONFORMING AMENDMENT.—The heading 
of paragraph (7) of section 42(i) is amended by 
striking ‘‘RIGHT
OF
1ST
REFUSAL’’ and inserting 
‘‘OPTION’’. 
(b) CLARIFICATION WITH RESPECT TO RIGHT OF 
FIRST REFUSAL AND PURCHASE OPTIONS.— 
(1) PURCHASE OF PARTNERSHIP INTEREST.— 
(A) IN
GENERAL.—Subparagraph (A) of 
section 42(i)(7), as amended by subsection (a), 
is amended by striking ‘‘the property’’ and in-
serting ‘‘the property or all of the partnership 
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interests (other than interests of the person ex-
ercising such option or a related party thereto 
(within the meaning of section 267(b) or 
707(b)(1))) relating to the property’’. 
(B) APPLICATION
TO S CORPORATIONS 
AND
OTHER
PASS-THROUGH
ENTITIES.—Sub-
paragraph (A) of section 42(i)(7) is amended 
by adding at the end the following: ‘‘Except as 
provided by the Secretary, the rules of this 
paragraph shall apply to S corporations and 
other pass-through entities in the same manner 
as such rules apply to partnerships.’’. 
(C) CONFORMING AMENDMENT.—Subpara-
graph (B) of section 42(i)(7) is amended by 
adding at the end the following: ‘‘In the case of 
a purchase of all of the partnership interests, 
the minimum purchase price under this sub-
paragraph shall be an amount not less than the 
sum of the interests’ shares of the amount 
which would be determined with respect to the 
property under this subparagraph without re-
gard to this sentence.’’. 
(2) PROPERTY INCLUDES ASSETS RELATING TO 
THE BUILDING.—Paragraph (7) of section 42(i) is 
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amended by adding at the end the following new 
subparagraph: 
‘‘(C) PROPERTY.—For purposes of sub-
paragraph (A), the term ‘property’ may include 
all or any of the assets held for the develop-
ment, operation, or maintenance of a build-
ing.’’. 
(3) EXERCISE OF RIGHT OF FIRST REFUSAL 
AND
PURCHASE
OPTIONS.—Subparagraph (A) of 
section 42(i)(7), as amended by subsection (a) and 
paragraph (1)(A), is amended by adding at the end 
the following: ‘‘For purposes of determining whether 
an option, including a right of first refusal, to pur-
chase property or all of the partnership interests 
holding (directly or indirectly) such property is de-
scribed in the preceding sentence— 
‘‘(i) such option or right of first re-
fusal shall be exercisable with or without 
the approval of any owner of the project 
(including any partner, member, or affili-
ated organization of such an owner), and 
‘‘(ii) a right of first refusal shall be 
exercisable in response to any offer to pur-
chase the property or all of the partnership 
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interests, including an offer by a related 
party.’’. 
(c) OTHER CONFORMING AMENDMENT.—Subpara-
graph (B) of section 42(i)(7), as amended by subsection 
(b), is amended by striking ‘‘the sum of’’ and all that fol-
lows through ‘‘application of clause (ii).’’ and inserting the 
following: ‘‘the principal amount of outstanding indebted-
ness secured by the building (other than indebtedness in-
curred within the 5-year period ending on the date of the 
sale to the tenants).’’. 
(d) EFFECTIVE DATES.— 
(1) MODIFICATION
OF
RIGHT
OF
FIRST
RE-
FUSAL.—The amendments made by subsections (a) 
and (c) shall apply to agreements entered into or 
amended after the date of the enactment of this Act. 
(2) CLARIFICATION.—The amendments made 
by subsection (b) shall apply to agreements among 
the owners of the project (including partners, mem-
bers, and their affiliated organizations) and persons 
described in section 42(i)(7)(A) of the Internal Rev-
enue Code of 1986 entered into before, on, or after 
the date of the enactment of this Act. 
(3) NO EFFECT ON AGREEMENTS.—None of the 
amendments made by this section is intended to su-
persede express language in any agreement with re-
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spect to the terms of a right of first refusal or op-
tion permitted by section 42(i)(7) of the Internal 
Revenue Code of 1986 in effect on the date of the 
enactment of this Act. 
Subtitle B—Additional Housing 
Incentives 
SEC. 12001. INVESTMENT CREDIT FOR CONVERSION OF 
NON-RESIDENTIAL BUILDINGS TO AFFORD-
ABLE HOUSING. 
(a) IN GENERAL.—Subpart E of part IV of sub-
chapter A of chapter 1 is amended by inserting after sec-
tion 48E the following new section: 
‘‘SEC. 48F. AFFORDABLE HOUSING CONVERSION CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec-
tion 46, the affordable housing conversion credit for any 
taxable year is an amount equal to 20 percent of the quali-
fied conversion expenditures of the taxpayer with respect 
to a qualified affordable housing building placed in service 
by the taxpayer during the taxable year. 
‘‘(b) QUALIFIED CONVERSION EXPENDITURES.—For 
purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified conver-
sion expenditures’ means, with respect to any quali-
fied affordable housing building, any amount prop-
erly chargeable to capital account— 
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‘‘(A) for property for which depreciation is 
allowable under section 168, and 
‘‘(B) in connection with the qualified con-
version of a qualified affordable housing build-
ing. 
‘‘(2) 
CERTAIN
EXPENDITURES
NOT
IN-
CLUDED.—The term ‘qualified conversion expendi-
tures’ does not include— 
‘‘(A) LIMITATION ON PERIOD OF CONVER-
SION.—Except as provided in subsection (f), 
any amount paid or incurred other than during 
the 2-year period ending on the date on which 
the taxpayer places the qualified affordable 
housing building in service. 
‘‘(B) COST OF ACQUISITION.—The cost of 
acquiring any building or interest therein. 
‘‘(3) SPECIAL
RULE
FOR
BROWNFIELDS.— 
Paragraph (1)(A) shall not apply with respect to any 
expenditure for clean up of qualifying brownfield 
property (as defined in section 512(b)(19)). 
‘‘(4) COORDINATION
WITH
REHABILITATION 
CREDIT.—In the case of any qualified conversion ex-
penditures which are taken into account for pur-
poses of determining the rehabilitation credit under 
section 47, the amount of such expenditures taken 
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into account under this section (determined without 
regard to this paragraph) shall be reduced by 50 
percent. 
‘‘(c) QUALIFIED CONVERSION.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘qualified conver-
sion’ means the conversion of an eligible commercial 
building into a qualified affordable housing building 
if the qualified conversion expenditures of the tax-
payer with respect to such conversion exceed the 
greater of— 
‘‘(A) an amount equal to 50 percent of the 
adjusted basis of such building (determined im-
mediately prior to such conversion), or 
‘‘(B) $100,000. 
‘‘(2) ELIGIBLE
COMMERCIAL
BUILDING.—The 
term ‘eligible commercial building’ means any build-
ing which, with respect to any conversion— 
‘‘(A) was originally placed in service not 
less than 20 years before the date on which 
such conversion begins, and 
‘‘(B) immediately prior to such conversion, 
was nonresidential real property (as defined in 
section 168). 
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‘‘(d) QUALIFIED AFFORDABLE HOUSING BUILD-
ING.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified afford-
able housing building’ means any residential building 
if during the 30-year period beginning on the date 
on which such building is placed in service by the 
taxpayer, not less than 20 percent of the residential 
units in the building are both rent-restricted and re-
served for individuals whose income is 80 percent or 
less of the area median income. 
‘‘(2) RENT
AND
INCOME
LIMITATION.—For 
purposes of this subsection, rules similar to the rules 
of subsection (g) of section 42 shall apply to deter-
mine whether a unit is rent-restricted, treatment of 
units occupied by individuals whose incomes rise 
above the limit, and the treatment of units where 
Federal rental assistance is reduced as tenant’s in-
come increases. 
‘‘(e) LIMITATION ON AGGREGATE CREDIT ALLOW-
ABLE.— 
‘‘(1) CREDIT
MAY
NOT
EXCEED
CREDIT 
AMOUNT ALLOCATED TO BUILDING.— 
‘‘(A) IN
GENERAL.—The amount of the 
credit determined under this section with re-
spect to any building shall not exceed the quali-
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fied conversion credit dollar amount allocated to 
such building under this subsection by the 
housing credit agency of the State in which 
such building is located. 
‘‘(B) TIME
FOR
MAKING
ALLOCATION.— 
Except in the case of an allocation which meets 
the requirements of subparagraph (C), an allo-
cation shall be taken into account under sub-
paragraph (A) only if it is made not later than 
the close of the calendar year in which the 
building is placed in service. 
‘‘(C) EXCEPTION
WHERE
BINDING
COM-
MITMENT.—An allocation meets the require-
ments of this subparagraph if there is a binding 
commitment (not later than the close of the cal-
endar year in which the building is placed in 
service) by the housing credit agency to allocate 
a specified housing credit dollar amount to such 
building beginning in a later taxable year. 
‘‘(2) STATE LIMITATION.— 
‘‘(A) IN GENERAL.—The aggregate quali-
fied conversion credit dollar amount which a 
housing credit agency of any State may allocate 
is the sum of— 
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‘‘(i) the amount which bears the same 
ratio to the national qualified conversion 
credit limitation as— 
‘‘(I) the population of such State, 
bears to 
‘‘(II) the population of all States, 
plus 
‘‘(ii) the sum of any amounts deter-
mined under subparagraph (C). 
‘‘(B) NATIONAL
QUALIFIED
CONVERSION 
CREDIT
LIMITATION.—The national qualified 
conversion credit limitation is $12,000,000,000. 
‘‘(C) ADDITIONAL
AMOUNTS
PROVIDED 
FOR
CERTAIN
BUILDINGS
IN
ECONOMICALLY 
DISTRESSED AREAS.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A)(ii), in any case in 
which— 
‘‘(I) the housing credit agency of 
a State allocates an amount to a 
building which is located in an eco-
nomically distressed area, and 
‘‘(II) the Secretary subsequently 
designates such amount for purposes 
of this paragraph, 
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the amount determined under this para-
graph with respect to such building shall 
be the amount originally allocated by the 
housing credit agency of the State under 
clause (i). 
‘‘(ii) 
LIMITATION.—The 
aggregate 
amount which the Secretary may designate 
under clause (i)(II) shall not exceed 
$3,000,000,000. 
‘‘(iii) MANNER
OF
DESIGNATION.— 
Not later than 120 days after the date of 
the enactment of this section, the Sec-
retary shall establish a program for deter-
mining the designation of amounts that 
may be designated under this subpara-
graph. 
‘‘(D) 
REALLOCATION
OF
CERTAIN 
AMOUNTS.— 
‘‘(i) IN
GENERAL.—Notwithstanding 
subparagraph (A)— 
‘‘(I) no amount may be allocated 
under paragraph (1) by a housing 
credit agency of an undersubscribed 
State after December 31, 2028, and 
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‘‘(II) the dollar amount deter-
mined under subparagraph (A) with 
respect to any oversubscribed State 
after such date shall be increased by 
such State’s share of the reallocation 
amount. 
‘‘(ii) STATE SHARE.—For purposes of 
clause (i), an oversubscribed State’s share 
of the reallocation amount is the amount 
which bears the same ratio to the realloca-
tion amount as— 
‘‘(I) the population of such State, 
bears to 
‘‘(II) the population of all over-
subscribed States. 
‘‘(iii) DEFINITIONS.—For purposes of 
this subparagraph— 
‘‘(I) 
UNDERSUBSCRIBED 
STATE.—The term ‘undersubscribed 
State’ means any State that is not an 
oversubscribed State. 
‘‘(II) 
OVERSUBSCRIBED 
STATE.—The 
term 
‘oversubscribed 
State’ means any State the housing 
credit agency of which has allocated 
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all of the qualified conversion credit 
dollar amount which may be allocated 
by it before the date described in 
clause (i)(I). 
‘‘(III) 
REALLOCATION 
AMOUNT.—The 
term 
‘reallocation 
amount’ means the sum of the 
amounts described in subparagraph 
(A) which have not been allocated by 
undersubscribed States before the 
date described in clause (i)(I). 
‘‘(3) MANNER OF ALLOCATION.— 
‘‘(A) PLAN FOR ALLOCATION.— 
‘‘(i) IN
GENERAL.—Notwithstanding 
any other provision of this section, the 
qualified conversion credit dollar amount 
with respect to any building shall be zero 
unless such amount was allocated pursuant 
to a conversion credit allocation plan of the 
housing credit agency which is approved by 
the governmental unit (in accordance with 
rules similar to the rules of section 
147(f)(2) (other than subparagraph (B)(ii) 
thereof)) of which such agency is a part. 
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‘‘(ii) CONVERSION
CREDIT
ALLOCA-
TION
PLAN.—For purposes of this sub-
paragraph, the term ‘conversion credit allo-
cation plan’ means a plan— 
‘‘(I) which sets selection criteria 
for allocations, taking into account— 
‘‘(aa) whether the credit is 
needed to assure the financial 
feasibility of the conversion, 
‘‘(bb) the extent to which 
the conversion results in the cre-
ation of affordable housing, 
‘‘(cc) the extent to which the 
conversion results in the creation 
of housing near transportation, 
employment, and commercial op-
portunities, 
‘‘(dd) the extent to which 
the conversion will support small 
businesses and economic revital-
ization in the surrounding area, 
‘‘(ee) the degree of local gov-
ernment support for the conver-
sion, and 
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‘‘(ff) the readiness of the 
building for a qualified conver-
sion, and 
‘‘(II) which provides a procedure 
that the agency (or an agent or other 
private contractor of such agency) will 
follow in monitoring for noncompli-
ance with the requirements of sub-
section (d) and in notifying the Inter-
nal Revenue Service of such non-
compliance. 
‘‘(B) BINDING ALLOCATION AGREEMENTS; 
REPORTING.—In making allocations of qualified 
conversion credit dollar amounts, each housing 
credit agency shall— 
‘‘(i) enter into binding agreements 
with taxpayers for the allocation of quali-
fied conversion credit dollar amounts, 
which agreements shall specify the amount 
of qualified conversion credit dollar amount 
allocated to the building and the terms for 
any modifications or withdrawal of such al-
location, and 
‘‘(ii) report to the Secretary, at such 
time and in such manner as the Secretary 
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may require, the amount of allocations 
made with respect to any building. 
‘‘(C) STATE
EXTENDED
USE
REQUIRE-
MENTS PERMITTED PAST 30 YEARS.—For pur-
poses of this paragraph, a housing credit agen-
cy’s plan shall not fail to be treated as a con-
version credit allocation plan merely because it 
includes, and nothing in this section shall be 
construed to limit a binding allocation agree-
ment from including, affordability or rent re-
striction requirements with respect to the build-
ing that apply for a longer period than the 30- 
year period described in subsections (d) and 
(g)(1)(B). 
‘‘(4) DEFINITIONS AND OTHER RULES.— 
‘‘(A) HOUSING
CREDIT
AGENCY.—The 
term ‘housing credit agency’ means, with re-
spect to any State, the housing credit agency 
authorized under section 42(h)(8) or such other 
agency as authorized by the State for purposes 
of this section. 
‘‘(B) ECONOMICALLY DISTRESSED AREA.— 
The term ‘economically distressed area’ means 
any area which— 
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‘‘(i) has been designated as a qualified 
census tract under section 42(d)(5)(B)(ii) 
or as a difficult development area under 
section 42(d)(5)(B)(iii), or 
‘‘(ii) meets the requirement of section 
301(a)(3) of the Public Works and Eco-
nomic Development Act of 1965. 
‘‘(C) STATE.—The term ‘State’ includes a 
possession of the United States. 
