(2) Subsection (a) of section 1016 (relating to 
general rule for adjustments to basis), as amended 
by the Economic Growth and Tax Relief Reconcili-
ation Act of 2001, is amended by striking ‘‘and’’ at 
the end of paragraph (27), by striking the period at 
the end of paragraph (28) and inserting ‘‘, and’’, 
and by adding at the end the following: 
‘‘(29) in the case of a residence with respect to 
which a credit was allowed under section 25C, to the 
extent provided in section 25C(g).’’. 
(3) Section 24(b)(3)(B), as added and amended 
by the Economic Growth and Tax Relief Reconcili-
ation Act of 2001, is amended by striking ‘‘23 and 
25B’’ and inserting ‘‘23, 25B, and 25C’’. 
(4) Section 25(e)(1)(C) is amended by striking 
‘‘23 and 1400C’’ and by inserting ‘‘23, 25C, and 
1400C’’. 
(5) Section 25(e)(1)(C), as amended by the 
Economic Growth and Tax Relief Reconciliation Act 
of 2001, is amended by inserting ‘‘25C,’’ after 
‘‘25B,’’. 
(6) Section 25B, as added by the Economic 
Growth and Tax Relief Reconciliation Act of 2001, 
is amended by striking ‘‘section 23’’ and inserting 
‘‘sections 23 and 25C’’.
(7) Section 26(a)(1), as amended by the Eco-
nomic Growth and Tax Relief Reconciliation Act of 
2001, is amended by striking ‘‘and 25B’’ and insert-
ing ‘‘25B, and 25C’’. 
(8) Section 1400C(d) is amended by inserting 
‘‘and section 25C’’ after ‘‘this section’’. 
(9) Section 1400C(d), as amended by the Eco-
nomic Growth and Tax Relief Reconciliation Act of 
2001, is amended by striking ‘‘and 25B’’ and insert-
ing ‘‘25B, and 25C’’. 
(10) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 is amended by in-
serting before the item relating to section 26 the fol-
lowing:
‘‘Sec. 25C. Purchase of residences by certain rural homebuyers.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
subsections (a) and (b)(10) shall apply to purchases 
after the date of the enactment of this Act, in tax-
able years ending after such date. 
(2) TEMPORARY CONFORMING AMENDMENTS.—
The amendments made by paragraphs (1), (4), and 
(8) of subsection (b) shall apply to taxable years 
ending before January 1, 2003. 
(3) PERMANENT CONFORMING AMENDMENTS.—
The amendments made by paragraphs (2), (3), (5),
(6), (7), and (9) of subsection (b) shall apply to tax-
able years beginning after December 31, 2002. 
SEC. 103. CAPITAL LOSS DEDUCTION ALLOWED WITH RE-
SPECT TO SALE OR EXCHANGE OF PRINCIPAL 
RESIDENCE IN CERTAIN RURAL AREAS. 
(a) IN GENERAL.—Subsection (c) of section 165 (re-
lating to limitation on losses of individuals) is amended—
(1) by striking ‘‘and’’ at the end of paragraph 
(2), 
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; and’’, and 
(3) by adding at the end the following: 
‘‘(4) losses arising from the sale or exchange of 
the principal residence (within the meaning of sec-
tion 121) of the taxpayer located in a qualifying 
county (as defined in section 223(b)(2)), but only if 
the principal residence was acquired by the taxpayer 
after the date of enactment of this paragraph.’’. 
(b) CONFORMING AMENDMENT.—Section 67(b)(3) is 
amended by striking ‘‘paragraph (2) or (3)’’ and inserting 
‘‘paragraph (2), (3), or (4)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales and exchanges after the 
date of the enactment of this Act, in taxable years ending 
after such date.
SEC. 104. INDIVIDUAL HOMESTEAD ACCOUNTS. 
(a) IN GENERAL.—Subchapter F of chapter 1 (relat-
ing to exempt organizations) is amended by adding at the 
end the following:
‘‘PART IX—INDIVIDUAL HOMESTEAD ACCOUNTS
‘‘Sec. 530A. Individual homestead accounts.
‘‘SEC. 530A. INDIVIDUAL HOMESTEAD ACCOUNTS. 
‘‘(a) GENERAL RULE.—An individual homestead ac-
count shall be exempt from taxation under this subtitle. 
Notwithstanding the preceding sentence, any individual 
homestead account shall be subject to the taxes imposed 
by section 511 (relating to imposition of tax on unrelated 
business income of charitable, etc., organizations). 
