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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‘‘(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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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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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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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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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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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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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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‘‘(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 2024, 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 2023’ 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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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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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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‘‘(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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‘‘(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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‘‘(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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‘‘(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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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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discount rate such applicable Federal rate. For pur-
poses of the preceding sentence, the rate of interest 
on any financing shall be determined by treating in-
terest to the extent of government subsidies as not 
payable. 
‘‘(4) FAILURE TO FULLY REPAY.— 
‘‘(A) IN GENERAL.—To the extent that the 
requirements of paragraph (2)(D) are not met, 
then the taxpayer’s tax under this chapter for 
the taxable year in which such failure occurs 
shall be increased by an amount equal to the 
applicable portion of the credit under this sec-
tion with respect to such building, increased by 
an amount of interest for the period— 
‘‘(i) beginning with the due date for 
the filing of the return of tax imposed by 
chapter 1 for the 1st taxable year for 
which such credit was allowable, and 
‘‘(ii) ending with the due date for the 
taxable year in which such failure occurs, 
determined by using the underpayment rate and 
method under section 6621. 
‘‘(B) APPLICABLE
PORTION.—For pur-
poses of subparagraph (A), the term ‘applicable 
portion’ means the aggregate decrease in the 
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credits allowed to a taxpayer under section 38 
for all prior taxable years which would have re-
sulted if the eligible basis of the building were 
reduced by the amount of financing which does 
not meet requirements of paragraph (2)(D). 
‘‘(C) CERTAIN
RULES
TO
APPLY.—Rules 
similar to the rules of subparagraphs (A) and 
(D) of section 42(j)(4) shall apply for purposes 
of this subsection. 
‘‘(k) CERTIFICATIONS AND OTHER REPORTS TO SEC-
RETARY.— 
‘‘(1) CERTIFICATION
WITH
RESPECT
TO
1ST 
YEAR OF CREDIT PERIOD.—Following the close of 
the 1st taxable year in the credit period with respect 
to any qualified middle-income building, the tax-
payer shall certify to the Secretary (at such time 
and in such form and in such manner as the Sec-
retary prescribes)— 
‘‘(A) the taxable year, and calendar year, 
in which such building was placed in service, 
‘‘(B) the adjusted basis and eligible basis 
of such building as of the close of the 1st year 
of the credit period, 
‘‘(C) the maximum applicable percentage 
and qualified basis permitted to be taken into 
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account by the appropriate housing credit agen-
cy under subsection (h), and 
‘‘(D) such other information as the Sec-
retary may require. 
In the case of a failure to make the certification re-
quired by the preceding sentence on the date pre-
scribed therefor, unless it is shown that such failure 
is due to reasonable cause and not to willful neglect, 
no credit shall be allowable by reason of subsection 
(a) with respect to such building for any taxable 
year ending before such certification is made. 
‘‘(2) ANNUAL REPORTS TO THE SECRETARY.— 
The Secretary may require taxpayers to submit an 
information return (at such time and in such form 
and manner as the Secretary prescribes) for each 
taxable year setting forth— 
‘‘(A) the qualified basis for the taxable 
year of each qualified middle-income building of 
the taxpayer, 
‘‘(B) the information described in para-
graph (1)(C) for the taxable year, and 
‘‘(C) such other information as the Sec-
retary may require. 
The penalty under section 6652(j) shall apply to any 
failure to submit the return required by the Sec-
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retary under the preceding sentence on the date pre-
scribed therefor. 
‘‘(3) ANNUAL REPORTS FROM HOUSING CREDIT 
AGENCIES.—Each agency which allocates any hous-
ing credit amount to any building for any calendar 
year shall submit to the Secretary (at such time and 
in such manner as the Secretary shall prescribe) an 
annual report specifying— 
‘‘(A) the amount of housing credit amount 
allocated to each building for such year, 
‘‘(B) sufficient information to identify each 
such building and the taxpayer with respect 
thereto, and 
‘‘(C) such other information as the Sec-
retary may require. 
The penalty under section 6652(j) shall apply to any 
failure to submit the report required by the pre-
ceding sentence on the date prescribed therefor. 
‘‘(l) RESPONSIBILITIES OF HOUSING CREDIT AGEN-
CIES.— 
‘‘(1) PLANS
FOR
ALLOCATION
OF
CREDIT 
AMONG PROJECTS.— 
‘‘(A) IN GENERAL.—Notwithstanding any 
other provision of this section, the housing cred-
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it dollar amount with respect to any building 
shall be zero unless— 
‘‘(i) such amount was allocated pursu-
ant to a qualified allocation plan of the 
housing credit agency which is approved by 
the governmental unit (in accordance with 
rules similar to the rules of section 
42(m)(1)) of which such agency is a part, 
‘‘(ii) a comprehensive market study of 
the housing needs of middle-income indi-
viduals in the area to be served by the 
project is conducted before the credit allo-
cation is made and at the developer’s ex-
pense by a disinterested party who is ap-
proved by such agency, and 
‘‘(iii) a written explanation is available 
to the general public for any allocation of 
a housing credit dollar amount which is 
not made in accordance with established 
priorities and selection criteria of the hous-
ing credit agency. 
‘‘(B) QUALIFIED ALLOCATION PLAN.—For 
purposes of this paragraph, the term ‘qualified 
allocation plan’ means any plan— 
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‘‘(i) which sets forth selection criteria 
to be used to determine housing priorities 
of the housing credit agency which are ap-
propriate to local conditions, 
‘‘(ii) which also gives preference in al-
locating housing credit dollar amounts 
among selected projects to— 
‘‘(I) projects obligated to serve 
qualified tenants for the longest peri-
ods, 
‘‘(II) projects in areas with insuf-
ficient supply of housing affordable to 
median income households, 
‘‘(III) projects which target hous-
ing to tenants at a range of incomes 
between 60 and 100 percent of area 
median gross income, and 
‘‘(IV) projects located near tran-
sit hubs, and 
‘‘(iii) which provides a procedure that 
the agency (or an agent or other private 
contractor of such agency) will follow in 
monitoring for noncompliance with the 
provisions of this section and in notifying 
the Internal Revenue Service of such non-
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compliance which such agency becomes 
aware of and in monitoring for noncompli-
ance with habitability standards through 
regular site visits. 
‘‘(C) CERTAIN SELECTION CRITERIA MUST 
BE USED.—The selection criteria set forth in a 
qualified allocation plan must include— 
‘‘(i) project location, 
‘‘(ii) housing needs characteristics, 
‘‘(iii) project characteristics, including 
whether the project includes the use of ex-
isting housing as part of a community revi-
talization plan, 
‘‘(iv) sponsor characteristics, 
‘‘(v) tenant populations with special 
housing needs, 
‘‘(vi) tenant populations of individuals 
with children, 
‘‘(vii) projects intended for eventual 
tenant ownership, 
‘‘(viii) the energy efficiency of the 
project, and 
‘‘(ix) the historic nature of the 
project. 
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