‘‘(D) OTHER RULES.—Rules similar to the 
rules of subparagraphs (A) and (B) of section 
42(h)(7) shall apply for purposes of this sec-
tion. 
‘‘(f) PROGRESS EXPENDITURES.—If the Secretary 
determines, on the basis of architectural plans and speci-
fications that a qualified conversion is reasonably expected 
to exceed 2 years, rules similar to the rules of section 
47(d) shall apply with respect to such conversion for pur-
poses of this section. 
‘‘(g) SPECIAL RULES FOR CERTAIN AREAS.— 
‘‘(1) QUALIFIED
CENSUS
TRACTS
AND
DIF-
FICULT
DEVELOPMENT
AREAS.—In the case of a 
qualified affordable housing building— 
‘‘(A) which is located in any area which is 
designated as a qualified census tract under 
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section 42(d)(5)(B)(ii) or as a difficult develop-
ment area under section 42(d)(5)(B)(iii), and 
‘‘(B) with respect to which during 30-year 
period beginning on the date on which such 
building is placed in service by the taxpayer, 
not less than 20 percent of the residential units 
in the building are both rent-restricted and re-
served for individuals whose income is 60 per-
cent or less of the area median income, 
subsection (a) shall be applied by substituting ‘30 
percent’ for ‘20 percent’. 
‘‘(2) 
HISTORIC
PRESERVATION
IN
RURAL 
AREAS.— 
‘‘(A) IN GENERAL.—In the case of a quali-
fied affordable housing building which is in a 
rural area and is part of an historic preserva-
tion project, the taxpayer may elect to sub-
stitute ‘35 percent’ for ‘20 percent’ under sub-
section (a) with respect to such portion of the 
aggregate qualified conversion expenditures 
taken into account under such subsection as 
does not exceed $2,000,000. 
‘‘(B) DEFINITIONS.—For purposes of this 
paragraph— 
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‘‘(i) RURAL AREA.—The term ‘rural 
area’ shall have the meaning given such 
term under section 1393(a)(2). 
‘‘(ii) 
HISTORIC
PRESERVATION 
PROJECT.—The term ‘historic preservation 
project’ means a qualified conversion which 
involves the certified rehabilitation of a 
certified historic structure. Whether con-
version of a certified historic structure in-
volves certified rehabilitation shall be de-
termined under rules similar to the rules of 
section 47(c)(2)(C). 
‘‘(h) REGULATIONS.—The Secretary shall issue such 
regulations or other guidance as may be necessary or ap-
propriate to carry out the purposes of this section, includ-
ing regulations or other guidance— 
‘‘(1) providing for the recapture of the credit 
determined under subsection (a) if the qualified af-
fordable housing building ceases to be a qualified af-
fordable housing building during the 30-year period 
beginning on the date that such building is placed 
in service by the taxpayer, 
‘‘(2) detailing any certifications required from 
the taxpayer or any housing credit agency of a 
State, 
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‘‘(3) with respect to the application of sub-
section (b)(4), 
‘‘(4) with respect to information reporting on 
allocations of qualified conversion credit dollar 
amounts, 
‘‘(5) providing rules for making a determination 
as to whether an area is described in subsection 
(e)(4)(B), and 
‘‘(6) which encourages housing credit agencies 
to allocate, to the extent practicable, qualified con-
version credit dollar amounts to non-metropolitan 
counties within a State in proportion to the non- 
metropolitan population of the State, but only to the 
extent it is demonstrated within such non-metropoli-
tan counties that there are sufficient qualified con-
version expenditures to warrant such allocations.’’. 
(b) 
TRANSFERABILITY
OF
CREDIT.—Section 
6418(f)(1)(A) is amended by adding at the end the fol-
lowing new clause: 
‘‘(xiii) The affordable housing conver-
sion 
credit 
determined 
under 
section 
48F.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 46 is amended in paragraph (6) by 
striking ‘‘and’’ at the end, in paragraph (7) by strik-
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ing the period at the end and inserting ‘‘, and’’, and 
by adding at the end the following new paragraph: 
‘‘(8) the affordable housing conversion credit.’’. 
(2) Section 49(a)(1)(C) is amended by striking 
‘‘and’’ at the end of clause (vii), in clause (viii) by 
striking the period at the end and inserting ‘‘, and’’, 
and by adding at the end the follow new clause: 
‘‘(ix) the basis of any property which 
is being converted as part of a qualified 
conversion under section 48F.’’. 
(3) Section 50(a)(2)(E) is amended by striking 
‘‘or 48E(e)’’ and inserting ‘‘48E(e), or 48F(f)’’. 
(4) The table of sections for subpart E of part 
IV of subchapter A of chapter 1 is amended by add-
ing at the end the following new item: 
‘‘Sec. 48F. Affordable housing conversion credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to qualified affordable housing 
buildings (as defined in section 48F of the Internal Rev-
enue Code of 1986, as added by this section) placed in 
service after the date of the enactment of this Act. 
SEC. 12002. NEIGHBORHOOD HOMES CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 is amended by inserting after sec-
tion 42 the following new section: 
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‘‘SEC. 42A. NEIGHBORHOOD HOMES CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec-
tion 38, the neighborhood homes credit determined under 
this section for the taxable year is, with respect to each 
qualified residence sold by the taxpayer during such tax-
able year in an affordable sale, the lesser of— 
‘‘(1) an amount equal to— 
‘‘(A) the excess (if any) of— 
‘‘(i) the reasonable development costs 
paid or incurred by the taxpayer with re-
spect to such qualified residence, over 
‘‘(ii) the sale price of such qualified 
residence (reduced by any reasonable ex-
penses paid or incurred by the taxpayer in 
connection with such sale), or 
‘‘(B) if the neighborhood homes credit 
agency determines it is necessary to ensure fi-
nancial feasibility, an amount not to exceed 120 
percent of the amount under subparagraph (A), 
‘‘(2) 40 percent of the eligible development 
costs paid or incurred by the taxpayer with respect 
to such qualified residence, or 
‘‘(3) 32 percent of the national median sale 
price for new homes (as determined pursuant to the 
most recent census data available as of the date on 
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which the neighborhood homes credit agency makes 
an allocation for the qualified project). 
‘‘(b) DEVELOPMENT COSTS.—For purposes of this 
section— 
‘‘(1) REASONABLE DEVELOPMENT COSTS.— 
‘‘(A) IN GENERAL.—The term ‘reasonable 
development costs’ means amounts paid or in-
curred for the acquisition of buildings and land, 
construction, substantial rehabilitation, demoli-
tion of structures, or environmental remedi-
ation, to the extent that the neighborhood 
homes credit agency determines that such 
amounts meet the standards specified pursuant 
to subsection (f)(1)(D) (as of the date on which 
construction or substantial rehabilitation is sub-
stantially complete, as determined by such 
agency) and are necessary to ensure the finan-
cial feasibility of such qualified residence. 
‘‘(B) CONSIDERATIONS IN MAKING DETER-
MINATION.—In making the determination under 
subparagraph (A), the neighborhood homes 
credit agency shall consider— 
‘‘(i) the sources and uses of funds and 
the total financing, 
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‘‘(ii) any proceeds or receipts gen-
erated or expected to be generated by rea-
son of tax benefits, and 
‘‘(iii) the reasonableness of the devel-
opmental costs and fees. 
‘‘(2) ELIGIBLE
DEVELOPMENT
COSTS.—The 
term ‘eligible development costs’ means the amount 
which would be reasonable development costs if the 
amounts taken into account as paid or incurred for 
the acquisition of buildings and land did not exceed 
75 percent of such costs determined without regard 
to any amount paid or incurred for the acquisition 
of buildings and land. 
‘‘(3) 
SUBSTANTIAL
REHABILITATION.—The 
term ‘substantial rehabilitation’ means amounts paid 
or incurred for rehabilitation of a qualified residence 
if such amounts exceed the greater of— 
‘‘(A) $25,000, or 
‘‘(B) 20 percent of the amounts paid or in-
curred by the taxpayer for the acquisition of 
buildings and land with respect to such quali-
fied residence. 
‘‘(4) CONSTRUCTION
AND
REHABILITATION 
ONLY AFTER ALLOCATION TAKEN INTO ACCOUNT.— 
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‘‘(A) IN GENERAL.—The terms ‘reasonable 
development costs’ and ‘eligible development 
costs’ shall not include any amount paid or in-
curred before the date on which an allocation is 
made to the taxpayer under subsection (e) with 
respect to the qualified project of which the 
qualified residence is part unless such amount 
is paid or incurred for the acquisition of build-
ings or land. 
‘‘(B) LAND
AND
BUILDING
ACQUISITION 
COSTS.—Amounts paid or incurred for the ac-
quisition of buildings or land shall be included 
under paragraph (A) only if paid or incurred 
not more than 3 years before the date on which 
the allocation referred to in subparagraph (A) 
is made. If the taxpayer acquired any building 
or land from an entity (or any related party to 
such entity) that holds an ownership interest in 
the taxpayer, then such entity must also have 
acquired such property within such 3-year pe-
riod, and the acquisition cost included under 
subparagraph (A) with respect to the taxpayer 
shall not exceed the amount such entity paid or 
incurred to acquire such property. 
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‘‘(c) QUALIFIED RESIDENCE.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘qualified resi-
dence’ means a residence that— 
‘‘(A) is real property (constructed on-site 
or manufactured off-site) affixed on a perma-
nent foundation, 
‘‘(B) is— 
‘‘(i) a house which is comprised of 4 
or fewer residential units, 
‘‘(ii) a condominium unit, or 
‘‘(iii) a house or an apartment owned 
by a cooperative housing corporation (as 
defined in section 216(b)), 
‘‘(C) is part of a qualified project with re-
spect to which the neighborhood homes credit 
agency has made an allocation under subsection 
(e), and 
‘‘(D) is located in a qualified census tract 
(determined as of the date of such allocation). 
‘‘(2) QUALIFIED CENSUS TRACT.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
census tract’ means a census tract— 
‘‘(i) which— 
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‘‘(I) has a median family income 
which does not exceed 80 percent of 
the median family income for the ap-
plicable area, 
‘‘(II) has a poverty rate that is 
not less than 130 percent of the pov-
erty rate of the applicable area, and 
‘‘(III) has a median value for 
owner-occupied homes that does not 
exceed the median value for owner-oc-
cupied homes in the applicable area, 
‘‘(ii) which— 
‘‘(I) is located in a city which has 
a population of not less than 50,000 
and such city has a poverty rate that 
is not less than 150 percent of the 
poverty rate of the applicable area, 
‘‘(II) has a median family income 
which does not exceed the median 
family income for the applicable area, 
and 
‘‘(III) has a median value for 
owner-occupied homes that does not 
exceed 80 percent of the median value 
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for owner-occupied homes in the ap-
plicable area, 
‘‘(iii) which— 
‘‘(I) is located in a nonmetropoli-
tan county, 
‘‘(II) has a median family income 
which does not exceed the median 
family income for the applicable area, 
and 
‘‘(III) has been designated by a 
neighborhood homes credit agency 
under this clause, 
‘‘(iv) which is not otherwise a quali-
fied census tract and is located in a dis-
aster 
area 
(as 
defined 
in 
section 
7508A(d)(3)), but only with respect to 
credits allocated in any period during 
which the President of the United States 
has determined that such area warrants in-
dividual or individual and public assistance 
by the Federal Government under the Rob-
ert T. Stafford Disaster Relief and Emer-
gency Assistance Act, or 
‘‘(v) which is not otherwise a qualified 
census tract and is identified by the neigh-
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borhood homes credit agency, through 
methodologies detailed in the qualified allo-
cation plan, as having a shortage of afford-
able owner-occupied homes. 
‘‘(B) APPLICABLE AREA.—The term ‘appli-
cable area’ means— 
‘‘(i) in the case of a metropolitan cen-
sus tract, the metropolitan area in which 
such census tract is located, and 
‘‘(ii) in the case of a census tract 
other than a census tract described in 
clause (i), the State. 
‘‘(d) AFFORDABLE SALE.—For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—The term ‘affordable sale’ 
means a sale to a qualified homeowner of a qualified 
residence that the neighborhood homes credit agency 
certifies as meeting the standards promulgated 
under subsection (f)(1)(D) for a price that does not 
exceed— 
‘‘(A) in the case of any qualified residence 
not described in subparagraph (B), (C), or (D), 
the amount equal to the product of 4 multiplied 
by the median family income for the applicable 
area (as determined pursuant to the most re-
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cent census data available as of the date of the 
contract for such sale), 
‘‘(B) in the case of a house comprised of 
2 residential units, 125 percent of the amount 
described in subparagraph (A), 
‘‘(C) in the case of a house comprised of 
3 residential units, 150 percent of the amount 
described in subparagraph (A), or 
‘‘(D) in the case of a house comprised of 
4 residential units, 175 percent of the amount 
described in subparagraph (A). 
‘‘(2) 
QUALIFIED
HOMEOWNER.—The 
term 
‘qualified homeowner’ means, with respect to a 
qualified residence, an individual— 
‘‘(A) who owns and uses such qualified res-
idence as the principal residence of such indi-
vidual, and 
‘‘(B) whose family income (determined as 
of the date that a binding contract for the af-
fordable sale of such residence is entered into) 
is 140 percent or less of the median family in-
come for the applicable area in which the quali-
fied residence is located. 
‘‘(e) CREDIT CEILING AND ALLOCATIONS.— 
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‘‘(1) CREDIT LIMITED BASED ON ALLOCATIONS 
TO QUALIFIED PROJECTS.— 
‘‘(A) IN
GENERAL.—The credit allowed 
under subsection (a) to any taxpayer for any 
taxable year with respect to one or more quali-
fied residences which are part of the same 
qualified project shall not exceed the excess (if 
any) of— 
‘‘(i) the amount allocated by the 
neighborhood homes credit agency under 
this paragraph to such taxpayer with re-
spect to such qualified project, over 
‘‘(ii) the aggregate amount of credit 
allowed under subsection (a) to such tax-
payer with respect to qualified residences 
which are a part of such qualified project 
for all prior taxable years. 
‘‘(B) DEADLINE
FOR
COMPLETION.—No 
credit shall be allowed under subsection (a) 
with respect to any qualified residence unless 
the affordable sale of such residence is during 
the 5-year period beginning on the date of the 
allocation to the qualified project of which such 
residence is a part (or, in the case of a qualified 
residence to which subsection (i) applies, the re-
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habilitation of such residence is completed dur-
ing such 5-year period). 
‘‘(2) LIMITATIONS ON ALLOCATIONS TO QUALI-
FIED PROJECTS.— 
‘‘(A) ALLOCATIONS
LIMITED
BY
STATE 
NEIGHBORHOOD HOMES CREDIT CEILING.—The 
aggregate amount allocated to taxpayers with 
respect to qualified projects by the neighbor-
hood homes credit agency of any State for any 
calendar year shall not exceed the State neigh-
borhood homes credit amount of such State for 
such calendar year. 
‘‘(B) SET-ASIDE FOR CERTAIN PROJECTS 
INVOLVING QUALIFIED NONPROFIT ORGANIZA-
TIONS.—Rules similar to the rules of section 
42(h)(5) shall apply for purposes of this sec-
tion. 
‘‘(3) DETERMINATION
OF
STATE
NEIGHBOR-
HOOD HOMES CREDIT CEILING.— 
‘‘(A) IN GENERAL.—The State neighbor-
hood homes credit amount for a State for a cal-
endar year is an amount equal to the sum of— 
‘‘(i) the greater of— 
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‘‘(I) the product of $9, multiplied 
by the State population (determined 
in accordance with section 146(j)), or 
‘‘(II) $12,000,000, and 
‘‘(ii) any amount previously allocated 
to any taxpayer with respect to any quali-
fied project by the neighborhood homes 
credit agency of such State which can no 
longer be allocated to any qualified resi-
dence because the 5-year period described 
in paragraph (1)(B) expires during cal-
endar year. 
‘‘(B) 3-YEAR CARRYFORWARD OF UNUSED 
LIMITATION.—The State neighborhood homes 
credit amount for a State for a calendar year 
shall be increased by the excess (if any) of the 
State neighborhood homes credit amount for 
such State for the preceding calendar year over 
the aggregate amount allocated by the neigh-
borhood homes credit agency of such State dur-
ing such preceding calendar year. Any amount 
carried forward under the preceding sentence 
shall not be carried past the third calendar year 
after the calendar year in which such credit 
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amount originally arose, determined on a first- 
in, first-out basis. 
‘‘(f) RESPONSIBILITIES OF NEIGHBORHOOD HOMES 
CREDIT AGENCIES.— 
‘‘(1) IN GENERAL.—Notwithstanding subsection 
(e), the State neighborhood homes credit dollar 
amount shall be zero for a calendar year unless the 
neighborhood homes credit agency of the State— 
‘‘(A) allocates such amount pursuant to a 
qualified allocation plan of the neighborhood 
homes credit agency, 
‘‘(B) subject to paragraph (2), allocates 
not more than 20 percent of amounts allocated 
in the previous year (or for allocations made in 
the first allocation year under this section, not 
more than 20 percent of the neighborhood 
homes credit ceiling for such year) to projects 
with respect to qualified residences which— 
‘‘(i) are located in census tracts de-
scribed 
in 
subsection 
(c)(2)(A)(iii), 
(c)(2)(A)(iv), (i)(5), or 
‘‘(ii) are not located in a qualified 
census tract but meet the requirements of 
subsection (i)(8), 
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‘‘(C) subject to paragraph (2), in addition 
to any allocation described in subparagraph 
(B), allocates not more than 20 percent of 
amounts allocated in the previous year (or for 
allocations made in the first allocation year 
under this section, not more than 20 percent of 
the neighborhood homes credit ceiling for such 
year) to projects with respect to qualified resi-
dences which are located in any census tract de-
scribed in subsection (c)(2)(A)(v), except that, 
with respect to any qualified residence located 
within such census tract which is sold to a 
qualified homeowner, subsection (d)(2) shall be 
applied by substituting ‘120 percent’ for ‘140 
percent’, 
‘‘(D) promulgates standards with respect 
to reasonable qualified development costs and 
fees, 
‘‘(E) promulgates standards with respect 
to construction quality which are consistent 
with building codes or other standards required 
by the State or local jurisdiction in which the 
project is located, 
‘‘(F) in the case of any neighborhood 
homes credit agency which makes an allocation 
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to a qualified project which includes any quali-
fied residence to which subsection (i) applies, 
promulgates standards with respect to pro-
tecting the owners of such residences, including 
the capacity of such owners to pay rehabilita-
tion costs not covered by the credit provided by 
this section and providing for the disclosure to 
such owners of their rights and responsibilities 
with respect to the rehabilitation of such resi-
dences, 
‘‘(G) submits to the Secretary (at such 
time and in such manner as the Secretary may 
prescribe) an annual report specifying— 
‘‘(i) the amount of the neighborhood 
homes credits allocated to each qualified 
project for the previous year, 
‘‘(ii) with respect to each qualified 
residence completed in the preceding cal-
endar year— 
‘‘(I) the census tract in which 
such qualified residence is located, 
‘‘(II) with respect to the qualified 
project that includes such qualified 
residence, the year in which such 
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project received an allocation under 
this section, 
‘‘(III) whether such qualified res-
idence was new, substantially rehabili-
tated and sold to a qualified home-
owner, or substantially rehabilitated 
pursuant to subsection (i), 
‘‘(IV) the eligible development 
costs of such qualified residence, 
‘‘(V) the amount of the neighbor-
hood homes credit with respect to 
such qualified residence, 
‘‘(VI) the sales price of such 
qualified residence, if applicable, and 
‘‘(VII) the family income of the 
qualified homeowner (expressed as a 
percentage of the applicable area me-
dian family income for the location of 
the qualified residence), and 
‘‘(iii) such other information as the 
Secretary may require, 
‘‘(H) makes available to the general public 
a written explanation for any allocation of a 
neighborhood homes credit dollar amount which 
is not made in accordance with established pri-
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orities and selection criteria of the neighbor-
hood homes credit agency, and 
‘‘(I) provide educational outreach on appli-
cation and compliance requirements, including 
for small residential builders and remodelers. 
‘‘(2) ALTERNATIVE FOR CERTAIN STATES.— 
‘‘(A) IN
GENERAL.—In the case of any 
State which, for a calendar year, is an applica-
ble State (as defined in subparagraph (B)), in 
lieu of the requirements under subparagraphs 
(B) and (C) of paragraph (1), the neighborhood 
homes credit agency of the State may elect to 
allocate not more than 40 percent of amounts 
allocated in the previous year (or for allocations 
made in the first allocation year under this sec-
tion, not more than 40 percent of the neighbor-
hood homes credit ceiling for such year) to 
projects with respect to qualified residences 
which are described in either subparagraph (B) 
or (C) of paragraph (1). 
‘‘(B) APPLICABLE
STATE.—For purposes 
of this paragraph, the term ‘applicable State’ 
means a State which, for purposes of the deter-
mining 
the 
amount 
under 
subsection 
(e)(3)(A)(i) for the calendar year with respect 
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to such State, received the amount described in 
subclause (II) of such subsection. 
‘‘(3) QUALIFIED ALLOCATION PLAN.—For pur-
poses of this subsection, the term ‘qualified alloca-
tion plan’ means any plan which— 
‘‘(A) sets forth the selection criteria to be 
used to prioritize qualified projects for alloca-
tions of State neighborhood homes credit dollar 
amounts, including— 
‘‘(i) the need for new or substantially 
rehabilitated owner-occupied homes in the 
area addressed by the project, 
‘‘(ii) the expected contribution of the 
project to neighborhood stability and revi-
talization, including the impact on neigh-
borhood residents, 
‘‘(iii) the capability and prior perform-
ance of the project sponsor, and 
‘‘(iv) the likelihood the project will re-
sult in long-term homeownership, 
‘‘(B) has been made available for public 
comment, 
‘‘(C) as determined by the neighborhood 
homes credit agency, is likely to result in the 
selection of highly qualified applicants while 
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also minimizing, to the extent practicable, appli-
cation costs and barriers to entry for small resi-
dential builders and re-modelers, and 
‘‘(D) provides a procedure that the neigh-
borhood homes credit agency (or any agent or 
contractor of such agency) shall follow for pur-
poses of— 
‘‘(i) identifying noncompliance with 
any provisions of this section, and 
‘‘(ii) notifying the Internal Revenue 
Service of any such noncompliance of 
which the agency becomes aware. 
‘‘(g) REPAYMENT.— 
‘‘(1) IN GENERAL.— 
‘‘(A) SOLD DURING 5-YEAR PERIOD.—If a 
qualified residence is sold during the 5-year pe-
riod beginning immediately after the affordable 
sale of such qualified residence referred to in 
subsection (a), the seller shall transfer an 
amount equal to the repayment amount to the 
relevant neighborhood homes credit agency. 
‘‘(B) USE OF REPAYMENTS.—A neighbor-
hood homes credit agency shall use any amount 
received pursuant to subparagraph (A) only for 
purposes of qualified projects. 
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‘‘(2) REPAYMENT AMOUNT.—For purposes of 
paragraph (1)(A)— 
‘‘(A) 
IN
GENERAL.—The 
repayment 
amount is an amount equal to the applicable 
percentage of the gain from the sale to which 
the repayment relates. 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of subparagraph (A), the applicable 
percentage is 50 percent, reduced by 10 per-
centage points for each year of the 5-year pe-
riod referred to in paragraph (1)(A) which ends 
before the date of such sale. 
‘‘(3) LIEN
FOR
REPAYMENT
AMOUNT.—A 
neighborhood homes credit agency receiving an allo-
cation under this section shall place a lien on each 
qualified residence that is built or rehabilitated as 
part of a qualified project for an amount such agen-
cy deems necessary to ensure potential repayment 
pursuant to paragraph (1)(A). 
‘‘(4) WAIVER.— 
‘‘(A) IN
GENERAL.—The neighborhood 
homes credit agency may waive the repayment 
required under paragraph (1)(A) if the agency 
determines that making a repayment would 
constitute a hardship to the seller. 
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‘‘(B) HARDSHIP.—For purposes of sub-
paragraph (A), with respect to the seller, a 
hardship may include— 
‘‘(i) divorce, 
‘‘(ii) disability, 
‘‘(iii) illness, or 
‘‘(iv) any other hardship identified by 
the neighborhood homes credit agency for 
purposes of this paragraph. 
‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
‘‘(1) NEIGHBORHOOD
HOMES
CREDIT
AGEN-
CY.—The term ‘neighborhood homes credit agency’ 
means the agency designated by the governor of a 
State as the neighborhood homes credit agency of 
the State. 
‘‘(2) QUALIFIED PROJECT.—The term ‘qualified 
project’ means a project that a neighborhood homes 
credit agency certifies will build or substantially re-
habilitate one or more qualified residences. 
‘‘(3) DETERMINATIONS OF FAMILY INCOME.— 
Rules similar to the rules of section 143(f)(2) shall 
apply for purposes of this section. 
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‘‘(4) POSSESSIONS TREATED AS STATES.—The 
term ‘State’ includes the District of Columbia and 
the possessions of the United States. 
‘‘(5) SPECIAL RULES RELATED TO CONDOMIN-
IUMS AND COOPERATIVE HOUSING CORPORATIONS.— 
‘‘(A) DETERMINATION OF DEVELOPMENT 
COSTS.—In the case of a qualified residence de-
scribed in clause (ii) or (iii) of subsection 
(c)(1)(A), the reasonable development costs and 
eligible development costs of such qualified resi-
dence shall be an amount equal to such costs, 
respectively, of the entire condominium or coop-
erative housing property in which such qualified 
residence is located, multiplied by a fraction— 
‘‘(i) the numerator of which is the 
total floor space of such qualified resi-
dence, and 
‘‘(ii) the denominator of which is the 
total floor space of all residences within 
such property. 
‘‘(B) TENANT-STOCKHOLDERS OF COOPER-
ATIVE
HOUSING
CORPORATIONS
TREATED
AS 
OWNERS.—In the case of a cooperative housing 
corporation (as such term is defined in section 
216(b)), a tenant-stockholder shall be treated 
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as owning the house or apartment which such 
person is entitled to occupy. 
‘‘(6) RELATED PARTY SALES NOT TREATED AS 
AFFORDABLE SALES.— 
‘‘(A) IN GENERAL.—A sale between related 
persons shall not be treated as an affordable 
sale. 
‘‘(B) RELATED
PERSONS.—For purposes 
of this paragraph, a person (in this subpara-
graph referred to as the ‘related person’) is re-
lated to any person if the related person bears 
a relationship to such person specified in sec-
tion 267(b) or 707(b)(1), or the related person 
and such person are engaged in trades or busi-
nesses under common control (within the mean-
ing of subsections (a) and (b) of section 52). 
For purposes of the preceding sentence, in ap-
plying section 267(b) or 707(b)(1), ‘10 percent’ 
shall be substituted for ‘50 percent’. 
‘‘(7) INFLATION ADJUSTMENT.— 
‘‘(A) IN GENERAL.—In the case of a cal-
endar year after 2026, the dollar amounts in 
subsections 
(b)(3)(A), 
(e)(3)(A)(i)(I), 
(e)(3)(A)(i)(II), and (i)(2)(C) shall each be in-
creased by an amount equal to— 
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‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such 
calendar year by substituting ‘calendar 
year 2025’ for ‘calendar year 2016’ in sub-
paragraph (A)(ii) thereof. 
‘‘(B) ROUNDING.— 
‘‘(i) In the case of the dollar amounts 
in subsections (b)(3)(A) and (i)(2)(C), any 
increase under paragraph (1) which is not 
a multiple of $1,000 shall be rounded to 
the nearest multiple of $1,000. 
‘‘(ii) In the case of the dollar amount 
in subsection (e)(3)(A)(i)(I), any increase 
under paragraph (1) which is not a mul-
tiple of $0.01 shall be rounded to the near-
est multiple of $0.01. 
‘‘(iii) In the case of the dollar amount 
in subsection (e)(3)(A)(i)(II), any increase 
under paragraph (1) which is not a mul-
tiple of $100,000 shall be rounded to the 
nearest multiple of $100,000. 
‘‘(8) REPORT.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
annually issue a report, to be made available to 
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the public, which contains the information sub-
mitted pursuant to subsection (f)(1)(G). 
‘‘(B) DE-IDENTIFICATION.—The Secretary 
shall ensure that any information made public 
pursuant to subparagraph (A) excludes any in-
formation that would allow for the identification 
of qualified homeowners. 
‘‘(9) LIST
OF
QUALIFIED
CENSUS
TRACTS.— 
The Secretary of Housing and Urban Development 
shall, for each year, make publicly available a list of 
qualified census tracts under— 
‘‘(A) on a combined basis, clauses (i) and 
(ii) of subsection (c)(2)(A), 
‘‘(B) clause (iii) of such subsection, and 
‘‘(C) subsection (i)(5)(A). 
‘‘(10) DENIAL OF DEDUCTIONS IF CONVERTED 
TO RENTAL HOUSING.—If, during the 5-year period 
beginning immediately after the affordable sale of a 
qualified residence referred to in subsection (a), an 
individual who owns a qualified residence (whether 
or not such individual was the purchaser in such af-
fordable sale) fails to use such qualified residence as 
such individual’s principal residence for any period 
of time, no deduction shall be allowed for expenses 
paid or incurred by such individual with respect to 
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renting, during such period of time, such qualified 
residence. 
‘‘(i) APPLICATION OF CREDIT WITH RESPECT TO 
OWNER-OCCUPIED REHABILITATIONS.— 
‘‘(1) IN GENERAL.—In the case of a qualified 
rehabilitation by the taxpayer of any qualified resi-
dence which is owned (as of the date that the writ-
ten binding contract referred to in paragraph (3) is 
entered into) by a specified homeowner, the rules of 
paragraphs (2) through (7) shall apply. 
‘‘(2) ALTERNATIVE CREDIT DETERMINATION.— 
In the case of any qualified residence described in 
paragraph (1), the neighborhood homes credit deter-
mined under subsection (a) with respect to such res-
idence shall (in lieu of any credit otherwise deter-
mined under subsection (a) with respect to such res-
idence) be allowed in the taxable year during which 
the qualified rehabilitation is completed (as deter-
mined by the neighborhood homes credit agency) 
and shall be equal to the least of— 
‘‘(A) the excess (if any) of— 
‘‘(i) the amounts paid or incurred by 
the taxpayer for the qualified rehabilitation 
of the qualified residence to the extent that 
such amounts are certified by the neigh-
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borhood homes credit agency (at the time 
of the completion of such rehabilitation) as 
meeting the standards specified pursuant 
to subsection (f)(1)(D), over 
‘‘(ii) any amounts paid to such tax-
payer for such rehabilitation, 
‘‘(B) 50 percent of the amounts described 
in subparagraph (A)(i), or 
‘‘(C) $50,000. 
‘‘(3) QUALIFIED REHABILITATION.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘qualified rehabilitation’ 
means a rehabilitation or reconstruction per-
formed pursuant to a written binding contract 
between the taxpayer and the specified home-
owner if the amount paid or incurred by the 
taxpayer in the performance of such rehabilita-
tion or reconstruction exceeds the dollar 
amount in effect under subsection (b)(3)(A). 
‘‘(B) APPLICATION OF LIMITATION TO EX-
PENSES
PAID
OR
INCURRED
AFTER
ALLOCA-
TION.—A rule similar to the rule of section 
(b)(4) shall apply for purposes of this sub-
section. 
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‘‘(4) SPECIFIED
HOMEOWNER.—For purposes 
of this subsection, the term ‘specified homeowner’ 
means, with respect to a qualified residence, an indi-
vidual— 
‘‘(A) who owns and uses such qualified res-
idence as the principal residence of such indi-
vidual as of the date that the written binding 
contract referred to in paragraph (3) is entered 
into, and 
‘‘(B) whose family income (determined as 
of such date) does not exceed the median family 
income for the applicable area (with respect to 
the census tract in which the qualified residence 
is located). 
‘‘(5) ADDITIONAL CENSUS TRACTS IN WHICH 
OWNER-OCCUPIED RESIDENCES MAY BE LOCATED.— 
In the case of any qualified residence described in 
paragraph (1), the term ‘qualified census tract’ in-
cludes any census tract which— 
‘‘(A) meets the requirements of subsection 
(c)(2)(A)(i) without regard to subclause (III) 
thereof, and 
‘‘(B) is designated by the neighborhood 
homes credit agency for purposes of this para-
graph. 
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100 
‘‘(6) MODIFICATION OF REPAYMENT REQUIRE-
MENT.—In the case of any qualified residence de-
scribed in paragraph (1), subsection (g) shall be ap-
plied by beginning the 5-year period otherwise de-
scribed therein on the date on which the qualified 
homeowner acquired such residence. 
‘‘(7) RELATED PARTIES.—Paragraph (1) shall 
not apply if the taxpayer is the owner of the quali-
fied residence described in paragraph (1) or is re-
lated (within the meaning of subsection (h)(6)(B)) 
to such owner. 
‘‘(8) PYRRHOTITE REMEDIATION.—The require-
ment of subsection (c)(1)(D) shall not apply to a 
qualified rehabilitation under this subsection of a 
qualified residence that is documented by an engi-
neer’s report and core testing to have a foundation 
that is adversely impacted by pyrrhotite or other 
iron sulfide minerals. 
‘‘(j) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section, including regula-
tions that prevent avoidance of the rules, and abuse of 
the purposes, of this section.’’. 
(b) CREDIT ALLOWED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) is amended by striking 
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101 
‘‘plus’’ at the end of paragraph (40), by striking the period 
at the end of paragraph (41) and inserting ‘‘, plus’’, and 
by adding at the end the following new paragraph: 
‘‘(42) the neighborhood homes credit deter-
mined under section 42A(a).’’. 
(c) CREDIT ALLOWED AGAINST ALTERNATIVE MIN-
IMUM TAX.—Section 38(c)(4)(B) is amended by redesig-
nating clauses (iv) through (xii) as clauses (v) through 
(xiii), respectively, and by inserting after clause (iii) the 
following new clause: 
‘‘(iv) the credit determined under sec-
tion 42A,’’. 
(d) BASIS ADJUSTMENTS.— 
(1) ENERGY EFFICIENT HOME IMPROVEMENT 
CREDIT.—Section 25C(g) is amended by adding 
after the first sentence the following new sentence: 
‘‘This subsection shall not apply for purposes of de-
termining the eligible development costs or adjusted 
basis of any building under section 42A.’’. 
(2) RESIDENTIAL
CLEAN
ENERGY
CREDIT.— 
Section 25D(f) is amended by adding after the first 
sentence the following new sentence: ‘‘This sub-
section shall not apply for purposes of determining 
the eligible development costs or adjusted basis of 
any building under section 42A.’’. 
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102 
(3) NEW ENERGY EFFICIENT HOME CREDIT.— 
Section 45L(e) is amended by inserting ‘‘or for pur-
poses of determining the eligible development costs 
or adjusted basis of any building under section 42A’’ 
after ‘‘section 42’’. 
(e) EXCLUSION FROM GROSS INCOME.—Part III of 
subchapter B of chapter 1 is amended by inserting before 
section 140 the following new section: 
‘‘SEC. 139M. STATE ENERGY SUBSIDIES FOR QUALIFIED 
RESIDENCES. 
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in-
come shall not include the value of any subsidy provided 
to a taxpayer (whether directly or indirectly) by any State 
energy office (as defined in section 124(a) of the Energy 
Policy Act of 2005 (42 U.S.C. 15821(a))) for purposes 
of any energy improvements made to a qualified residence 
(as defined in section 42A(c)(1)).’’. 
(f) CONFORMING AMENDMENTS.— 
(1) Subsections (i)(3)(C), (i)(6)(B)(i), and 
(k)(1) of section 469 are each amended by inserting 
‘‘or 42A’’ after ‘‘section 42’’. 
(2) The table of sections for subpart D of part 
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 42 the fol-
lowing new item: 
‘‘Sec. 42A. Neighborhood homes credit.’’. 
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103 
(3) The table of sections for part III of sub-
chapter B of chapter 1 is amended by inserting be-
fore the item relating to section 140 the following 
new item: 
‘‘Sec. 139M. State energy subsidies for qualified residences.’’. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2025. 
SEC. 12003. MODIFICATION OF HISTORIC REHABILITATION 
TAX CREDIT. 
(a) FULL CREDIT ALLOWED IN THE YEAR BUILDING 
PLACED IN SERVICE.—Section 47(a) is amended to read 
as follows: 
‘‘(a) GENERAL RULE.—For purposes of section 46, 
the rehabilitation credit for any taxable year is 20 percent 
of the qualified rehabilitation expenditures.’’. 
(b) INCREASE IN THE REHABILITATION CREDIT FOR 
CERTAIN SMALL PROJECTS.—Section 47 is amended by 
adding at the end the following new subsection: 
‘‘(e) SPECIAL RULE REGARDING CERTAIN SMALL 
PROJECTS.— 
‘‘(1) IN GENERAL.—In the case of any quali-
fying small project with respect to which there is an 
election in effect under this subsection— 
‘‘(A) the total qualified rehabilitation ex-
penditures taken into account for purposes of 
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104 
this section with respect to the rehabilitation 
shall not exceed $3,750,000, 
‘‘(B) subsection (a) shall be applied by 
substituting ‘30 percent’ for ‘20 percent’, and 
‘‘(C) subject to paragraph (4) and such 
regulations or other guidance as the Secretary 
may provide, the taxpayer may transfer all or 
a portion of the credit determined under this 
section with respect to such qualifying small 
project. 
‘‘(2) QUALIFYING SMALL PROJECT.—For pur-
poses of this subsection, the term ‘qualifying small 
project’ means any qualified rehabilitated building or 
portion thereof if— 
‘‘(A) such building is placed in service 
after the date of the enactment of this sub-
section, and 
‘‘(B) no credit was allowed under this sec-
tion (other than a credits allowed by reason of 
subsection (d)) for either of the two imme-
diately preceding taxable years with respect to 
such building. 
‘‘(3) SPECIAL RULE FOR RURAL PROJECTS.— 
‘‘(A) IN
GENERAL.—In the case of any 
qualifying small project in a rural area, para-
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105 
graph (1)(A) shall be applied by substituting 
‘$5,000,000’ for ‘$3,750,000’. 
‘‘(B) RURAL AREA.—For purposes of this 
subparagraph, the term ‘rural area’ means any 
area other than— 
‘‘(i) a city or town that has a popu-
lation of greater than 50,000 inhabitants, 
or 
‘‘(ii) the urbanized area contiguous 
and adjacent to a city or town described in 
clause (i), as defined by the Bureau of the 
Census based on the latest decennial cen-
sus of the United States. 
‘‘(4) TRANSFER OF CREDIT FOR QUALIFYING 
SMALL PROJECTS.— 
‘‘(A) CERTIFICATION.— 
‘‘(i) IN GENERAL.—A transfer under 
paragraph (1)(C) shall be accompanied by 
a certificate which includes— 
‘‘(I) the certification for the cer-
tified historic structure referred to in 
subsection (c)(3), 
‘‘(II) the taxpayer’s name, ad-
dress, tax identification number, date 
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106 
of project completion, and the amount 
of credit being transferred, 
‘‘(III) the transferee’s name, ad-
dress, tax identification number, and 
the amount of credit being trans-
ferred, and 
‘‘(IV) such other information as 
may be required by the Secretary. 
‘‘(ii) TRANSFERABILITY OF CERTIFI-
CATE.—A certificate issued under this sub-
section to a taxpayer shall be transferable 
to any other taxpayer. 
‘‘(B) TAX TREATMENT RELATING TO CER-
TIFICATE.— 
‘‘(i) 
DISALLOWANCE
OF
DEDUC-
TION.—No deduction shall be allowed for 
the amount of consideration paid or in-
curred by the transferee. 
‘‘(ii) ALLOWANCE
OF
CREDIT.—The 
amount of credit transferred under para-
graph (1)(C)— 
‘‘(I) shall not be allowed to the 
transferor for any taxable year, and 
‘‘(II) shall be allowable to the 
transferee as a credit determined 
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under this section for the taxable year 
of the transferee in which such credit 
is transferred. 
‘‘(iii) 
EXCLUSION.—Gross 
income 
shall not include any amount received in 
connection with the transfer of the certifi-
cate. 
‘‘(C) RECAPTURE
AND
OTHER
SPECIAL 
RULES.—The taxpayer who claims a credit de-
termined under this section by reason of a 
transfer of an amount of credit under para-
graph (1)(A) with respect to an applicable rural 
project shall be treated as the taxpayer with re-
spect to such project for purposes of section 50. 
‘‘(D) 
INFORMATION
REPORTING.—The 
transferor and the transferee shall each make 
such reports regarding the transfer of an 
amount of credit under paragraph (1)(C) and 
containing such information as the Secretary 
may require. The reports required by this sub-
paragraph shall be filed at such time and in 
such manner as may be required by the Sec-
retary. 
‘‘(E) REGULATIONS.—The Secretary shall 
prescribe regulations or other guidance to carry 
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out paragraph (1)(C) and this paragraph in a 
manner which is consistent with applicable re-
quirements with respect to transfer of credits 
under section 6418. 
‘‘(5) ELECTION.—An election under this sub-
section shall be made at such time and in such man-
ner as the Secretary may by regulations prescribe.’’. 
(c) INCREASING THE TYPE OF BUILDINGS ELIGIBLE 
FOR
REHABILITATION.—Section 
47(c)(1)(B)(i)(I) 
is 
amended by inserting ‘‘50 percent of’’ before ‘‘the ad-
justed basis’’. 
(d) ELIMINATION
OF
REHABILITATION
CREDIT 
BASIS ADJUSTMENT.— 
(1) IN GENERAL.—Section 50(c) is amended by 
adding at the end the following new paragraph: 
‘‘(6) EXCEPTION FOR REHABILITATION CRED-
IT.—In the case of the rehabilitation credit, para-
graph (1) shall not apply.’’. 
(2) TREATMENT IN CASE OF CREDIT ALLOWED 
TO LESSEE.—Section 50(d) is amended by adding at 
the end the following: ‘‘In the case of the rehabilita-
tion credit, paragraph (5)(B) of the section 48(d) re-
ferred to in paragraph (5) of this subsection shall 
not apply.’’. 
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(e) MODIFICATIONS REGARDING CERTAIN TAX-EX-
EMPT USE PROPERTY.—Section 47(c)(2)(B)(v) is amend-
ed by adding at the end the following new subclause: 
‘‘(III) 
DISQUALIFIED
LEASE 
RULES TO APPLY ONLY IN CASE OF 
GOVERNMENT ENTITY.—For purposes 
of subclause (I), except in the case of 
a tax-exempt entity described in sec-
tion 168(h)(2)(A)(i), the determina-
tion of whether property is tax-exempt 
use property shall be made under sec-
tion 168(h) without regard to whether 
the property is leased in a disqualified 
lease 
(as 
defined 
in 
section 
168(h)(1)(B)(ii)).’’. 
(f) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to property placed in service 
after the date of the enactment of this Act. 
(2) FULL
CREDIT
ALLOWED
IN
THE
YEAR 
BUILDING
PLACED
IN
SERVICE.—The amendment 
made by subsection (a) shall apply to property 
placed in service after December 31, 2025. 
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SEC. 12004. INCREASE OF EXCLUSION OF GAIN FROM SALE 
OF PRINCIPAL RESIDENCE. 
(a) IN GENERAL.—Section 121(b) is amended— 
(1) by striking ‘‘$250,000’’ and inserting 
‘‘$500,000’’ each place it appears, 
(2) by striking ‘‘500,000’’ and inserting 
‘‘$1,000,000’’ each place it appears, 
(3) in paragraph (2)(A), in the heading, by 
striking ‘‘$500,000’’ and inserting ‘‘$1,000,000’’, and 
(4) by adding at the end the following new 
paragraph: 
‘‘(5) ADJUSTMENT
FOR
INFLATION.—In the 
case of a taxable year beginning after 2026, the 
$500,000 and $1,000,000 amounts in paragraphs 
(1), (2), and (4) shall be increased by an amount 
equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, deter-
mined by substituting ‘2025’ for ‘2016’ in sub-
paragraph (A)(ii) thereof. 
If any increase under this clause is not a multiple 
of $100, such increase shall be rounded to the next 
lowest multiple of $100.’’. 
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(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales and exchanges after De-
cember 31, 2025. 
SEC. 12005. MIDDLE-INCOME HOUSING TAX CREDIT. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 is amended by inserting after sec-
tion 42 the following new section: 
‘‘SEC. 42A. MIDDLE-INCOME HOUSING CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, the 
amount of the middle-income housing credit determined 
under this section for any taxable year in the credit period 
shall be an amount equal to— 
‘‘(1) the applicable percentage, of 
‘‘(2) the qualified basis of each qualified mid-
dle-income building. 
‘‘(b) APPLICABLE PERCENTAGE.— 
‘‘(1) DETERMINATION
OF
APPLICABLE
PER-
CENTAGE.—For purposes of this section— 
‘‘(A) IN GENERAL.—The term ‘applicable 
percentage’ means, with respect to any building, 
the appropriate percentage prescribed by the 
Secretary for the earlier of— 
‘‘(i) the month in which such building 
is placed in service, or 
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‘‘(ii) at the election of the taxpayer, 
the month in which the taxpayer and the 
housing credit agency enter into an agree-
ment with respect to such building (which 
is binding on such agency, the taxpayer, 
and all successors in interest) as to the 
housing credit dollar amount to be allo-
cated to such building. 
A month may be elected under clause (ii) only 
if the election is made not later than the 5th 
day after the close of such month. Such an elec-
tion, once made, shall be irrevocable. 
‘‘(B) METHOD OF PRESCRIBING PERCENT-
AGES.—The percentages prescribed by the Sec-
retary for any month shall be percentages which 
will yield over a 15-year period amounts of 
credit under subsection (a) which have a 
present value equal to— 
‘‘(i) 50 percent of the qualified basis 
of a new building which is not Federally 
subsidized for the taxable year, and 
‘‘(ii) 20 percent of the qualified basis 
of a building not described in clause (i). 
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‘‘(C) METHOD
OF
DISCOUNTING.—The 
present value under subparagraph (B) shall be 
determined— 
‘‘(i) as of the last day of the 1st year 
of the 15-year period referred to in sub-
paragraph (B), 
‘‘(ii) by using a discount rate equal to 
72 percent of the average of the annual 
Federal mid-term rate and the annual 
Federal long-term rate applicable under 
section 1274(d)(1) to the month applicable 
under clause (i) or (ii) of subparagraph 
(A) and compounded annually, and 
‘‘(iii) by assuming that the credit al-
lowable under this section for any year is 
received on the last day of such year. 
‘‘(2) MINIMUM CREDIT RATE.— 
‘‘(A) IN
GENERAL.—The applicable per-
centage for any building which is not Federally 
subsidized for the taxable year shall not be less 
than 5 percent. 
‘‘(B) MINIMUM CREDIT RATE FOR FEDER-
ALLY SUBSIDIZED BUILDINGS.—In the case of 
any building to which subparagraph (A) does 
not apply, except as provided in paragraph (3), 
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the applicable percentage shall not be less than 
2 percent. 
‘‘(3) EXCEPTION
FOR
CERTAIN
FEDERALLY 
SUBSIDIZED BUILDINGS.—In the case of any build-
ing to which paragraph (2)(A) does not apply, the 
applicable percentage is zero unless— 
‘‘(A) a credit is allowed under section 42 
with respect to such building for the taxable 
year, and 
‘‘(B) such building is financed by tax-ex-
empt bonds as described in section 42(h)(4). 
‘‘(4) CROSS REFERENCES.— 
‘‘(A) For treatment of certain rehabilita-
tion expenditures as separate new buildings, see 
subsection (e). 
‘‘(B) For determination of applicable per-
centage for increases in qualified basis after the 
1st year of the credit period, see subsection 
(f)(3). 
‘‘(C) For authority of housing credit agen-
cy to limit applicable percentage and qualified 
basis which may be taken into account under 
this section with respect to any building, see 
subsection (h)(6). 
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‘‘(c) QUALIFIED BASIS; QUALIFIED MIDDLE-INCOME 
BUILDING.—For purposes of this section— 
‘‘(1) QUALIFIED BASIS.— 
‘‘(A) 
DETERMINATION.—The 
qualified 
basis of any qualified middle-income building 
for any taxable year is an amount equal to— 
‘‘(i) the applicable fraction (deter-
mined as of the close of such taxable year) 
of 
‘‘(ii) the eligible basis of such building 
(determined under subsection (d)). 
‘‘(B) APPLICABLE
FRACTION.—For pur-
poses of subparagraph (A), the term ‘applicable 
fraction’ means the smaller of the unit fraction 
or the floor space fraction. 
‘‘(C) UNIT
FRACTION.—For purposes of 
subparagraph (B), the term ‘unit fraction’ 
means the fraction— 
‘‘(i) the numerator of which is the 
number of middle-income units in the 
building, and 
‘‘(ii) the denominator of which is the 
number of residential rental units (whether 
or not occupied) in such building. 
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‘‘(D) FLOOR SPACE FRACTION.—For pur-
poses of subparagraph (B), the term ‘floor 
space fraction’ means the fraction— 
‘‘(i) the numerator of which is the 
total floor space of the middle-income units 
in such building, and 
‘‘(ii) the denominator of which is the 
total floor space of the residential rental 
units (whether or not occupied) in such 
building. 
‘‘(2) QUALIFIED MIDDLE-INCOME BUILDING.— 
The term ‘qualified middle-income building’ means 
any building which is part of a qualified middle-in-
come housing project at all times during the pe-
riod— 
‘‘(A) beginning on the 1st day in the credit 
period on which such building is part of such a 
project, and 
‘‘(B) ending on the last day of the credit 
period with respect to such building. 
‘‘(d) ELIGIBLE BASIS.—For purposes of this sec-
tion— 
‘‘(1) NEW BUILDINGS.—The eligible basis of a 
new building is its adjusted basis as of the close of 
the 1st taxable year of the credit period. 
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‘‘(2) EXISTING BUILDINGS.— 
‘‘(A) IN GENERAL.—The eligible basis of 
an existing building is— 
‘‘(i) in the case of a building which 
meets the requirements of subparagraph 
(B), its adjusted basis as of the close of 
the 1st taxable year of the credit period, 
and 
‘‘(ii) zero in any other case. 
‘‘(B) REQUIREMENTS.—A building meets 
the requirements of this subparagraph if— 
‘‘(i) the building is acquired by pur-
chase (as defined in section 179(d)(2)), 
‘‘(ii) there is a period of at least 10 
years between the date of its acquisition by 
the taxpayer and the date the building was 
last placed in service, 
‘‘(iii) the building was not previously 
placed in service by the taxpayer or by any 
person who was a related person with re-
spect to the taxpayer as of the time pre-
viously placed in service, and 
‘‘(iv) except as provided in subsection 
(f)(5), a credit is allowable under sub-
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tion 1014(a) (relating to property ac-
quired from a decedent), 
‘‘(III) by any governmental unit 
or qualified nonprofit organization if 
the requirements of subparagraph 
(B)(ii) are met with respect to the 
placement in service by such unit or 
organization and all the income from 
such property is exempt from Federal 
income taxation, 
‘‘(IV) by any person who ac-
quired such building by foreclosure 
(or by instrument in lieu of fore-
closure) of any purchase-money secu-
rity interest held by such person if the 
requirements of subparagraph (B)(ii) 
are met with respect to the placement 
in service by such person and such 
building is resold within 12 months 
after the date such building is placed 
in service by such person after such 
foreclosure, or 
‘‘(V) of a single-family residence 
by any individual who owned and used 
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such residence for no other purpose 
than as his principal residence. 
‘‘(ii) RELATED
PERSON.—For pur-
poses of subparagraph (B)(iii), a person 
(hereinafter in this subclause referred to as 
the ‘related person’) is related to any per-
son if the related person bears a relation-
ship to such person specified in section 
267(b) or 707(b)(1), or the related person 
and such person are engaged in trades or 
businesses under common control (within 
the meaning of subsections (a) and (b) of 
section 52). 
‘‘(3) SPECIAL
RULES
RELATING
TO
DETER-
MINATION OF ADJUSTED BASIS.—For purposes of 
this subsection— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the adjusted basis of any 
building shall be determined without regard to 
the adjusted basis of any property which is not 
residential rental property. 
‘‘(B) BASIS
OF
PROPERTY
IN
COMMON 
AREAS, ETC., INCLUDED.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the adjusted basis of 
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any building shall be determined by taking 
into account the adjusted basis of property 
(of a character subject to the allowance for 
depreciation) used in common areas or 
provided as comparable amenities to all 
residential rental units in such building. 
‘‘(ii) SPECIAL RULE.—In the case of 
any building for which the low-income 
housing tax credit is allowable under sec-
tion 42, the adjusted basis of the building 
under this section shall be determined 
without regard to property used in com-
mon areas or provided as comparable 
amenities to all residential rental units in 
such building. 
‘‘(C) NO
REDUCTION
FOR
DEPRECIA-
TION.—The adjusted basis of any building shall 
be determined without regard to paragraphs (2) 
and (3) of section 1016(a). 
‘‘(4) SPECIAL RULES FOR DETERMINING ELIGI-
BLE BASIS.— 
‘‘(A) FEDERAL GRANTS NOT TAKEN INTO 
ACCOUNT IN DETERMINING ELIGIBLE BASIS.— 
The eligible basis of a building shall not include 
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any costs financed with the proceeds of a Fed-
erally funded grant. 
‘‘(B) INCREASE IN CREDIT FOR BUILDINGS 
IN HIGH COST AREAS.— 
‘‘(i) IN GENERAL.—In the case of any 
building located in a difficult development 
area which is designated for purposes of 
this subparagraph— 
‘‘(I) in the case of a new build-
ing, the eligible basis of such building 
shall be 130 percent of such basis de-
termined without regard to this sub-
paragraph, and 
‘‘(II) in the case of an existing 
building, the rehabilitation expendi-
tures taken into account under sub-
section (e) shall be 130 percent of 
such expenditures determined without 
regard to this subparagraph. 
‘‘(ii) LIMITATION.—Clause (i) shall 
not apply to any building if paragraph (1) 
of subsection (h) does not apply to any 
portion of the eligible basis of such build-
ing by reason of paragraph (9) of such 
subsection. 
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‘‘(iii) 
DIFFICULT
DEVELOPMENT 
AREAS.— 
‘‘(I) IN
GENERAL.—The term 
‘difficult development areas’ means 
any area designated by the Secretary 
of Housing and Urban Development 
as an area which has high construc-
tion, land, or utility costs relative to 
area median gross income, any rural 
area, and any Indian area. 
‘‘(II) RURAL
AREA.—For pur-
poses of subclause (I), the term ‘rural 
area’ means any non-metropolitan 
area, or any rural area as defined by 
section 520 of the Housing Act of 
1949, which is identified by the quali-
fied allocation plan under subsection 
(m)(1)(B). 
‘‘(III) INDIAN
AREA.—For pur-
poses of subclause (I), the term ‘In-
dian area’ means any Indian area (as 
defined in section 4(11) of the Native 
American Housing Assistance and 
Self Determination Act of 1996 (25 
U.S.C. 4103(11))). 
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‘‘(IV) SPECIAL RULE FOR BUILD-
INGS IN INDIAN AREAS.—In the case 
of an area which is a difficult develop-
ment area solely because it is an In-
dian area, a building shall not be 
treated as located in such area unless 
such building is assisted or financed 
under the Native American Housing 
Assistance and Self Determination 
Act of 1996 (25 U.S.C. 4101 et seq.) 
or the project sponsor is an Indian 
tribe 
(as 
defined 
in 
section 
45A(c)(6)), a tribally designated hous-
ing entity (as defined in section 4(22) 
of such Act (25 U.S.C. 4103(22))), or 
wholly owned or controlled by such an 
Indian tribe or tribally designated 
housing entity. 
‘‘(V) LIMIT
ON
AREAS
DES-
IGNATED.—The portions of metropoli-
tan statistical areas which may be 
designated for purposes of this sub-
paragraph shall not exceed an aggre-
gate area having 20 percent of the 
population of such metropolitan sta-
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125 
tistical areas. A comparable rule shall 
apply to nonmetropolitan areas. 
‘‘(iv) SPECIAL
RULES
AND
DEFINI-
TIONS.—For purposes of this subpara-
graph— 
‘‘(I) population shall be deter-
mined on the basis of the most recent 
decennial census for which data are 
available, 
‘‘(II) area median gross income 
shall be determined in accordance 
with subsection (g)(4), 
‘‘(III) the term ‘metropolitan sta-
tistical area’ has the same meaning as 
when used in section 143(k)(2)(B), 
and 
‘‘(IV) the term ‘nonmetropolitan 
area’ means any county (or portion 
thereof) which is not within a metro-
politan statistical area. 
‘‘(v) 
BUILDINGS
DESIGNATED
BY 
STATE
HOUSING
CREDIT
AGENCY.—Any 
building which is designated by the State 
housing credit agency as requiring the in-
crease in credit under this subparagraph in 
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order for such building to be financially 
feasible as part of a qualified middle-in-
come housing project shall be treated for 
purposes of this subparagraph as located 
in a difficult development area which is 
designated for purposes of this subpara-
graph. 
‘‘(5) CREDIT ALLOWABLE FOR CERTAIN BUILD-
INGS ACQUIRED DURING 10-YEAR PERIOD.—On ap-
plication by the taxpayer, the Secretary may waive 
paragraph (2)(B)(ii) with respect to any building ac-
quired from an insured depository institution in de-
fault (as defined in section 3 of the Federal Deposit 
Insurance Act) or from a receiver or conservator of 
such an institution. 
‘‘(6) ACQUISITION OF BUILDING BEFORE END 
OF PRIOR CREDIT PERIOD.— 
‘‘(A) IN
GENERAL.—Under regulations 
prescribed by the Secretary, in the case of a 
building described in subparagraph (B) (or in-
terest therein) which is acquired by the tax-
payer— 
‘‘(i) paragraph (2)(B) shall not apply, 
but 
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‘‘(ii) the credit allowable by reason of 
subsection (a) to the taxpayer for any pe-
riod after such acquisition shall be equal to 
the amount of credit which would have 
been allowable under subsection (a) for 
such period to the prior owner referred to 
in subparagraph (B) had such owner not 
disposed of the building. 
‘‘(B) 
DESCRIPTION
OF
BUILDING.—A 
building is described in this subparagraph if— 
‘‘(i) a credit was allowed by reason of 
subsection (a) to any prior owner of such 
building, and 
‘‘(ii) the taxpayer acquired such build-
ing before the end of the credit period for 
such building with respect to such prior 
owner (determined without regard to any 
disposition by such prior owner). 
‘‘(e) REHABILITATION EXPENDITURES TREATED AS 
SEPARATE NEW BUILDING.— 
‘‘(1) IN GENERAL.—Rehabilitation expenditures 
paid or incurred by the taxpayer with respect to any 
building shall be treated for purposes of this section 
as a separate new building. 
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128 
‘‘(2) REHABILITATION
EXPENDITURES.—For 
purposes of paragraph (1)— 
‘‘(A) IN GENERAL.—The term ‘rehabilita-
tion expenditures’ means amounts chargeable to 
capital account and incurred for property (or 
additions or improvements to property) of a 
character subject to the allowance for deprecia-
tion in connection with the rehabilitation of a 
building. 
‘‘(B) COST OF ACQUISITION, ETC., NOT IN-
CLUDED.—Such term does not include the cost 
of acquiring any building (or interest therein) 
or any amount not permitted to be taken into 
account under paragraph (3) of subsection (d). 
‘‘(C) CERTAIN
RELOCATION
COSTS.—In 
the case of a rehabilitation of a building to 
which section 280B does not apply, costs relat-
ing to the relocation of occupants, including— 
‘‘(i) amounts paid to occupants, 
‘‘(ii) amounts paid to third parties for 
services relating to such relocation, and 
‘‘(iii) amounts paid for temporary 
housing for occupants, 
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129 
shall be treated as chargeable to capital account 
and taken into account as rehabilitation ex-
penditures. 
‘‘(3) MINIMUM EXPENDITURES TO QUALIFY.— 
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
apply to rehabilitation expenditures with respect 
to any building only if— 
‘‘(i) the expenditures are allocable to 
1 or more middle-income units or substan-
tially benefit such units, and 
‘‘(ii) the amount of such expenditures 
during any 24-month period meets the re-
quirements of whichever of the following 
subclauses requires the greater amount of 
such expenditures: 
‘‘(I) The requirement of this sub-
clause is met if such amount is not 
less than 20 percent of the adjusted 
basis of the building (determined as of 
the 1st day of such period and with-
out regard to paragraphs (2) and (3) 
of section 1016(a)). 
‘‘(II) The requirement of this 
subclause is met if the qualified basis 
attributable to such amount, when di-
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130 
vided by the number of middle-income 
units in the building, is equal to or 
greater than the dollar amount in ef-
fect under section 42(e)(3)(A)(ii)(II) 
for the calendar year in which such 
expenditures are treated as placed in 
service under paragraph (4). 
‘‘(B) DATE OF DETERMINATION.—The de-
termination under subparagraph (A) shall be 
made as of the close of the 1st taxable year in 
the credit period with respect to such expendi-
tures. 
‘‘(4) SPECIAL RULES.—For purposes of apply-
ing this section with respect to expenditures which 
are treated as a separate building by reason of this 
subsection— 
‘‘(A) such expenditures shall be treated as 
placed in service at the close of the 24-month 
period referred to in paragraph (3)(A), and 
‘‘(B) the applicable fraction under sub-
section (c)(1) shall be the applicable fraction for 
the building (without regard to paragraph (1)) 
with respect to which the expenditures were in-
curred. 
