‘‘(B) BINDING
CONTRACTS.—A residence
shall be treated as purchased during the eligi-
bility period if—
‘‘(i) during the eligibility period, the
purchaser enters into a binding contract to
purchase the residence, and
‘‘(ii) the purchaser purchases and oc-
cupies the residence on or before the date
3 months after the last day of the eligi-
bility period.
For purposes of clause (i), a contract shall not
fail to be treated as binding merely because it
is contingent on financing or on the condition
of the residence.
‘‘(2) PURCHASE.—The term ‘purchase’ means
any acquisition of property, but only if—
‘‘(A) the property is not acquired from a
person whose relationship to the person acquir-
ing it would result in the disallowance of losses
under section 267 or 707(b), and
‘‘(B) the basis of the property in the hands
of the person acquiring it is not determined—
‘‘(i) in whole or in part by reference
to the adjusted basis of such property in
the hands of the person from whom ac-
quired, or
‘‘(ii) under section 1014(a) (relating
to property acquired from a decedent).
‘‘(3) PRINCIPAL RESIDENCE.—The term ‘prin-
cipal residence’ has the same meaning as when used
in section 1034.
‘‘(4) PURCHASE
PRICE.—The term ‘purchase
price’ means the adjusted basis of the residence on
the date of its acquisition.
‘‘(e) CARRYOVER OF UNUSED CREDIT.—
‘‘(1) IN GENERAL.—If—
‘‘(A) the credit allowable under subsection
(a) exceeds
‘‘(B) the limitation imposed by section
26(a) reduced by the sum of the credits allow-
able under sections 21 and 22,
such excess shall be carried to the succeeding tax-
able year and shall be allowable under subsection (a)
for such succeeding taxable year.
‘‘(2) 5-YEAR
LIMIT
ON
CARRYFORWARD.—No
amount may be carried under paragraph (1) to any
taxable year after the 5th taxable year after the tax-
able year in which the residence is purchased.
‘‘(f) RECAPTURE OF CREDIT FOR CERTAIN DISPOSI-
TIONS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), if the taxpayer disposes of prop-
erty with respect to the purchase of which a credit
was allowed under subsection (a) and such disposi-
tion occurs at any time within 36 months after the
date the taxpayer acquired the property as his prin-
cipal residence, then the tax imposed under this
chapter for the taxable year in which the disposition
occurs is increased by an amount equal to the
amount allowed as a credit for the purchase of such
property.
‘‘(2) ACQUISITION OF NEW RESIDENCE.—If, in
connection with a disposition described in paragraph
(1) and within the applicable period prescribed in
section 1034, the taxpayer purchases a new principal
residence, then paragraph (1) shall not apply and
the tax imposed by this chapter for the taxable year
in which the new principal residence is purchased is
increased to the extent the amount of the credit that
could be claimed under this section on the purchase
of the new residence (were such residence the first
residence purchased during the eligibility period) is
less than the amount of credit claimed by the tax-
payer under this section.
‘‘(3) DEATH OF OWNER; CASUALTY LOSS; IN-
VOLUNTARY
CONVERSION; 
ETC.—Paragraph (1)
shall not apply to—
‘‘(A) a disposition of a residence made on
account of the death of any individual having a
legal or equitable interest therein occurring dur-
ing the 36-month period referred to in para-
graph (1),
‘‘(B) a disposition of the old residence if it
is substantially or completely destroyed by a
casualty described in section 165(c)(3) or
compulsorily or involuntarily converted (within
the meaning of section 1033(a)), or
‘‘(C) a disposition pursuant to a settlement
in a divorce or legal separation proceeding
where the residence is sold or the other spouse
retains the residence as a principal residence.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1
of such Code is amended by inserting after the item relat-
ing to section 22 the following new item:
‘‘Sec. 23. Purchase of principal residence by first-time home-
buyer.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
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