572 
‘‘(2) PRINCIPAL
RESIDENCE.—The term ‘prin-
cipal residence’ has the same meaning as when used 
in section 121. 
‘‘(3) PURCHASE.— 
‘‘(A) IN
GENERAL.—The term ‘purchase’ 
means any acquisition, but only if— 
‘‘(i) the property is not acquired from 
a person related to the person acquiring it, 
and 
‘‘(ii) the basis of the property in the 
hands of the person acquiring it is not de-
termined— 
‘‘(I) in whole or in part by ref-
erence to the adjusted basis of such 
property in the hands of the person 
from whom acquired, or 
‘‘(II) under section 1014(a) (relat-
ing to property acquired from a dece-
dent). 
‘‘(B) CONSTRUCTION.—A residence which is 
constructed by the taxpayer shall be treated as 
purchased by the taxpayer on the date the tax-
payer first occupies such residence.
573 
‘‘(4) PURCHASE
PRICE.—The term ‘purchase 
price’ means the adjusted basis of the principal resi-
dence on the date such residence is purchased. 
‘‘(5) RELATED
PERSONS.—A person shall be 
treated as related to another person if the relationship 
between such persons would result in the disallowance 
of losses under section 267 or 707(b) (but, in applying 
section 267(b) and (c) for purposes of this section, 
paragraph (4) of section 267(c) shall be treated as 
providing that the family of an individual shall in-
clude only his spouse, ancestors, and lineal descend-
ants). 
‘‘(d) EXCEPTIONS.—No credit under subsection (a) 
shall be allowed to any taxpayer for any taxable year with 
respect to the purchase of a residence if— 
‘‘(1) a credit under section 1400C (relating to 
first-time homebuyer in the District of Columbia) is 
allowable to the taxpayer (or the taxpayer’s spouse) 
for such taxable year or any prior taxable year, 
‘‘(2) the residence is financed by the proceeds of 
a qualified mortgage issue the interest on which is ex-
empt from tax under section 103, 
‘‘(3) the taxpayer is a nonresident alien, or 
‘‘(4) the taxpayer disposes of such residence (or 
such residence ceases to be the principal residence of
574 
the taxpayer (and, if married, the taxpayer’s spouse)) 
before the close of such taxable year. 
‘‘(e) REPORTING.—If the Secretary requires informa-
tion reporting under section 6045 by a person described in 
subsection (e)(2) thereof to verify the eligibility of taxpayers 
for the credit allowable by this section, the exception pro-
vided by section 6045(e) shall not apply. 
‘‘(f) RECAPTURE OF CREDIT.— 
‘‘(1) IN GENERAL.—Except as otherwise provided 
in this subsection, if a credit under subsection (a) is 
allowed to a taxpayer, the tax imposed by this chap-
ter shall be increased by 62⁄3 percent of the amount 
of such credit for each taxable year in the recapture 
period. 
‘‘(2) ACCELERATION OF RECAPTURE.—If a tax-
payer disposes of the principal residence with respect 
to which a credit was allowed under subsection (a) 
(or such residence ceases to be the principal residence 
of the taxpayer (and, if married, the taxpayer’s 
spouse)) before the end of the recapture period— 
‘‘(A) the tax imposed by this chapter for the 
taxable year of such disposition or cessation, 
shall be increased by the excess of the amount of 
the credit allowed over the amounts of tax im-
575 
posed by paragraph (1) for preceding taxable 
years, and 
‘‘(B) paragraph (1) shall not apply with re-
spect to such credit for such taxable year or any 
subsequent taxable year. 
‘‘(3) LIMITATION BASED ON GAIN.—In the case of 
the sale of the principal residence to a person who is 
not related to the taxpayer, the increase in tax deter-
mined under paragraph (2) shall not exceed the 
amount of gain (if any) on such sale. Solely for pur-
poses of the preceding sentence, the adjusted basis of 
such residence shall be reduced by the amount of the 
credit allowed under subsection (a) to the extent not 
previously recaptured under paragraph (1). 
‘‘(4) EXCEPTIONS.— 
‘‘(A) DEATH
OF
TAXPAYER.—Paragraphs 
(1) and (2) shall not apply to any taxable year 
ending after the date of the taxpayer’s death. 
‘‘(B) INVOLUNTARY
CONVERSION.—Para-
graph (2) shall not apply in the case of a resi-
dence which is compulsorily or involuntarily 
converted 
(within 
the 
meaning 
of 
section 
1033(a)) if the taxpayer acquires a new prin-
cipal residence during the 2-year period begin-
ning on the date of the disposition or cessation