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131 
Nothing in subsection (d)(2) shall prevent a credit 
from being allowed by reason of this subsection. 
‘‘(5) NO
DOUBLE
COUNTING.—Rehabilitation 
expenditures may, at the election of the taxpayer, be 
taken into account under this subsection or sub-
section (d)(2)(A)(i) but not under both such sub-
sections. 
‘‘(6) REGULATIONS
TO
APPLY
SUBSECTION 
WITH RESPECT TO GROUP OF UNITS IN BUILDING.— 
The Secretary may prescribe regulations, consistent 
with the purposes of this subsection, treating a 
group of units with respect to which rehabilitation 
expenditures are incurred as a separate new build-
ing. 
‘‘(f) DEFINITION AND SPECIAL RULES RELATING TO 
CREDIT PERIOD.— 
‘‘(1) CREDIT PERIOD DEFINED.—For purposes 
of this section, the term ‘credit period’ means, with 
respect to any building, the period of 15 taxable 
years beginning with— 
‘‘(A) the taxable year in which the building 
is placed in service, or 
‘‘(B) at the election of the taxpayer, the 
succeeding taxable year, 
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132 
but only if the building is a qualified middle-income 
building as of the close of the 1st year of such pe-
riod. The election under subparagraph (B), once 
made, shall be irrevocable. 
‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT 
PERIOD.— 
‘‘(A) IN GENERAL.—The credit allowable 
under subsection (a) with respect to any build-
ing for the 1st taxable year of the credit period 
shall be determined by substituting for the ap-
plicable fraction under subsection (c)(1) the 
fraction— 
‘‘(i) the numerator of which is the 
sum of the applicable fractions determined 
under subsection (c)(1) as of the close of 
each full month of such year during which 
such building was in service, and 
‘‘(ii) the denominator of which is 12. 
‘‘(B) DISALLOWED 1ST-YEAR CREDIT AL-
LOWED IN 16TH YEAR.—Any reduction by rea-
son of subparagraph (A) in the credit allowable 
(without regard to subparagraph (A)) for the 
1st taxable year of the credit period shall be al-
lowable under subsection (a) for the 1st taxable 
year following the credit period. 
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133 
‘‘(3) DETERMINATION
OF
APPLICABLE
PER-
CENTAGE WITH RESPECT TO INCREASES IN QUALI-
FIED BASIS AFTER 1ST YEAR OF CREDIT PERIOD.— 
‘‘(A) IN
GENERAL.—In the case of any 
building which was a qualified middle-income 
building as of the close of the 1st year of the 
credit period, if— 
‘‘(i) as of the close of any taxable year 
in the credit period (after the 1st year of 
such period) the qualified basis of such 
building, exceeds 
‘‘(ii) the qualified basis of such build-
ing as of the close of the 1st year of the 
credit period, 
the applicable percentage which shall apply 
under subsection (a) for the taxable year to 
such excess shall be the percentage equal to 2⁄3 
of the applicable percentage which (after the 
application of subsection (h)) would but for this 
paragraph apply to such basis. 
‘‘(B) 1ST YEAR COMPUTATION APPLIES.— 
A rule similar to the rule of paragraph (2)(A) 
shall apply to any increase in qualified basis to 
which subparagraph (A) applies for the 1st year 
of such increase. 
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134 
‘‘(4) DISPOSITIONS OF PROPERTY.—If a build-
ing (or an interest therein) is disposed of during any 
year for which credit is allowable under subsection 
(a), such credit shall be allocated between the par-
ties on the basis of the number of days during such 
year the building (or interest) was held by each. 
‘‘(5) CREDIT PERIOD FOR EXISTING BUILDINGS 
NOT
TO
BEGIN
BEFORE
REHABILITATION
CREDIT 
ALLOWED.— 
‘‘(A) IN GENERAL.—The credit period for 
an existing building shall not begin before the 
1st taxable year of the credit period for reha-
bilitation expenditures with respect to the build-
ing. 
‘‘(B) ACQUISITION CREDIT ALLOWED FOR 
CERTAIN
BUILDINGS
NOT
ALLOWED
A
REHA-
BILITATION CREDIT.— 
‘‘(i) IN GENERAL.—In the case of a 
building described in clause (ii)— 
‘‘(I) 
subsection 
(d)(2)(B)(iv) 
shall not apply, and 
‘‘(II) the credit period for such 
building shall not begin before the 
taxable year which would be the 1st 
taxable year of the credit period for 
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rehabilitation expenditures with re-
spect to the building under the modi-
fications described in clause (ii)(II). 
‘‘(ii) BUILDING DESCRIBED.—A build-
ing is described in this clause if— 
‘‘(I) a waiver is granted under 
subsection (d)(4) with respect to the 
acquisition of the building, and 
‘‘(II) a credit would be allowed 
for rehabilitation expenditures with 
respect to such building if subsection 
(e)(3)(A)(ii)(I) did not apply and if 
the dollar amount in effect under sub-
section (e)(3)(A)(ii)(II) were two- 
thirds of such amount. 
‘‘(g) 
QUALIFIED
MIDDLE-INCOME
HOUSING 
PROJECT.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified middle- 
income housing project’ means any project for resi-
dential rental property if— 
‘‘(A) 60 percent or more of the residential 
units in such project are both rent-restricted 
and occupied by individuals whose income is 
100 percent or less of area median gross in-
come, and 
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136 
‘‘(B) not less than 20 percent of the resi-
dential units in such project are units which— 
‘‘(i) are described in subparagraph 
(A), and 
‘‘(ii) are not residential units which 
are taken into account under section 42. 
‘‘(2) RENT-RESTRICTED UNITS.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), a residential unit is rent-restricted if 
the gross rent with respect to such unit does 
not exceed 30 percent of the imputed income 
limitation applicable to such unit. For purposes 
of the preceding sentence, the amount of the in-
come limitation under paragraph (1) applicable 
for any period shall not be less than such limi-
tation applicable for the earliest period the 
building (which contains the unit) was included 
in the determination of whether the project is 
a qualified middle-income housing project. 
‘‘(B) GROSS RENT.—For purposes of sub-
paragraph (A), gross rent— 
‘‘(i) includes any utility allowance de-
termined by the Secretary after taking into 
account such determinations under section 
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137 
8 of the United States Housing Act of 
1937, 
‘‘(ii) does not include any fee for a 
supportive service which is paid to the 
owner of the unit (on the basis of the mid-
dle-income status of the tenant of the unit) 
by any governmental program of assistance 
(or by an organization described in section 
501(c)(3) and exempt from tax under sec-
tion 501(a)) if such program (or organiza-
tion) provides assistance for rent and the 
amount of assistance provided for rent is 
not separable from the amount of assist-
ance provided for supportive services, and 
‘‘(iii) does not include any rental pay-
ment to the owner of the unit to the extent 
such owner pays an equivalent amount to 
the Farmers’ Home Administration under 
section 515 of the Housing Act of 1949. 
For purposes of clause (ii), the term ‘supportive 
service’ means any service provided under a 
planned program of services designed to enable 
residents of a residential rental property to re-
main independent and avoid placement in a 
hospital, nursing home, or intermediate care fa-
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138 
cility for the mentally or physically handi-
capped. 
‘‘(C) IMPUTED INCOME LIMITATION APPLI-
CABLE TO UNIT.—For purposes of this para-
graph, the imputed income limitation applicable 
to a unit is the income limitation which would 
apply under paragraph (1) to individuals occu-
pying the unit if the number of individuals oc-
cupying the unit were as follows: 
‘‘(i) In the case of a unit which does 
not have a separate bedroom, 1 individual. 
‘‘(ii) In the case of a unit which has 
1 or more separate bedrooms, 1.5 individ-
uals for each separate bedroom. 
In the case of a project with respect to which 
a credit is allowable by reason of this section 
and for which financing is provided by a bond 
described in section 142(a)(7), the imputed in-
come limitation shall apply in lieu of the other-
wise applicable income limitation for purposes 
of applying section 142(d)(4)(B)(ii). 
‘‘(D) TREATMENT OF UNITS OCCUPIED BY 
INDIVIDUALS
WHOSE
INCOMES
RISE
ABOVE 
LIMIT.— 
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‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), notwithstanding an in-
crease in the income of the occupants of a 
middle-income unit above the income limi-
tation applicable under paragraph (1), 
such unit shall continue to be treated as a 
middle-income unit if the income of such 
occupants initially met such income limita-
tion and such unit continues to be rent-re-
stricted. 
‘‘(ii) NEXT AVAILABLE UNIT MUST BE 
RENTED
TO
MIDDLE-INCOME
TENANT
IF 
INCOME RISES ABOVE 140 PERCENT OF IN-
COME LIMIT.—If the income of the occu-
pants of the unit increases above 140 per-
cent of the income limitation applicable 
under paragraph (1), clause (i) shall cease 
to apply to such unit if any residential 
rental unit in the building (of a size com-
parable to, or smaller than, such unit) is 
occupied by a new resident whose income 
exceeds such income limitation. 
‘‘(3) DATE FOR MEETING REQUIREMENTS.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, a building shall be 
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treated as a qualified middle-income building 
only if the project (of which such building is a 
part) meets the requirements of paragraph (1) 
not later than the close of the 1st year of the 
credit period for such building. 
‘‘(B) BUILDINGS WHICH RELY ON LATER 
BUILDINGS FOR QUALIFICATION.— 
‘‘(i) IN
GENERAL.—In determining 
whether a building (hereinafter in this sub-
paragraph referred to as the ‘prior build-
ing’) is a qualified middle-income building, 
the taxpayer may take into account 1 or 
more additional buildings placed in service 
during the 12-month period described in 
subparagraph (A) with respect to the prior 
building only if the taxpayer elects to apply 
clause (ii) with respect to each additional 
building taken into account. 
‘‘(ii) 
TREATMENT
OF
ELECTED 
BUILDINGS.—In the case of a building 
which the taxpayer elects to take into ac-
count under clause (i), the period under 
subparagraph (A) for such building shall 
end at the close of the 12-month period ap-
plicable to the prior building. 
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141 
‘‘(iii) 
DATE
PRIOR
BUILDING
IS 
TREATED
AS
PLACED
IN
SERVICE.—For 
purposes of determining the credit period 
for the prior building, the prior building 
shall be treated for purposes of this section 
as placed in service on the most recent 
date any additional building elected by the 
taxpayer (with respect to such prior build-
ing) was placed in service. 
‘‘(C) SPECIAL RULE.—A building— 
‘‘(i) other than the 1st building placed 
in service as part of a project, and 
‘‘(ii) other than a building which is 
placed in service during the 12-month pe-
riod described in subparagraph (A) with 
respect to a prior building which becomes 
a qualified middle-income building, 
shall in no event be treated as a qualified mid-
dle-income building unless the project is a 
qualified middle-income housing project (with-
out regard to such building) on the date such 
building is placed in service. 
‘‘(D) PROJECTS
WITH
MORE
THAN
BUILDING
MUST
BE
IDENTIFIED.—For pur-
poses of this section, a project shall be treated 
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142 
as consisting of only 1 building unless, before 
the close of the 1st calendar year in the project 
period (as defined in subsection (h)(1)(F)(ii)), 
each building which is (or will be) part of such 
project is identified in such form and manner 
as the Secretary may provide. 
‘‘(4) CERTAIN
RULES
MADE
APPLICABLE.— 
Paragraphs (2) (other than subparagraph (A) there-
of), (3), and (7) of section 142(d), and section 
6652(j), shall apply for purposes of determining 
whether any project is a qualified middle-income 
housing project and whether any unit is a middle-in-
come unit; except that, in applying such provisions 
for such purposes— 
‘‘(A) the term ‘gross rent’ shall have the 
meaning given such term by paragraph (2)(B) 
of this subsection, and 
‘‘(B) the term ‘applicable income limit’ 
means the limitation under paragraph (1) of 
this subsection. 
‘‘(5) ELECTION
TO
TREAT
BUILDING
AFTER 
CREDIT PERIOD AS NOT PART OF A PROJECT.—For 
purposes of this section, the taxpayer may elect to 
treat any building as not part of a qualified middle- 
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143 
income housing project for any period beginning 
after the credit period for such building. 
‘‘(6) SPECIAL RULE WHERE DE MINIMIS EQ-
UITY CONTRIBUTION.—Property shall not be treated 
as failing to be residential rental property for pur-
poses of this section merely because the occupant of 
a residential unit in the project pays (on a voluntary 
basis) to the lessor a de minimis amount to be held 
toward the purchase by such occupant of a residen-
tial unit in such project if— 
‘‘(A) all amounts so paid are refunded to 
the occupant on the cessation of his occupancy 
of a unit in the project, and 
‘‘(B) the purchase of the unit is not per-
mitted until after the close of the credit period 
with respect to the building in which the unit 
is located. 
Any amount paid to the lessor as described in the 
preceding sentence shall be included in gross rent 
under paragraph (2) for purposes of determining 
whether the unit is rent-restricted. 
‘‘(7) SCATTERED
SITE
PROJECTS.—Buildings 
which would (but for their lack of proximity) be 
treated as a project for purposes of this section shall 
be so treated if all of the dwelling units in each of 
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144 
the buildings are rent-restricted (within the meaning 
of paragraph (2)) residential rental units. 
‘‘(8) 
WAIVER
OF
CERTAIN
RECERTIFI-
CATIONS.—On application by the taxpayer, the Sec-
retary may waive any annual recertification of ten-
ant income for purposes of this subsection, if the en-
tire building is occupied by middle-income tenants. 
‘‘(9) CLARIFICATION OF GENERAL PUBLIC USE 
REQUIREMENT.—A project does not fail to meet the 
general public use requirement solely because of oc-
cupancy restrictions or preferences that favor ten-
ants— 
‘‘(A) with special needs, or 
‘‘(B) who are members of a specified group 
under a Federal program or State program or 
policy that supports housing for such a speci-
fied group. 
‘‘(h) LIMITATION ON AGGREGATE CREDIT ALLOW-
ABLE WITH RESPECT
TO PROJECTS LOCATED
IN
A 
STATE.— 
‘‘(1) CREDIT
MAY
NOT
EXCEED
CREDIT 
AMOUNT ALLOCATED TO BUILDING.— 
‘‘(A) IN
GENERAL.—The amount of the 
credit determined under this section for any 
taxable year with respect to any building shall 
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145 
not exceed the housing credit dollar amount al-
located to such building under this subsection. 
‘‘(B) TIME
FOR
MAKING
ALLOCATION.— 
Except in the case of an allocation which meets 
the requirements of subparagraph (C), (D), 
(E), or (F), an allocation shall be taken into ac-
count under subparagraph (A) only if it is 
made not later than the close of the calendar 
year in which the building is placed in service. 
‘‘(C) EXCEPTION
WHERE
BINDING
COM-
MITMENT.—An allocation meets the require-
ments of this subparagraph if there is a binding 
commitment (not later than the close of the cal-
endar year in which the building is placed in 
service) by the housing credit agency to allocate 
a specified housing credit dollar amount to such 
building beginning in a specified later taxable 
year. 
‘‘(D) EXCEPTION
WHERE
INCREASE
IN 
QUALIFIED BASIS.— 
‘‘(i) 
IN
GENERAL.—An 
allocation 
meets the requirements of this subpara-
graph if such allocation is made not later 
than the close of the calendar year in 
which ends the taxable year to which it will 
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1st apply but only to the extent the 
amount of such allocation does not exceed 
the limitation under clause (ii). 
‘‘(ii) 
LIMITATION.—The 
limitation 
under this clause is the amount of credit 
allowable under this section (without re-
gard to this subsection) for a taxable year 
with respect to an increase in the qualified 
basis of the building equal to the excess 
of— 
‘‘(I) the qualified basis of such 
building as of the close of the 1st tax-
able year to which such allocation will 
apply, over 
‘‘(II) the qualified basis of such 
building as of the close of the 1st tax-
able year to which the most recent 
prior housing credit allocation with re-
spect to such building applied. 
‘‘(iii) 
HOUSING
CREDIT
DOLLAR 
AMOUNT
REDUCED
BY
FULL
ALLOCA-
TION.—Notwithstanding clause (i), the full 
amount of the allocation shall be taken 
into account under paragraph (2). 
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‘‘(E) EXCEPTION WHERE 10 PERCENT OF 
COST INCURRED.— 
‘‘(i) 
IN
GENERAL.—An 
allocation 
meets the requirements of this subpara-
graph if such allocation is made with re-
spect to a qualified building which is 
placed in service not later than the close of 
the second calendar year following the cal-
endar year in which the allocation is made. 
‘‘(ii) QUALIFIED BUILDING.—For pur-
poses of clause (i), the term ‘qualified 
building’ means any building which is part 
of a project if the taxpayer’s basis in such 
project (as of the date which is 1 year 
after the date that the allocation was 
made) is more than 10 percent of the tax-
payer’s reasonably expected basis in such 
project (as of the close of the second cal-
endar year referred to in clause (i)). Such 
term does not include any existing building 
unless a credit is allowable under sub-
section (e) for rehabilitation expenditures 
paid or incurred by the taxpayer with re-
spect to such building for a taxable year 
ending during the second calendar year re-
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148 
ferred to in clause (i) or the prior taxable 
year. 
‘‘(F) ALLOCATION
OF
CREDIT
ON
A 
PROJECT BASIS.— 
‘‘(i) IN GENERAL.—In the case of a 
project which includes (or will include) 
more than 1 building, an allocation meets 
the requirements of this subparagraph if— 
‘‘(I) the allocation is made to the 
project for a calendar year during the 
project period, 
‘‘(II) the allocation only applies 
to buildings placed in service during 
or after the calendar year for which 
the allocation is made, and 
‘‘(III) the portion of such alloca-
tion which is allocated to any building 
in such project is specified not later 
than the close of the calendar year in 
which the building is placed in service. 
‘‘(ii) PROJECT
PERIOD.—For pur-
poses of clause (i), the term ‘project pe-
riod’ means the period— 
‘‘(I) beginning with the 1st cal-
endar year for which an allocation 
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149 
may be made for the 1st building 
placed in service as part of such 
project, and 
‘‘(II) ending with the calendar 
year the last building is placed in 
service as part of such project. 
‘‘(2) ALLOCATED CREDIT AMOUNT TO APPLY 
TO ALL TAXABLE YEARS ENDING DURING OR AFTER 
CREDIT ALLOCATION YEAR.—Any housing credit dol-
lar amount allocated to any building for any cal-
endar year— 
‘‘(A) shall apply to such building for all 
taxable years in the credit period ending during 
or after such calendar year, and 
‘‘(B) shall reduce the aggregate housing 
credit dollar amount of the allocating agency 
only for such calendar year. 
‘‘(3) HOUSING CREDIT DOLLAR AMOUNT FOR 
AGENCIES.— 
‘‘(A) IN GENERAL.—The aggregate hous-
ing credit dollar amount which a housing credit 
agency may allocate for any calendar year is 
the portion of the State housing credit ceiling 
allocated under this paragraph for such cal-
endar year to such agency. 
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150 
‘‘(B) STATE
CEILING
INITIALLY
ALLO-
CATED
TO
STATE
HOUSING
CREDIT
AGEN-
CIES.—Except as provided in subparagraph 
(D), the State housing credit ceiling for each 
calendar year shall be allocated to the housing 
credit agency of such State. If there is more 
than 1 housing credit agency of a State, all 
such agencies shall be treated as a single agen-
cy. 
‘‘(C) STATE HOUSING CREDIT CEILING.— 
The State housing credit ceiling applicable to 
any State for any calendar year shall be an 
amount equal to the sum of— 
‘‘(i) the unused State housing credit 
ceiling (if any) of such State for the pre-
ceding calendar year, 
‘‘(ii) the greater of— 
‘‘(I) $1.00 multiplied by the 
State population, or 
‘‘(II) $1,500,000, plus 
‘‘(iii) the amount of State housing 
credit ceiling returned in the calendar year. 
For purposes of clause (i), the unused State 
housing credit ceiling for any calendar year is 
the excess (if any) of the sum of the amounts 
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described in clauses (ii) (reduced by the aggre-
gate amounts described in paragraph (10)(A)(i) 
with respect to all elections made for such cal-
endar year) and (iii) over the aggregate housing 
credit dollar amount allocated for such year. 
For purposes of clause (iii), the amount of 
State housing credit ceiling returned in the cal-
endar year equals the housing credit dollar 
amount previously allocated within the State to 
any project which fails to meet the 10 percent 
test under paragraph (1)(E)(ii) on a date after 
the close of the calendar year in which the allo-
cation was made or which does not become a 
qualified middle-income housing project within 
the period required by this section or the terms 
of the allocation or to any project with respect 
to which an allocation is cancelled by mutual 
consent of the housing credit agency and the al-
location recipient. 
‘‘(D) STATE
MAY
PROVIDE
FOR
DIF-
FERENT
ALLOCATION.—Rules similar to the 
rules of section 146(e) (other than paragraph 
(2)(B) thereof) shall apply for purposes of this 
paragraph. 
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‘‘(E) POPULATION.—For purposes of this 
paragraph, population shall be determined in 
accordance with section 146(j). 
‘‘(F) COST-OF-LIVING ADJUSTMENT.— 
‘‘(i) IN GENERAL.—In the case of a 
calendar year after 2026, the $1,500,000 
and $1.00 amounts in subparagraph (C) 
shall each be increased by an amount equal 
to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for such calendar year by substituting 
‘calendar year 2025’ for ‘calendar 
year 2016’ in subparagraph (A)(ii) 
thereof. 
‘‘(ii) ROUNDING.— 
‘‘(I) 
In 
the 
case 
of 
the 
$1,140,000 
amount, 
any 
increase 
under clause (i) which is not a mul-
tiple of $5,000 shall be rounded to the 
next lowest multiple of $5,000. 
‘‘(II) In the case of the $1.00 
amount, any increase under clause (i) 
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153 
which is not a multiple of 5 cents 
shall be rounded to the next lowest 
multiple of 5 cents. 
‘‘(4) PORTION
OF
STATE
CEILING
SET-ASIDE 
FOR
CERTAIN
PROJECTS
INVOLVING
QUALIFIED 
NONPROFIT ORGANIZATIONS.— 
‘‘(A) IN
GENERAL.—Not more than 90 
percent of the State housing credit ceiling (de-
termined without regard to paragraph (7)) for 
any State for any calendar year shall be allo-
cated to projects other than qualified middle-in-
come housing projects described in subpara-
graph (B). 
‘‘(B) PROJECTS
INVOLVING
QUALIFIED 
NONPROFIT ORGANIZATIONS.—For purposes of 
subparagraph (A), a qualified middle-income 
housing project is described in this subpara-
graph if a qualified nonprofit organization is to 
own an interest in the project (directly or 
through a partnership) and materially partici-
pate (within the meaning of section 469(h)) in 
the development and operation of the project 
throughout the credit period. 
‘‘(C) QUALIFIED
NONPROFIT
ORGANIZA-
TION.—For purposes of this paragraph, the 
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term ‘qualified nonprofit organization’ means 
any organization if— 
‘‘(i) such organization is described in 
paragraph (3) or (4) of section 501(c) and 
is exempt from tax under section 501(a), 
‘‘(ii) such organization is determined 
by the State housing credit agency not to 
be affiliated with or controlled by a for- 
profit organization, and 
‘‘(iii) one of the exempt purposes of 
such organization includes the fostering of 
middle-income housing. 
‘‘(D) TREATMENT
OF
CERTAIN
SUBSIDI-
ARIES.— 
‘‘(i) IN
GENERAL.—For purposes of 
this paragraph, a qualified nonprofit orga-
nization shall be treated as satisfying the 
ownership and material participation test 
of subparagraph (B) if any qualified cor-
poration in which such organization holds 
stock satisfies such test. 
‘‘(ii) QUALIFIED CORPORATION.—For 
purposes of clause (i), the term ‘qualified 
corporation’ means any corporation if 100 
percent of the stock of such corporation is 
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155 
held by 1 or more qualified nonprofit orga-
nizations at all times during the period 
such corporation is in existence. 
‘‘(E) STATE
MAY
NOT
OVERRIDE
SET- 
ASIDE.—Nothing in subparagraph (E) of para-
graph (3) shall be construed to permit a State 
not to comply with subparagraph (A) of this 
paragraph. 
‘‘(5) BUILDINGS ELIGIBLE FOR CREDIT ONLY 
IF MINIMUM LONG-TERM COMMITMENT TO MIDDLE- 
INCOME HOUSING.— 
‘‘(A) IN GENERAL.—No credit shall be al-
lowed by reason of this section with respect to 
any building for the taxable year unless an ex-
tended middle-income housing commitment is in 
effect as of the end of such taxable year. 
‘‘(B) EXTENDED
MIDDLE-INCOME
HOUS-
ING COMMITMENT.—For purposes of this para-
graph, the term ‘extended middle-income hous-
ing commitment’ means any agreement between 
the taxpayer and the housing credit agency— 
‘‘(i) which requires that the applicable 
fraction (as defined in subsection (c)(1)) 
for the building for each taxable year in 
the extended use period will not be less 
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than the applicable fraction specified in 
such agreement and which prohibits the 
actions described in subclauses (I) and (II) 
of subparagraph (E)(ii), 
‘‘(ii) which allows individuals who 
meet the income limitation applicable to 
the building under subsection (g) (whether 
prospective, present, or former occupants 
of the building) the right to enforce in any 
State court the requirement and prohibi-
tions of clause (i), 
‘‘(iii) which prohibits the disposition 
to any person of any portion of the build-
ing to which such agreement applies unless 
all of the building to which such agreement 
applies is disposed of to such person, 
‘‘(iv) which prohibits the refusal to 
lease to a holder of a voucher or certificate 
of eligibility under section 8 of the United 
States Housing Act of 1937 because of the 
status of the prospective tenant as such a 
holder, 
‘‘(v) which is binding on all successors 
of the taxpayer, and 
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‘‘(vi) which, with respect to the prop-
erty, is recorded pursuant to State law as 
a restrictive covenant. 
‘‘(C) ALLOCATION
OF
CREDIT
MAY
NOT 
EXCEED
AMOUNT
NECESSARY
TO
SUPPORT 
COMMITMENT.—The 
housing 
credit 
dollar 
amount allocated to any building may not ex-
ceed the amount necessary to support the appli-
cable fraction specified in the extended middle- 
income housing commitment for such building, 
including any increase in such fraction pursu-
ant to the application of subsection (f)(3) if 
such increase is reflected in an amended mid-
dle-income housing commitment. 
‘‘(D) EXTENDED USE PERIOD.—For pur-
poses of this paragraph, the term ‘extended use 
period’ means the period— 
‘‘(i) beginning on the 1st day in the 
credit period on which such building is 
part of a qualified middle-income housing 
project, and 
‘‘(ii) ending on the later of— 
‘‘(I) the date specified by such 
agency in such agreement, or 
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158 
‘‘(II) the date which is 15 years 
after the close of the credit period. 
‘‘(E) EXCEPTIONS IF FORECLOSURE OR IF 
NO BUYER WILLING TO MAINTAIN MIDDLE-IN-
COME STATUS.— 
‘‘(i) IN GENERAL.—The extended use 
period for any building shall terminate on 
the 61st day after the taxpayer (or a suc-
cessor in interest) provides notice to the 
Secretary and the housing credit agency 
that the building has been acquired by 
foreclosure (or instrument in lieu of fore-
closure) and that the taxpayer intends the 
termination of such period, unless, before 
such date, the Secretary or the housing 
credit agency determines that such acquisi-
tion is part of an arrangement with the 
taxpayer a purpose of which is to termi-
nate such period. 
‘‘(ii) EVICTION, ETC., OF
EXISTING 
MIDDLE-INCOME
TENANTS
NOT
PER-
MITTED.—The termination of an extended 
use period under clause (i) shall not be 
construed to permit before the close of the 
3-year period following such termination— 
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159 
‘‘(I) the eviction or the termi-
nation of tenancy (other than for good 
cause) of an existing tenant of any 
middle-income unit, or 
‘‘(II) any increase in the gross 
rent with respect to such unit not oth-
erwise permitted under this section. 
‘‘(F) EFFECT
OF
NONCOMPLIANCE.—If, 
during a taxable year, there is a determination 
that an extended middle-income housing agree-
ment was not in effect as of the beginning of 
such year, such determination shall not apply to 
any period before such year and subparagraph 
(A) shall be applied without regard to such de-
termination if the failure is corrected within 1 
year from the date of the determination. 
‘‘(G) PROJECTS WHICH CONSIST OF MORE 
THAN
BUILDING.—The application of this 
paragraph to projects which consist of more 
than 1 building shall be made under regulations 
prescribed by the Secretary. 
‘‘(6) SPECIAL RULES.— 
‘‘(A) BUILDING MUST BE LOCATED WITH-
IN JURISDICTION OF CREDIT AGENCY.—A hous-
ing credit agency may allocate its aggregate 
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housing credit dollar amount only to buildings 
located in the jurisdiction of the governmental 
unit of which such agency is a part. 
‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF 
LIMIT.—If the aggregate housing credit dollar 
amounts allocated by a housing credit agency 
for any calendar year exceed the portion of the 
State housing credit ceiling allocated to such 
agency for such calendar year, the housing 
credit dollar amounts so allocated shall be re-
duced (to the extent of such excess) for build-
ings in the reverse of the order in which the al-
locations of such amounts were made. 
‘‘(C) CREDIT
REDUCED
IF
ALLOCATED 
CREDIT DOLLAR AMOUNT IS LESS THAN CREDIT 
WHICH WOULD BE ALLOWABLE WITHOUT RE-
GARD
TO
PLACED
IN
SERVICE
CONVENTION, 
ETC.— 
‘‘(i) IN
GENERAL.—The amount of 
the credit determined under this section 
with respect to any building shall not ex-
ceed the clause (ii) percentage of the 
amount of the credit which would (but for 
this subparagraph) be determined under 
this section with respect to such building. 
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161 
‘‘(ii) DETERMINATION
OF
PERCENT-
AGE.—For purposes of clause (i), the 
clause (ii) percentage with respect to any 
building is the percentage which— 
‘‘(I) the housing credit dollar 
amount allocated to such building, 
bears to 
‘‘(II) the credit amount deter-
mined in accordance with clause (iii). 
‘‘(iii) DETERMINATION
OF
CREDIT 
AMOUNT.—The credit amount determined 
in accordance with this clause is the 
amount of the credit which would (but for 
this subparagraph) be determined under 
this section with respect to the building 
if— 
‘‘(I) this section were applied 
without regard to paragraphs (2)(A) 
and (3)(B) of subsection (f), and 
‘‘(II) subsection (f)(3)(A) were 
applied without regard to ‘the per-
centage equal to 2⁄3 of’. 
