(1) IN
GENERAL.—Subsection (a) of section
1400B of such Code is amended by striking ‘‘5
years’’ and inserting ‘‘2 years’’.
(2) CONFORMING AMENDMENT.—Paragraph (7)
of section 1400B(b) of such Code is amended—
(A) by striking ‘‘5-YEAR’’ in the heading
and inserting ‘‘2-YEAR’’, and
(B) by striking ‘‘5-year’’ in the text and
inserting ‘‘2-year’’.
(c) MODIFICATIONS TO DEFINITION OF DC ZONE
BUSINESS.—Subsection (c) of section 1400B of such Code
is amended to read as follows:
‘‘(c) DC ZONE BUSINESS.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘DC Zone busi-
ness’ means any entity which is an enterprise zone
business 
(as 
defined 
in 
section 
1397B),
determined—
‘‘(A) after the application of section
1400(c),
‘‘(B) without regard to subsections (b)(1)
and (d)(2)(B) of section 1397B, and
‘‘(C) by treating no area other than the
District of Columbia as an empowerment zone
or enterprise community.
‘‘(2) SPECIAL RULE FOR BUSINESSES HOLDING
INTANGIBLES.—Paragraph (4) of section 1397B(d)
shall not apply in determining whether a business is
a DC Zone business if—
‘‘(A) at least 30 percent of the employees
of such business are residents of the District of
Columbia, and
‘‘(B) at least 50 percent of the wages (as
defined by section 3401(a)) paid by such busi-
ness are paid to residents of the District of Co-
lumbia.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the amend-
ments made by section 701 of the Taxpayer Relief Act
of 1997.
SEC. 3. EXTENSION OF ENTERPRISE ZONE TREATMENT.
(a) EFFECTIVE PERIOD
OF DESIGNATION.—Sub-
section (f) of section 1400 of the Internal Revenue Code
of 1986 is amended by striking ‘‘December 31, 2003’’
each place it appears and inserting ‘‘December 31, 2009’’.
(b) ECONOMIC DEVELOPMENT BONDS.—Subsection
(b) of section 1400A of such Code is amended by striking
‘‘December 31, 2003’’ and inserting ‘‘December 31,
2009’’.
(c) ZERO PERCENT CAPITAL GAINS RATE.—
(1) Paragraphs (2)(A)(i), (3)(A), (4)(A)(i), and
(4)(B)(i)(I) of section 1400B(b) of such Code are
each amended by striking ‘‘January 1, 2004’’ and
inserting ‘‘January 1, 2010’’.
(2) Subsections (e)(2) and (g) of section 1400B
of such Code are each amended by striking ‘‘2008’’
each place it appears and inserting ‘‘2014’’.
SEC. 4. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF
COLUMBIA MADE PERMANENT; OTHER MODI-
FICATIONS.
(a) CREDIT MADE PERMANENT.—Subsection (i) of
section 1400C of the Internal Revenue Code of 1986 (re-
lating to first-time homebuyer credit for District of Co-
lumbia) is amended by striking ‘‘, and before January 1,
2004’’.
(b) TREATMENT
OF PURCHASES IN CONNECTION
WITH DIVORCE.—
(1) IN
GENERAL.—Subsection (c) of section
1400C of such Code is amended by adding at the
end the following new paragraph:
‘‘(4) PURCHASES
IN
CONNECTION
WITH
DI-
VORCE.—Notwithstanding paragraphs (1) and (2),
an individual shall be treated as a first-time home-
buyer with respect to the purchase of any residence
if—
‘‘(A) the sale of the residence is pursuant
to a divorce or separation instrument (as de-
fined in section 71(b)(2)) relating to such indi-
vidual and such individual’s spouse or former
spouse, and
‘‘(B) such residence was the principal resi-
dence of such individual at the time of such sale
or for any period ending not more than a rea-
sonable period before such sale.
The Secretary shall prescribe such regulations as
may be necessary to prevent the abuse of the pur-
poses of this paragraph.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to purchases after the
date of the enactment of this Act.
(c) CREDIT ALLOWED AGAINST REGULAR TAX AND
ALTERNATIVE MINIMUM TAX.—
(1) IN
GENERAL.—Subsection (d) of section
1400C of such Code is amended to read as follows:
‘‘(d) LIMITATION BASED ON AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The credit allowed under
subsection (a) for the taxable year shall not exceed
the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under subpart A of part IV of subchapter A
and section 27 for the taxable year.
‘‘(2) CARRYOVER OF CREDIT.—If the credit al-
lowable under subsection (a) exceeds the limitation
imposed by paragraph (1) for such taxable year,
such excess shall be carried to the succeeding tax-
able year and added to the credit allowable under
subsection (a) for such taxable year.’’
(2) 
CONFORMING
AMENDMENT.—Section
1400C of such Code is amended by striking sub-
section (g) and by redesignating subsections (h) and
(i) as subsections (g) and (h), respectively.
(3) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after the date of the enactment of this Act.
SEC. 5. EXPANSION OF TAX-EXEMPT ECONOMIC DEVELOP-
MENT BONDS.
(a) IN GENERAL.—Section 1400A of the Internal
Revenue Code of 1986, as amended by section 3, is
amended to read as follows:
‘‘SEC. 
1400A. 
TAX-EXEMPT 
ECONOMIC 
DEVELOPMENT
BONDS.
‘‘(a) IN GENERAL.—In the case of the District of Co-
lumbia Enterprise Zone—
‘‘(1) section 1394(c)(1)(A) (relating to limita-
tion on amount of bonds) shall not apply,
‘‘(2) section 1394(b)(3)(A) shall be applied
without regard to section 1397C(d)(4) (relating to
treatment of businesses holding intangibles), and
‘‘(3) section 1394(b)(3)(B)(iii) shall be applied
without regard to the employee residency require-
ment.
‘‘(b) EXEMPTION FROM VOLUME CAP.—Bonds which
are exempt facility bonds by reason of this section shall
be treated as not being private activity bonds for purposes
of section 146.
‘‘(c) PERIOD OF APPLICABILITY.—This section shall
apply to bonds issued during the period beginning on Jan-
uary 1, 1998, and ending on December 31, 2009.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to bonds issued after the date of
the enactment of this Act.
SEC. 6. BONDS OF DISTRICT OF COLUMBIA EXEMPT FROM
STATE AND LOCAL TAXES.
(a) IN GENERAL.—Section 485 of the District of Co-
lumbia Home Rule Act is amended to read as follows: