509 
(B) Subparagraph (C) of section 42(i)(2) is 
amended— 
(i) by striking ‘‘or below market Fed-
eral loan’’ in the matter preceding clause 
(i), 
(ii) in clause (i)— 
(I) by striking ‘‘or loan (when 
issued or made)’’ and inserting ‘‘(when 
issued)’’, and 
(II) by striking ‘‘the proceeds of 
such obligation or loan’’ and inserting 
‘‘the proceeds of such obligation’’, and 
(iii) by striking ‘‘, and such loan is re-
paid,’’ in clause (ii). 
(C) Paragraph (2) of section 42(i) is 
amended by striking subparagraphs (D) and 
(E). 
(c) EFFECTIVE DATE.—The amendments made by this 
subsection shall apply to buildings placed in service after 
the date of the enactment of this Act. 
SEC. 603. MODIFICATIONS TO DEFINITION OF ELIGIBLE 
BASIS. 
(a) INCREASE IN CREDIT FOR CERTAIN STATE DES-
IGNATED
BUILDINGS.—Subparagraph 
(C) 
of 
section 
42(d)(5) (relating to increase in credit for buildings in high
510 
cost areas), before redesignation under subsection (f), is 
amended by adding at the end the following new clause: 
‘‘(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 
order for such building to be financially fea-
sible as part of a qualified low-income hous-
ing project shall be treated for purposes of 
this subparagraph as located in a difficult 
development area which is designated for 
purposes of this subparagraph. The pre-
ceding sentence shall not apply to any 
building if paragraph (1) of subsection (h) 
does not apply to any portion of the eligible 
basis of such building by reason of para-
graph (4) of such subsection.’’. 
(b) MODIFICATION
TO REHABILITATION REQUIRE-
MENTS.— 
(1) 
IN
GENERAL.—Clause 
(ii) 
of 
section 
42(e)(3)(A) is amended— 
(A) by striking ‘‘10 percent’’ in subclause 
(I) and inserting ‘‘20 percent’’, and
511 
(B) by striking ‘‘$3,000’’ in subclause (II) 
and inserting ‘‘$6,000’’. 
(2) INFLATION ADJUSTMENT.—Paragraph (3) of 
section 42(e) is amended by adding at the end the fol-
lowing new subparagraph: 
‘‘(D) INFLATION ADJUSTMENT.—In the case 
of any expenditures which are treated under 
paragraph (4) as placed in service during any 
calendar year after 2009, the $6,000 amount in 
subparagraph (A)(ii)(II) shall be increased by 
an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such cal-
endar year by substituting ‘calendar year 
2008’ for ‘calendar year 1992’ in subpara-
graph (B) thereof. 
Any increase under the preceding sentence which 
is not a multiple of $100 shall be rounded to the 
nearest multiple of $100.’’. 
(3) CONFORMING
AMENDMENT.—Subclause (II) 
of section 42(f)(5)(B)(ii) is amended by striking ‘‘if 
subsection (e)(3)(A)(ii)(II)’’ and all that follows and 
inserting ‘‘if the dollar amount in effect under sub-
512 
section (e)(3)(A)(ii)(II) were two-thirds of such 
amount.’’. 
(c) INCREASE IN ALLOWABLE COMMUNITY SERVICE 
FACILITY SPACE FOR SMALL PROJECTS.—Clause (ii) of sec-
tion 42(d)(4)(C) (relating to limitation) is amended by 
striking ‘‘10 percent of the eligible basis of the qualified low- 
income housing project of which it is a part. For purposes 
of’’ and inserting ‘‘the sum of— 
‘‘(I) 15 percent of so much of the 
eligible basis of the qualified low-in-
come housing project of which it is a 
part as does not exceed $5,000,000, 
plus 
‘‘(II) 10 percent of so much of the 
eligible basis of such project as is not 
taken into account under subclause (I). 
For purposes of’’. 
(d) CLARIFICATION
OF TREATMENT
OF FEDERAL 
GRANTS.—Subparagraph (A) of section 42(d)(5) is amend-
ed to read as follows: 
‘‘(A) FEDERAL
GRANTS
NOT
TAKEN
INTO 
ACCOUNT
IN
DETERMINING
ELIGIBLE
BASIS.— 
The eligible basis of a building shall not include 
any costs financed with the proceeds of a Feder-
ally funded grant.’’.
513 
(e) SIMPLIFICATION OF RELATED PARTY RULES.— 
Clause (iii) of section 42(d)(2)(D), before redesignation 
under subsection (f)(2), is amended— 
(1) by striking all that precedes subclause (II), 
(2) by redesignating subclause (II) as clause (iii) 
and moving such clause two ems to the left, and 
(3) by striking the last sentence thereof. 
(f) REPEAL OF DEADWOOD.— 
(1) Clause (ii) of section 42(d)(2)(B) is amended 
by striking ‘‘the later of—’’ and all that follows and 
inserting ‘‘the date the building was last placed in 
service,’’. 
(2) Subparagraph (D) of section 42(d)(2) is 
amended by striking clause (i) and by redesignating 
clauses (ii) and (iii) as clauses (i) and (ii), respec-
tively. 
(3) Paragraph (5) of section 42(d) is amended 
by striking subparagraph (B) and by redesignating 
subparagraph (C) as subparagraph (B). 
(g) EFFECTIVE DATE.—The amendments made by this 
subsection shall apply to buildings placed in service after 
the date of the enactment of this Act.