‘‘(II) the aggregate homeowner-
ship credit dollar amount allocated for 
such year. 
‘‘(iii) FORMULA FOR ALLOCATION OF 
UNUSED
HOMEOWNERSHIP
CREDIT 
CARRYOVERS
AMONG
QUALIFIED 
STATES.—The amount allocated under this 
subparagraph to a qualified State for any 
calendar year shall be the amount deter-
mined by the Secretary to bear the same 
ratio to the aggregate unused homeowner-
ship credit carryovers of all States for the 
preceding calendar year as such State’s 
population for the calendar year bears to 
the population of all qualified States for 
the calendar year. 
‘‘(iv) QUALIFIED
STATE.—For pur-
poses of this subparagraph, the term 
‘qualified State’ means, with respect to a 
calendar year, any State—
‘‘(I) which allocated its entire 
State homeownership credit ceiling for 
the preceding calendar year, and 
‘‘(II) for which a request is made 
(not later than May 1 of the calendar
year) to receive an allocation under 
clause (iii). 
‘‘(E) 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. 
‘‘(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 2003, 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 2002’ 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 regula-
tions—
‘‘(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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