‘‘(D) HOUSING CREDIT AGENCY TO SPECI-
FY
APPLICABLE
PERCENTAGE
AND
MAXIMUM 
QUALIFIED
BASIS.—In allocating a housing 
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credit dollar amount to any building, the hous-
ing credit agency shall specify the applicable 
percentage and the maximum qualified basis 
which may be taken into account under this 
section with respect to such building. The appli-
cable percentage and maximum qualified basis 
so specified shall not exceed the applicable per-
centage and qualified basis determined under 
this section without regard to this subsection. 
‘‘(7) INCREASE IN STATE CEILING DEDICATED 
TO CERTAIN RURAL DEVELOPMENT PROJECTS.— 
‘‘(A) IN
GENERAL.—The State housing 
credit ceiling for any calendar year shall be in-
creased by an amount equal to 5 percent of the 
amount determined under paragraph (3)(C)(ii). 
‘‘(B) USE OF INCREASED AMOUNT.— 
‘‘(i) IN
GENERAL.—The amount of 
the increase under subparagraph (A) for 
any calendar year may only be allocated to 
buildings located in a rural area. 
‘‘(ii) RURAL AREA.—For purposes of 
clause (i), the term ‘rural area’ means any 
non-metropolitan area, or any rural area 
as defined by section 520 of the Housing 
Act of 1949, which is identified by the 
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qualified allocation plan under subsection 
(l)(1)(B). 
‘‘(8) OTHER
DEFINITIONS.—For purposes of 
this subsection— 
‘‘(A) HOUSING
CREDIT
AGENCY.—The 
term ‘housing credit agency’ means any agency 
authorized to carry out this subsection. 
‘‘(B) POSSESSIONS TREATED AS STATES.— 
The term ‘State’ includes a possession of the 
United States. 
‘‘(9) CREDIT
FOR
BUILDINGS
FINANCED
BY 
TAX-EXEMPT BONDS SUBJECT TO VOLUME CAP NOT 
TAKEN INTO ACCOUNT.—Rules similar to the rules 
of subsections (h)(4), (m)(1)(D), and (m)(2)(D) of 
section 42 shall apply for purposes of this sub-
section. 
‘‘(10) ELECTION TO TRANSFER STATE HOUSING 
CREDIT CEILING FOR ALLOCATIONS TO LOW-INCOME 
BUILDINGS.— 
‘‘(A) IN
GENERAL.—If a State housing 
credit agency makes an election under this 
paragraph with respect to a calendar year— 
‘‘(i) the State housing credit ceiling 
for such calendar year under paragraph 
(3) (determined before application of para-
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graph (7)) shall be reduced by the amount 
specified in such election, 
‘‘(ii) the amount determined under 
paragraph (7) for such calendar year shall 
be reduced by the amount specified in such 
election, and 
‘‘(iii) the amount determined under 
section 42(h)(3)(C)(ii) for such calendar 
year shall be increased by the sum of the 
amounts specified in clauses (i) and (ii), 
except that any amount specified under 
clause (ii)— 
‘‘(I) may only be allocated under 
such section to qualified low-income 
buildings (as defined in section 42) lo-
cated in a rural area (as defined in 
paragraph (7)), and 
‘‘(II) shall not be taken into ac-
count for purposes of determining the 
unused housing credit ceiling under 
the 
second 
sentence 
of 
section 
42(h)(3)(C). 
‘‘(B) TIME
AND
MANNER
FOR
MAKING 
ELECTION.— 
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‘‘(i) IN GENERAL.—An election under 
this paragraph— 
‘‘(I) shall be made before the end 
of the calendar year with respect to 
which such election applies, 
‘‘(II) shall be made in such man-
ner as specified by the Secretary, and 
‘‘(III) shall separately specify the 
amount of reductions to be made 
under paragraph (3) and paragraph 
(7). 
‘‘(ii) FREQUENCY.—A State housing 
credit agency may make more than one 
election under this section with respect to 
any calendar year, and any such election, 
once made, shall be revocable only if such 
revocation is made before the end of the 
calendar year with respect to which such 
election is made. 
‘‘(C) LIMITATION.—The aggregate amount 
specified in elections under this paragraph with 
respect to any State housing credit agency for 
calendar year shall not exceed the sum of— 
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‘‘(i) the amount determined under 
paragraph (3)(C)(ii) for such calendar 
year, plus 
‘‘(ii) the amount determined under 
paragraph (7) for such calendar year. 
‘‘(i) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) MIDDLE-INCOME UNIT.— 
‘‘(A) IN GENERAL.—The term ‘middle-in-
come unit’ means any unit in a building if— 
‘‘(i) such unit is rent-restricted (as de-
fined in subsection (g)(2)), and 
‘‘(ii) the individuals occupying such 
unit meet the income limitation applicable 
under subsection (g)(1) to the project of 
which such building is a part. 
‘‘(B) EXCEPTIONS.— 
‘‘(i) 
EXCLUSION
OF
LOW-INCOME 
UNITS.—A unit shall not be treated as a 
middle-income unit if such unit is a low-in-
come unit (as defined under section 
42(i)(3)). 
‘‘(ii) UNIT MUST BE SUITABLE FOR 
PERMANENT OCCUPANCY.— 
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‘‘(I) IN GENERAL.—A unit shall 
not be treated as a middle-income 
unit unless the unit is suitable for oc-
cupancy and used other than on a 
transient basis. 
‘‘(II) SUITABILITY
FOR
OCCU-
PANCY.—For purposes of subclause 
(I), the suitability of a unit for occu-
pancy shall be determined under regu-
lations prescribed by the Secretary 
taking into account local health, safe-
ty, and building codes. 
‘‘(III) SINGLE-ROOM OCCUPANCY 
UNITS.—For purposes of subclause 
(I), a single-room occupancy unit shall 
not be treated as used on a transient 
basis merely because it is rented on a 
month-by-month basis. 
‘‘(C) SPECIAL RULE FOR BUILDINGS HAV-
ING 4 OR FEWER UNITS.—In the case of any 
building which has 4 or fewer residential rental 
units, no unit in such building shall be treated 
as a middle-income unit if the units in such 
building are owned by— 
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‘‘(i) any individual who occupies a res-
idential unit in such building, or 
‘‘(ii) any person who is related (as de-
fined in subsection (d)(2)(D)(ii)) to such 
individual. 
‘‘(D) RULES RELATING TO STUDENTS.— 
‘‘(i) IN
GENERAL.—A unit occupied 
solely by individuals who— 
‘‘(I) have not attained age 24, 
and 
‘‘(II) are enrolled in a full-time 
course of study at an institution of 
higher education (as defined in section 
3304(f)), 
shall not be treated as a middle-income 
unit. 
‘‘(ii) EXCEPTION FOR CERTAIN FED-
ERAL PROGRAMS.—In the case of a Feder-
ally-assisted building (as defined in sub-
section (d)(6)(C)(i) of section 42), clause 
(i) shall not apply to a unit all of the occu-
pants of which meet all applicable require-
ments under the housing program de-
scribed in such subsection through which 
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the building is assisted, financed, or oper-
ated. 
‘‘(iii) OTHER
EXCEPTIONS.—Clause 
(i) shall not apply to a unit occupied by an 
individual who— 
‘‘(I) is married, if such individ-
ual’s spouse also occupies the unit, 
‘‘(II) is a person with disabilities 
(as defined in section 3(b)(3)(E) of 
the United States Housing Act of 
1937), 
‘‘(III) is a veteran (as defined in 
section 101(2) of title 38, United 
States Code), 
‘‘(IV) has one or more qualifying 
children 
(as 
defined 
in 
section 
152(c)), if such children also occupy 
the unit, the individual is not a de-
pendent (as defined in section 152, 
determined without regard to sub-
sections (b)(1), (b)(2), and (d)(1)(B) 
thereof) of another individual, and 
such children are not claimed as de-
pendents (as so defined) of another 
individual, or 
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170 
‘‘(V) is, or was immediately prior 
to attaining the age of majority— 
‘‘(aa) an emancipated minor 
or in legal guardianship as deter-
mined by a court of competent 
jurisdiction in the individual’s 
State of legal residence, 
‘‘(bb) under the care and 
placement responsibility of the 
State agency responsible for ad-
ministering a plan under part B 
or part E of title IV of the Social 
Security Act, or 
‘‘(cc) was an unaccompanied 
youth (within the meaning of sec-
tion 725(6) of the McKinney- 
Vento Homeless Assistance Act 
(42 U.S.C. 11434a(6))) or a 
homeless child or youth (within 
the meaning of section 725(2) of 
such 
Act 
(42 
U.S.C. 
11434a(2))). 
‘‘(E) OWNER-OCCUPIED
BUILDINGS
HAV-
ING 4 OR FEWER UNITS ELIGIBLE FOR CREDIT 
WHERE DEVELOPMENT PLAN.— 
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‘‘(i) IN GENERAL.—Subparagraph (C) 
shall not apply to the acquisition or reha-
bilitation of a building pursuant to a devel-
opment plan of action sponsored by a 
State or local government or a qualified 
nonprofit organization. 
‘‘(ii) LIMITATION ON CREDIT.—In the 
case of a building to which clause (i) ap-
plies, the applicable fraction shall not ex-
ceed 80 percent of the unit fraction. 
‘‘(iii) 
CERTAIN
UNRENTED
UNITS 
TREATED
AS
OWNER-OCCUPIED.—In the 
case of a building to which clause (i) ap-
plies, any unit which is not rented for 90 
days or more shall be treated as occupied 
by the owner of the building as of the 1st 
day it is not rented. 
‘‘(2) NEW BUILDING.—The term ‘new building’ 
means a building the original use of which begins 
with the taxpayer. 
‘‘(3) EXISTING BUILDING.—The term ‘existing 
building’ means any building which is not a new 
building. 
‘‘(4) APPLICATION TO ESTATES AND TRUSTS.— 
In the case of an estate or trust, the amount of the 
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172 
credit determined under subsection (a) shall be ap-
portioned between the estate or trust and the bene-
ficiaries on the basis of the income of the estate or 
trust allocable to each. 
‘‘(5) IMPACT OF TENANT’S OPTION TO ACQUIRE 
PROPERTY.— 
‘‘(A) IN
GENERAL.—No Federal income 
tax benefit shall fail to be allowable to the tax-
payer with respect to any qualified middle-in-
come building merely by reason of an option 
held by the tenants (in cooperative form or oth-
erwise) or resident management corporation of 
such building or by a qualified nonprofit organi-
zation or government agency to purchase the 
property or all of the partnership interests 
(other than interests of the person exercising 
such option or a related party thereto (within 
the meaning of section 267(b) or 707(b)(1))) 
relating to the property after the close of the 
credit period for a price which is not less than 
the minimum purchase price determined under 
subparagraph (B). 
‘‘(B) MINIMUM
PURCHASE
PRICE.—For 
purposes of subparagraph (A), the minimum 
purchase price under this subparagraph is an 
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amount equal to the principal amount of out-
standing indebtedness secured by the building 
(other than indebtedness incurred within the 5- 
year period ending on the date of the sale to 
the tenants). In the case of a purchase of a 
partnership interest, the minimum purchase 
price is an amount equal to such interest’s rat-
able share of the amount determined under the 
preceding sentence. 
‘‘(6) TREATMENT OF RURAL PROJECTS.—For 
purposes of this section, in the case of any project 
for residential rental property located in a rural area 
(as defined in section 520 of the Housing Act of 
1949), any income limitation measured by reference 
to area median gross income shall be measured by 
reference to the greater of area median gross income 
or national non-metropolitan median income. 
‘‘(7) DETERMINATION OF WHETHER BUILDING 
IS FEDERALLY SUBSIDIZED.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, for purposes of this 
section, a project shall be treated as Federally 
subsidized for any taxable year if, at any time 
during such taxable year or any prior taxable 
year, there is or was outstanding any obligation 
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the interest on which is exempt from tax under 
section 103 the proceeds of which are or were 
used (directly or indirectly) with respect to such 
project or the operation thereof. 
‘‘(B) SPECIAL RULE FOR SUBSIDIZED CON-
STRUCTION
FINANCING.—Subparagraph 
(A) 
shall not apply to any tax-exempt obligation 
used to provide construction financing for any 
building if— 
‘‘(i) such obligation (when issued) 
identified the building for which the pro-
ceeds of such obligation would be used, 
and 
‘‘(ii) such obligation is redeemed be-
fore such building is placed in service. 
‘‘(8) REDUCTION IN BASIS.—In the case of any 
building for which a credit is allowable under this 
section and section 42, the basis of the building shall 
be reduced by the amount of such credit allowed 
under subsection (a). 
‘‘(j) APPLICATION OF AT-RISK RULES.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, rules similar to the rules of 
section 
49(a)(1) 
(other 
than 
subparagraphs 
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(D)(ii)(II) and (D)(iv)(I) thereof), section 49(a)(2), 
and section 49(b)(1) shall apply in determining the 
qualified basis of any building in the same manner 
as such sections apply in determining the credit base 
of property. 
‘‘(2) SPECIAL RULES FOR DETERMINING QUALI-
FIED PERSON.—For purposes of paragraph (1)— 
‘‘(A) IN GENERAL.—If the requirements of 
subparagraphs (B), (C), and (D) are met with 
respect to any financing borrowed from a quali-
fied nonprofit organization, the determination 
of whether such financing is qualified commer-
cial financing with respect to any qualified mid-
dle-income building shall be made without re-
gard to whether such organization— 
‘‘(i) is actively and regularly engaged 
in the business of lending money, or 
‘‘(ii) is a person described in section 
49(a)(1)(D)(iv)(II). 
‘‘(B) FINANCING
SECURED
BY
PROP-
ERTY.—The requirements of this subparagraph 
are met with respect to any financing if such fi-
nancing is secured by the qualified middle-in-
come building, except that this subparagraph 
shall not apply in the case of a federally as-
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sisted building described in section 42(d)(6)(C) 
if— 
‘‘(i) a security interest in such build-
ing is not permitted by a Federal agency 
holding or insuring the mortgage secured 
by such building, and 
‘‘(ii) the proceeds from the financing 
(if any) are applied to acquire or improve 
such building. 
‘‘(C) PORTION
OF
BUILDING
ATTRIB-
UTABLE TO FINANCING.—The requirements of 
this subparagraph are met with respect to any 
financing for any taxable year in the credit pe-
riod if, as of the close of such taxable year, not 
more than 60 percent of the eligible basis of the 
qualified middle-income building is attributable 
to such financing (reduced by the principal and 
interest of any governmental financing which is 
part of a wrap-around mortgage involving such 
financing). 
‘‘(D) REPAYMENT OF PRINCIPAL AND IN-
TEREST.—The requirements of this subpara-
graph are met with respect to any financing if 
such financing is fully repaid on or before the 
earliest of— 
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‘‘(i) the date on which such financing 
matures, 
‘‘(ii) the 90th day after the close of 
the credit period with respect to the quali-
fied middle-income building, or 
‘‘(iii) the date of its refinancing or the 
sale of the building to which such financ-
ing relates. 
In the case of a qualified nonprofit organization 
which 
is 
not 
described 
in 
section 
49(a)(1)(D)(iv)(II) with respect to a building, 
clause (ii) of this subparagraph shall be applied 
as if the date described therein were the 90th 
day after the earlier of the date the building 
ceases to be a qualified middle-income building 
or the date which is 15 years after the close of 
a credit period with respect thereto. 
‘‘(3) PRESENT VALUE OF FINANCING.—If the 
rate of interest on any financing described in para-
graph (2)(A) is less than the rate which is 1 per-
centage point below the applicable Federal rate as of 
the time such financing is incurred, then the quali-
fied basis (to which such financing relates) of the 
qualified middle-income building shall be the present 
value of the amount of such financing, using as the 
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