‘‘(B) which (or any portion of which)— 
‘‘(i) is owned by the taxpayer, and 
‘‘(ii) is used (or will, within a reason-
able period, be used) by such taxpayer as 
his principal residence. 
‘‘(2) SUBSTANTIALLY
REHABILITATED.—The 
term ‘substantially rehabilitated’ has the meaning 
given such term by section 47(c)(1)(C). 
‘‘(3) PRINCIPAL RESIDENCE.—The term ‘prin-
cipal residence’ has the same meaning as when used 
in section 121. 
‘‘(4) CERTIFIED HISTORIC STRUCTURE.— 
‘‘(A) IN
GENERAL.—The term ‘certified 
historic structure’ means any building (and its 
structural components) which— 
‘‘(i) is listed in the National Register, 
or 
‘‘(ii) is located in a registered historic 
district (as defined in section 47(c)(3)(B)) 
and is certified by the Secretary of the In-
terior as being of historic significance to 
the district. 
‘‘(5) REHABILITATION NOT COMPLETE BEFORE 
CERTIFICATION.—A rehabilitation shall not be treat-
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ed as complete before the date of the certification re-
ferred to in subsection (c). 
‘‘(6) TENANT-STOCKHOLDER IN COOPERATIVE 
HOUSING
CORPORATION.—If the taxpayer holds 
stock as a tenant-stockholder (as defined in section 
216) in a cooperative housing corporation (as de-
fined in such section), such stockholder shall be 
treated as owning the house or apartment which the 
taxpayer is entitled to occupy as such stockholder. 
‘‘(e) LIMITATION BASED ON AMOUNT OF TAX.— 
‘‘(1) IN GENERAL.—In the case of a taxable 
year to which section 26(a)(2) does not apply, 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 (other than this section and 
section 25D) and section 27 for the taxable 
year. 
‘‘(2) CARRYFORWARD OF UNUSED CREDIT.— 
‘‘(A) IN GENERAL.—If the credit allowable 
under subsection (a) for any taxable year ex-
ceeds the applicable tax limit for such taxable 
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year, such excess shall be a carryforward to 
each of the 5 succeeding taxable years and, sub-
ject to the limitations of subparagraph (B), 
shall be added to the credit allowable by sub-
section (a) for such succeeding taxable year. 
‘‘(B) AMOUNT CARRIED TO EACH YEAR.— 
Rules similar to the rules of section 39(a)(2) 
shall apply for purposes of this paragraph. 
‘‘(C) LIMITATION.—The amount of the un-
used credit which may be taken into account 
under subparagraph (A) for any taxable year 
shall not exceed the amount (if any) by which 
the applicable tax limit for such taxable year 
exceeds the sum of— 
‘‘(i) the credit allowable under sub-
section (a) for such taxable year deter-
mined without regard to this paragraph, 
and 
‘‘(ii) the amounts which, by reason of 
this paragraph, are carried to such taxable 
year and are attributable to taxable years 
before the unused credit year. 
‘‘(3) APPLICABLE TAX LIMIT.—For purposes of 
this paragraph, the term ‘applicable tax limit’ 
means— 
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‘‘(A) in the case of a taxable year to which 
section 26(a)(2) applies, the limitation imposed 
by section 26(a)(2) for the taxable year reduced 
by the sum of the credits allowable under this 
subpart (other than this section and section 
25D), and 
‘‘(B) in the case of a taxable year to which 
section 26(a)(2) does not apply, the limitation 
imposed by section 26(a)(1) for the taxable year 
reduced by the sum of the credits allowable 
under this subpart (other than this section and 
sections 24, 25A(i), 25B, 25D, 30, 30B, 30D). 
‘‘(f) WHEN
EXPENDITURES
TAKEN
INTO
AC-
COUNT.—Qualified rehabilitation expenditures shall be 
treated for purposes of this section as made— 
‘‘(1) on the date the rehabilitation is completed, 
or 
‘‘(2) to the extent provided by the Secretary by 
regulation, when such expenditures are properly 
chargeable to capital account. 
Regulations under paragraph (2) shall include a rule simi-
lar to the rule under section 50(a)(2) (relating to recap-
ture if property ceases to qualify for progress expendi-
tures). 
‘‘(g) RECAPTURE.— 
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‘‘(1) IN GENERAL.—If, before the end of the 5- 
year period beginning on the date on which the reha-
bilitation of the building is completed— 
‘‘(A) the taxpayer disposes of such tax-
payer’s interest in such building, or 
‘‘(B) such building ceases to be used as the 
principal residence of the taxpayer or ceases to 
be a certified historic structure, 
the taxpayer’s tax imposed by this chapter for the 
taxable year in which such disposition or cessation 
occurs shall be increased by the recapture percent-
age of the credit allowed under this section for all 
prior taxable years with respect to such rehabilita-
tion. 
‘‘(2) RECAPTURE PERCENTAGE.—For purposes 
of paragraph (1), the recapture percentage shall be 
determined in accordance with the table under sec-
tion 50(a)(1)(B), deeming such table to be amend-
ed— 
‘‘(A) by striking ‘If the property ceases to 
be investment credit property within—’ and in-
serting ‘If the disposition or cessation occurs 
within—’, and 
‘‘(B) in clause (i) by striking ‘One full year 
after placed in service’ and inserting ‘One full 
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smartinez on DSK6TPTVN1PROD with BILLS
year after the taxpayer becomes entitled to the 
credit’. 
‘‘(3) TRANSFER BETWEEN SPOUSES OR INCI-
DENT TO DIVORCE.—In the case of any transfer de-
scribed in subsection (a) of section 1041 (relating to 
transfers between spouses or incident to divorce)— 
‘‘(A) the foregoing provisions of this sub-
section shall not apply, and 
‘‘(B) the same tax treatment under this 
subsection with respect to the transferred prop-
erty shall apply to the transferee as would have 
applied to the transferor. 
‘‘(h) BASIS ADJUSTMENTS.—For purposes of this 
subtitle, if a credit is allowed under this section for any 
expenditure with respect to any property, the increase in 
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(i) PROCESSING FEES.—Any State may impose a 
fee for the processing of applications for the certification 
of any rehabilitation under this section provided that the 
amount of such fee is used only to defray expenses associ-
ated with the processing of such applications. 
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‘‘(j) DENIAL OF DOUBLE BENEFIT.—No credit shall 
be allowed under this section for any amount for which 
credit is allowed under section 47. 
‘‘(k) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be appropriate to carry out the 
purposes of this section, including regulations where less 
than all of a building is used as a principal residence and 
where more than 1 taxpayer use the same dwelling unit 
as their principal residence.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) 
Sections 
24(b)(3)(C), 
25(e)(1)(C), 
25B(g)(2), 
26(a)(1), 
30B(g)(2)(B)(ii), 
and 
1400C(d)(2) of such Code are each amended by in-
serting ‘‘25E,’’ after ‘‘25D,’’. 
(2) Sections 25A(i)(5)(A) and 30(c)(2)(B) of 
such Code are each amended by inserting ‘‘, 25E,’’ 
after ‘‘25D’’. 
(3) Sections 30D(c)(2)(B)(ii) and 1400C(d)(1) 
of such Code are each amended by striking ‘‘section 
25D’’ and inserting ‘‘sections 25D and 25E’’. 
(4) Paragraph (1) of section 1400C(d) of such 
Code is amended by striking ‘‘section 25D’’ and in-
serting ‘‘sections 25D and 25E’’. 
(5) Subsection (a) of section 1016 of such Code 
is amended by striking ‘‘and’’ at the end of para-
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