‘‘(b) INDIVIDUAL HOMESTEAD ACCOUNT.—For pur-
poses of this title, the term ‘individual homestead account’ 
means a trust created or organized in the United States 
for the exclusive benefit of a qualified individual or his 
beneficiaries, but only if the written governing instrument 
creating the trust meets the following requirements: 
‘‘(1) Except in the case of a qualified rollover 
(as defined in subsection (f)(7))—
‘‘(A) no contribution will be accepted un-
less it is in cash; 
‘‘(B) contributions will not be accepted for 
the taxable year in excess of $2,500 (deter
mined without regard to any contribution made 
under subsection (d)); and 
‘‘(C) contributions will not be accepted for 
any taxable year following the fifth taxable year 
in which the qualified individual has contributed 
to any individual homestead account. 
‘‘(2) The requirements of paragraphs (2) 
through (6) of section 408(a) are met. 
‘‘(c) QUALIFIED INDIVIDUAL; QUALIFYING COUN-
TY.—For purposes of this section—
‘‘(1) QUALIFIED INDIVIDUAL.—The term ‘quali-
fied individual’ means, for any taxable year, an indi-
vidual who is a bona fide resident of a qualifying 
county. 
‘‘(2) QUALIFYING COUNTY.—The term ‘quali-
fying county’ means any county which—
‘‘(A) is outside a metropolitan statistical 
area (defined as such by the Office of Manage-
ment and Budget), and 
‘‘(B) during the 20-year period ending 
with the calendar year preceding the date of the 
enactment of this section, has a net out-migra-
tion of inhabitants from the county of at least 
10 percent of the population of the county at 
the beginning of such period.
‘‘(d) MATCHING CONTRIBUTIONS
TO INDIVIDUAL 
HOMESTEAD ACCOUNTS.—
‘‘(1) IN GENERAL.—Not less than once each 
taxable year, the Secretary shall deposit (to the ex-
tent provided in appropriation Acts) into an indi-
vidual Homestead account of each qualified indi-
vidual an amount equal to the applicable percentage 
of the sum of the amounts deposited into all of the 
individual homestead accounts of such individual 
during such taxable year (determined without regard 
to any amount contributed under this subsection). 
‘‘(2) APPLICABLE PERCENTAGE.—(A) For pur-
poses of this subsection, the applicable percentage 
with respect to any qualified individual for any tax-
able year shall be determined in accordance with the 
following tables:
‘‘If modified adjusted gross 
income is: 
The applicable percentage is: 
$30,000 or less .........................................................................
100
Over $30,000 but not over $60,000 ........................................
Over $60,000 but not over $100,000 ......................................
Over $100,000 .........................................................................
zero.
‘‘(B) In the case of a head of household (as de-
fined in section 2(b)):
‘‘If modified adjusted gross 
income is: 
The applicable percentage is: 
$22,500 or less .........................................................................
100
Over $22,500 but not over $45,000 ........................................
Over $45,000 but not over $75,000 ........................................
Over $75,000 ...........................................................................
zero.
‘‘(C) In the case of any other individual:
‘‘If modified adjusted gross 
income is: 
The applicable percentage is: 
$15,000 or less .........................................................................
100
Over $15,000 but not over $30,000 ........................................
Over $30,000 but not over $50,000 ........................................
Over $50,000 ...........................................................................
zero.
For purposes of this paragraph, the term ‘modified 
adjusted gross income’ has the meaning given such 
term by section 86(b)(2). 
‘‘(3) EXCLUSION
FROM
INCOME.—Except as 
otherwise provided in this section, gross income shall 
not include any amount deposited into an individual 
homestead account under paragraph (1). 
‘‘(4) FORFEITURE
OF
MATCHING
CONTRIBU-
TIONS IN THE CASE OF CERTAIN DISTRIBUTIONS.—
In the event of a distribution from an individual 
homestead account before the date described in sub-
section (f)(1)(A) (other than a distribution described 
in subsection (e)(2)(A)), the account holder shall 
forfeit the corresponding matching contributions and 
interest earned on the matching contributions, un-
less such distribution is recontributed to such ac-
count within 6 months of such distribution. 
‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of an in-
dividual homestead account shall be includible in the
income, to the extent that such payment or distribu-
tion—
‘‘(A) is paid or distributed after the 5-tax-
able year period beginning with the first taxable 
year in which the qualified individual made a 
contribution to the individual homestead ac-
count (including any predecesser account), and 
‘‘(B) is used exclusively to pay qualified in-
dividual homestead expenses for the qualified 
individual or the spouse or dependent (as de-
fined in section 152) of such individual. 
‘‘(2) QUALIFIED INDIVIDUAL HOMESTEAD EX-
PENSES.—The term ‘qualified individual homestead 
expenses’ means any of the following: 
‘‘(A) Qualified higher education expenses. 
‘‘(B) Qualified first-time homebuyer costs. 
‘‘(C) 
Qualified 
business 
capitalization 
costs. 
‘‘(D) Qualified medical expenses. 
‘‘(E) Qualified rollovers. 
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified 
higher education expenses’ has the meaning 
given such term by section 72(t)(7), determined
by treating postsecondary vocational edu-
cational schools as eligible educational institu-
tions. 
‘‘(B) POSTSECONDARY VOCATIONAL EDU-
CATION SCHOOL.—The term ‘postsecondary vo-
cational educational school’ means an area vo-
cational education school (as defined in sub-
paragraph (C) or (D) of section 521(4) of the 
Carl D. Perkins Vocational and Applied Tech-
nology Education Act (20 U.S.C. 2471(4))) 
which is in any State (as defined in section 
521(33) of such Act), as such sections are in 
effect on the date of the enactment of this sec-
tion. 
‘‘(C) COORDINATION WITH OTHER BENE-
FITS.—The amount of qualified higher edu-
cation expenses for any taxable year shall be re-
duced as provided in section 25A(g)(2). 
‘‘(4) 
QUALIFIED
FIRST-TIME
HOMEBUYER 
COSTS.—The term ‘qualified first-time homebuyer 
costs’ means qualified acquisition costs (as defined 
in section 72(t)(8) without regard to subparagraph 
(B) thereof) with respect to a principal residence 
(within the meaning of section 121) located in a
qualifying county for a qualified first-time home-
buyer (as defined in section 72(t)(8)). 
‘‘(5) QUALIFIED
BUSINESS
CAPITALIZATION 
COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified 
business capitalization costs’ means qualified 
expenditures for the capitalization of a qualified 
business pursuant to a qualified plan. 
‘‘(B) 
QUALIFIED
EXPENDITURES.—The 
term ‘qualified expenditures’ means expendi-
tures included in a qualified plan, including 
capital, plant, equipment, working capital, and 
inventory expenses. 
‘‘(C) QUALIFIED
BUSINESS.—The term 
‘qualified business’ means any trade or business 
located in a qualifying county other than any 
trade or business—
‘‘(i) which consists of the operation of 
any 
facility 
described 
in 
section 
144(c)(6)(B), or 
‘‘(ii) which contravenes any law. 
Rules similar to the rules under subsection (b) 
or (c) of section 1397C shall apply to any quali-
fied business under this section.
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which meets 
such requirements as the Secretary may specify. 
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The 
term ‘qualified medical expenses’ means any amount 
paid during the taxable year, not compensated for by 
insurance or otherwise, for medical care (as defined 
in section 213(d)) of the taxpayer, his spouse, or his 
dependent (as defined in section 152). 
‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from an indi-
vidual homestead account of a taxpayer into another 
such account established for the benefit of— 
‘‘(A) such taxpayer, or 
‘‘(B) any qualified individual who is—
‘‘(i) the spouse of such taxpayer, or 
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer. 
Rules similar to the rules of section 408(d)(3) shall 
apply for purposes of this paragraph. 
‘‘(g) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section, 
rules similar to the rules of section 408(e) shall 
apply.
‘‘(2) OTHER RULES TO APPLY.—Rules similar 
to the rules of paragraphs (4), (5), and (6) of sec-
tion 408(d) shall apply for purposes of this section. 
‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) ALL
ACCOUNTS
TREATED
AS
ONE
AC-
COUNT.—All individual homestead accounts of a 
qualified individual shall be treated as 1 account. 
‘‘(2) TIME
WHEN
CONTRIBUTIONS
DEEMED 
MADE.—A taxpayer shall be deemed to have made a 
contribution to an individual homestead account on 
the last day of the preceding taxable year if the con-
tribution is made on account of such taxable year 
and is made not later than the time prescribed by 
law for filing the return for such taxable year (not 
including extensions thereof). 
‘‘(3) CUSTODIAL ACCOUNTS.—Rules similar to 
the rules of section 408(h) shall apply. 
‘‘(4) REPORTS.—The trustee of an individual 
homestead account shall make such reports regard-
ing such account to the Secretary and to the indi-
vidual for whom the account is maintained with re-
spect to contributions (and the years to which they 
relate), distributions, and such other matters as the