(2)(B) thereof) shall apply for purposes of this
paragraph.
‘‘(F) POPULATION.—For purposes of this
paragraph, population shall be determined in
accordance with section 146(j).
‘‘(G) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of a
calendar year after 2002, the $2,000,000
and $1.75 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 sub-
stituting ‘calendar year 2001’ for ‘cal-
endar year 1992’ in subparagraph (B)
thereof.
‘‘(ii) ROUNDING.—
‘‘(I) 
In 
the 
case 
of 
the
$2,000,000 
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 $1.75
amount, any increase under clause (i)
which is not a multiple of 5 cents
shall be rounded to the next lowest
multiple of 5 cents.
‘‘(3) PORTION
OF
STATE
CEILING
SET-ASIDE
FOR
CERTAIN
PROJECTS
INVOLVING
QUALIFIED
NONPROFIT ORGANIZATIONS.—
‘‘(A) IN
GENERAL.—Not more than 90
percent of the State homeownership credit ceil-
ing for any State for any calendar year shall be
allocated to projects other than qualified non-
profit housing projects described in subpara-
graph (B).
‘‘(B) PROJECTS
INVOLVING
QUALIFIED
NONPROFIT ORGANIZATIONS.—For purposes of
subparagraph (A), a qualified nonprofit housing
project is described in this subparagraph if a
qualified nonprofit organization is to own an in-
terest in the project (directly or through a part-
nership) and materially participate (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
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 homeownership credit agency
not to be affiliated with or controlled by a
for-profit organization, and
‘‘(iii) 1 of the exempt purposes of
such organization includes the fostering of
low-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
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 (2) shall be construed to permit a State
not to comply with subparagraph (A) of this
paragraph.
‘‘(4) LIMITATION ON ALLOCATIONS TO AREAS
OF CHRONIC ECONOMIC DISTRESS.—No more than
50 percent of a homeownership credit agency’s por-
tion of the State homeownership credit ceiling for a
calendar year may be allocated to residences located
in areas that—
‘‘(A) are designated as areas of chronic
economic distress in accordance with paragraph
(1) of subsection (c), and
‘‘(B) that do not meet the requirements of
clause (i), (ii), or (iii) of subsection (c)(1)(A).
‘‘(5) SPECIAL RULES.—
‘‘(A) RESIDENCE
MUST
BE
LOCATED
WITHIN JURISDICTION OF CREDIT AGENCY.—A
homeownership credit agency may allocate its
aggregate homeownership credit dollar amount
only to qualified residences located in the juris-
diction of the governmental unit of which such
agency is a part.
‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF
LIMIT.—If the aggregate homeownership credit
dollar amounts allocated by a homeownership
credit agency for any calendar year exceed the
portion of the State homeownership credit ceil-
ing allocated to such agency for such calendar
year, the homeownership credit dollar amounts
so allocated shall be reduced (to the extent of
such excess) for residences in the reverse of the
order in which the allocations of such amounts
were made.
‘‘(g) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) 
COMPLETED.—The 
term 
‘completed’
means the point in time where a qualified residence
is first placed in a condition or state of readiness
and availability for occupancy.
‘‘(2) PROJECT.—The term ‘project’ means 1 or
more residences together with functionally related
and subordinate facilities developed and made avail-
able to inhabitants of such residences, including rec-
reational facilities and parking areas. To constitute
a project, each residence must—
‘‘(A) be developed by the same taxpayer
pursuant to common planning and feasibility
studies,
‘‘(B) be financed through a common plan
of construction financing, and
‘‘(C) have common ownership prior to sale.
For purposes of this paragraph, it is not necessary
that all residences within a project be contiguous or
that all residences consist only of either new resi-
dences or existing residences and it is not necessary
that each residence within a project be a qualified
residence.
‘‘(3) QUALIFIED BUYER.—
‘‘(A) IN
GENERAL.—The term ‘qualified
buyer’ means a buyer if at the time of the ac-
quisition of the qualified residence, the buyer—
‘‘(i) is 1 or more individuals whose in-
come does not exceed 80 percent of the
area median gross income (70 percent for
families of less than 3 members), and
‘‘(ii) intends to occupy the residence
as the buyer’s principal residence (within
the meaning of section 121).
‘‘(B) SPECIAL RULES IN QUALIFIED CEN-
SUS
TRACTS.—With respect to residences lo-
cated in qualified census tracts (as defined in
section 42), subparagraph (A) shall be applied
by substituting ‘100 percent’ for ‘80 percent’
and ‘90 percent’ for ‘70 percent’.
‘‘(C) DETERMINATION
OF
INCOME.—For
purposes of this paragraph, a buyer’s income
shall be determined in accordance with section
143(f)(4).
‘‘(4) NEW QUALIFIED RESIDENCE.—The term
‘new qualified residence’ means a qualified residence
the original ownership of which begins with the tax-
payer.
‘‘(5) EXISTING
QUALIFIED
RESIDENCE.—The
term ‘existing qualified residence’ means any quali-
fied residence which is not a new qualified residence.
‘‘(6) HOMEOWNERSHIP CREDIT AGENCY.—The
term ‘homeownership credit agency’ means any
agency authorized to carry out this section.
‘‘(7) POSSESSIONS TREATED AS STATES.—The
term ‘State’ includes the District of Columbia and a
possession of the United States.
‘‘(8) APPLICATION TO ESTATES AND TRUSTS.—
In the case of an estate or trust, the amount of the
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.
‘‘(h) REDUCTION IN TAX BENEFITS.—
‘‘(1) RECAPTURE OF CREDIT.—If within the 5-
year period beginning on the date of the original
purchase of a qualified residence, the residence is
sold, the qualified buyer—
‘‘(A) shall deduct and withhold an amount
equal to the recapture amount from the amount
realized on such sale, and
‘‘(B) shall transfer such amount to the
homeownership credit agency which allocated
the homeownership credit dollar amount to such
residence.
‘‘(2) RECAPTURE
AMOUNT.—For purposes of
paragraph (1), the recapture amount is an amount
equal to the lesser of—
‘‘(A) 50 percent of the gain from such re-
sale, or
‘‘(B) the homeownership credit dollar
amount allocated to such residence, reduced by
1/36th of such amount for each month after the
first 2 years of the 5-year period referred to in
paragraph (1) which is before the date of the
sale referred to in paragraph (1).
‘‘(3) DENIAL OF DEDUCTIONS IF CONVERTED
TO RENTAL HOUSING.—If a qualified residence is
converted to rental housing within the 5-year period
beginning on the date of the original purchase of the
qualified residence, no deduction under this chapter
shall be permitted to offset rental income with re-
spect to such residence during such period.
‘‘(i) APPLICATION OF AT-RISK RULES.—For pur-
poses of this section, rules of section 465 shall not apply
in determining the eligible basis of any qualified residence.
‘‘(j) REPORTS TO THE SECRETARY.—
‘‘(1) FROM
THE
TAXPAYER.—The Secretary
may require taxpayers to submit an information re-
turn (at such time and in such form and manner as
the Secretary prescribes) for each taxable year set-
ting forth—
‘‘(A) the eligible basis for the taxable year
of each qualified residence with respect to which
the taxpayer is claiming a credit under this sec-
tion,
‘‘(B) the amount of all homeownership
credit allocations received by the taxpayer from
any and all State homeownership credit agen-
cies, 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-
retary under the preceding sentence on the date pre-
scribed therefor.
‘‘(2) FROM
HOMEOWNERSHIP
CREDIT
AGEN-
CIES.—Each agency which allocates any homeowner-
ship credit dollar amount to any residence for any
calendar year shall submit to the Secretary (at such
time and in such form and manner as the Secretary
shall prescribe) an annual report specifying—
‘‘(A) the amount of the homeownership
credit dollar amount allocated to each residence
for such year,
‘‘(B) sufficient information to identify each
such residence and the taxpayer initially enti-
tled to claim the credit under this section with
respect thereto, and
‘‘(C) such other information as the Sec-
retary may require.
‘‘(k) RESPONSIBILITIES OF HOMEOWNERSHIP CRED-
IT AGENCIES.—
‘‘(1) PLANS
FOR
ALLOCATION
OF
CREDIT
AMONG RESIDENCES.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of this section, the homeowner-
ship credit dollar amount with respect to any
qualified residence shall be zero unless such
amount was allocated pursuant to a qualified
allocation plan of the homeownership credit
agency which is approved by the governmental
unit (in accordance with rules similar to the
rules of section 147(f)(2) (other than subpara-
graph (B)(ii) thereof)) of which such agency is
a part.
‘‘(B) QUALIFIED ALLOCATION PLAN.—For
purposes of this paragraph, the term ‘qualified
allocation plan’ means any plan which sets forth
selection criteria to be used to determine the
homeownership development priorities of the
homeownership credit agency which are appro-
priate to local conditions.
‘‘(C) CERTAIN
HOMEOWNERSHIP
DEVEL-
OPMENT CRITERIA MUST BE USED.—The devel-
opment criteria set forth in a qualified alloca-
tion plan must include—
‘‘(i) contribution of the development
to community stability and revitalization,
‘‘(ii) community and local government
support for the development,
‘‘(iii) need for homeownership develop-
ment within the area,
‘‘(iv) sponsor capability, and
‘‘(v) long-term sustainability of the
project as owner-occupied residences.
‘‘(2) CREDIT ALLOCATED TO RESIDENCE NOT
TO EXCEED AMOUNT NECESSARY TO ASSURE FEASI-
BILITY.—
‘‘(A) IN
GENERAL.—The homeownership
credit dollar amount allocated to a residence
shall not exceed the amount the homeownership
credit agency determines is necessary for the
feasibility of the residence.
‘‘(B) AGENCY
EVALUATION.—In making
the determination under subparagraph (A), the
homeownership credit agency shall consider—
‘‘(i) the sources and uses of funds and
the total financing planned for the resi-
dence,
‘‘(ii) any proceeds or receipts expected
to be generated by reason of tax benefits,
‘‘(iii) the anticipated appraised value
of the residence,
‘‘(iv) the reasonableness of the devel-
opmental costs of the residence, and
‘‘(v) the affordability to a reasonable
range of prospective qualified buyers.
‘‘(C) DETERMINATION MADE WHEN CRED-
IT DOLLAR AMOUNT APPLIED FOR.—A deter-
mination under subparagraph (A) shall be made
as of each of the following times:
‘‘(i) The application for the home-
ownership credit dollar amount.
‘‘(ii) The allocation of the homeowner-
ship credit dollar amount.
‘‘(3) LIEN FOR RECAPTURE AMOUNT.—A home-
ownership credit dollar amount may be allocated by
a homeownership credit agency to a residence only
if such agency has a lien on such residence for the
payment of any amount potentially required to be
paid under subsection (h) to such agency.
‘‘(l) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including
regulations—
‘‘(1) dealing with—
‘‘(A) projects which include more than 1
residence or only a portion of a residence, and
‘‘(B) buildings which are completed in por-
tions,
‘‘(2) providing for the application of this section
to short taxable years,
‘‘(3) preventing the avoidance of the rules of
this section, and
‘‘(4) providing the opportunity for homeowner-
ship credit agencies to correct administrative errors
and omissions with respect to allocations and record-
keeping within a reasonable period after their dis-
covery, taking into account the availability of regula-
tions and other administrative guidance from the
Secretary.’’.
(b) CURRENT YEAR BUSINESS CREDIT CALCULA-
TION.—Section 38(b) (relating to current year business
credit) is amended by redesignating paragraphs (6)
through (15) as paragraphs (7) through (16), respectively,
and by inserting after paragraph (5) the following new
paragraph:
‘‘(6) the homeownership credit determined
under section 42A(a),’’.
(c) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 (relating to carryback and carryforward of un-
used credits) is amended by adding at the end the fol-
lowing:
‘‘(11) NO
CARRYBACK
OF
HOMEOWNERSHIP
CREDIT BEFORE EFFECTIVE DATE.—No amount of
unused business credit available under section 42A
may be carried back to a taxable year beginning on
or before the date of the enactment of this para-
graph.’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 55(c)(1) is amended by inserting
‘‘or subsection (h) or (i) of section 42A’’ after ‘‘sec-
tion 42’’.
(2) Subsections (i)(3)(D), (i)(6)(B)(i), and
(k)(1) of section 469 are each amended by inserting
‘‘or 42A’’ after ‘‘section 42’’.
(3) Section 772(a) is amended by striking
‘‘and’’ at the end of paragraph (10), by redesig-
nating paragraph (11) as paragraph (12), and by in-
serting after paragraph (10) the following:
‘‘(11) the homeownership credit determined
under section 42A, and’’.
(4) Section 774(b)(4) is amended by inserting
‘‘, 42A(h),’’ after ‘‘section 42(j)’’.
(e) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by inserting after the item relating to section
42 the following:
‘‘Sec. 42A. Community homeownership credit.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to qualified residences sold after
the date of the enactment of this Act.
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