Sec. 11101. Increases in State allocations

Sec. 11201. Average income test applicability to exempt facility bonds

Sec. 11202. Codification of rules relating to increased tenant income

Sec. 11203. Modification of student occupancy rules

Sec. 11204. Tenant voucher payments taken into account as rent for certain purposes

Sec. 11205. Requirement that low-income housing credit-supported housing protect victims of domestic abuse

Sec. 11206. Clarification of general public use requirement relating to veterans, etc

Sec. 11301. Reconstruction or replacement period after casualty loss

Sec. 11302. Modification of previous ownership rules; limitation on acquisition basis

Sec. 11303. Certain relocation costs taken into account as rehabilitation expenditures

Sec. 11304. Repeal of qualified census tract population cap

Sec. 11305. Determination of community revitalization plan to be made by housing credit agency

Sec. 11306. Prohibition of local approval and contribution requirements

Sec. 11307. Increase in credit for certain projects designated to serve extremely low-income households

Sec. 11308. Increase in credit for bond-financed projects designated by State agency

Sec. 11309. Elimination of basis reduction for low-income housing properties energy efficient commercial building deduction

Sec. 11310. Restriction of planned foreclosures

Sec. 11311. Increase of population cap for difficult development areas

Sec. 11312. Increased cost oversight and accountability

Sec. 11401. Selection criteria under qualified allocation plans

Sec. 11402. Inclusion of Indian areas as difficult development areas for purposes of certain buildings

Sec. 11501. Inclusion of rural areas as difficult development areas

Sec. 11502. Uniform income eligibility for rural projects

Sec. 11601. Revision and clarification of the treatment of refunding issues

Sec. 11701. Treatment of veteran disability compensation or pension payments for purposes of low income housing tax credit and residential rental project bonds

Sec. 11801. Additional housing credit allocations for certain populations who face unique barriers to affordable housing

Sec. 11901. Repeal of qualified contract option

Sec. 11902. Modification and clarification of rights relating to building purchase

(a) In general

Subpart E of part IV of subchapter A of chapter 1 is amended by inserting after section 48E the following new section:

48F. Affordable housing conversion credit

(a) Allowance of credit

For purposes of section 46, the affordable housing conversion credit for any taxable year is an amount equal to 20 percent of the qualified conversion expenditures of the taxpayer with respect to a qualified affordable housing building placed in service by the taxpayer during the taxable year.

(b) Qualified conversion expenditures

For purposes of this section—

(1) In general

The term qualified conversion expenditures means, with respect to any qualified affordable housing building, any amount properly chargeable to capital account—

(A)

for property for which depreciation is allowable under section 168, and

(B)

in connection with the qualified conversion of a qualified affordable housing building.

(2) Certain expenditures not included

The term qualified conversion expenditures does not include—

(A) Limitation on period of conversion

Except as provided in subsection (f), any amount paid or incurred other than during the 2-year period ending on the date on which the taxpayer places the qualified affordable housing building in service.

(B) Cost of acquisition

The cost of acquiring any building or interest therein.

(3) Special rule for brownfields

Paragraph (1)(A) shall not apply with respect to any expenditure for clean up of qualifying brownfield property (as defined in section 512(b)(19)).

(4) Coordination with rehabilitation credit

In the case of any qualified conversion expenditures which are taken into account for purposes of determining the rehabilitation credit under section 47, the amount of such expenditures taken into account under this section (determined without regard to this paragraph) shall be reduced by 50 percent.

(c) Qualified conversion

For purposes of this section—

(1) In general

The term qualified conversion means the conversion of an eligible commercial building into a qualified affordable housing building if the qualified conversion expenditures of the taxpayer with respect to such conversion exceed the greater of—

(A)

an amount equal to 50 percent of the adjusted basis of such building (determined immediately prior to such conversion), or

(B)

$100,000.

(2) Eligible commercial building

The term eligible commercial building means any building which, with respect to any conversion—

(A)

was originally placed in service not less than 20 years before the date on which such conversion begins, and

(B)

immediately prior to such conversion, was nonresidential real property (as defined in section 168).

(d) Qualified affordable housing building

For purposes of this section—

(1) In general

The term qualified affordable housing building means any residential building if during the 30-year period beginning on the date on which such building is placed in service by the taxpayer, not less than 20 percent of the residential units in the building are both rent-restricted and reserved for individuals whose income is 80 percent or less of the area median income.

(2) Rent and income limitation

For purposes of this subsection, rules similar to the rules of subsection (g) of section 42 shall apply to determine whether a unit is rent-restricted, treatment of units occupied by individuals whose incomes rise above the limit, and the treatment of units where Federal rental assistance is reduced as tenant’s income increases.

(e) Limitation on aggregate credit allowable

(1) Credit may not exceed credit amount allocated to building

(A) In general

The amount of the credit determined under this section with respect to any building shall not exceed the qualified conversion credit dollar amount allocated to such building under this subsection by the housing credit agency of the State in which such building is located.

(B) Time for making allocation

Except in the case of an allocation which meets the requirements of subparagraph (C), an allocation shall be taken into account under subparagraph (A) only if it is made not later than the close of the calendar year in which the building is placed in service.

(C) Exception where binding commitment

An allocation meets the requirements of this subparagraph if there is a binding commitment (not later than the close of the calendar year in which the building is placed in service) by the housing credit agency to allocate a specified housing credit dollar amount to such building beginning in a later taxable year.

(2) State limitation

(A) In general

The aggregate qualified conversion credit dollar amount which a housing credit agency of any State may allocate is the sum of—

(i)

the amount which bears the same ratio to the national qualified conversion credit limitation as—

(I)

the population of such State, bears to

(II)

the population of all States, plus

(ii)

the sum of any amounts determined under subparagraph (C).

(B) National qualified conversion credit limitation

The national qualified conversion credit limitation is $12,000,000,000.

(C) Additional amounts provided for certain buildings in economically distressed areas

(i) In general

For purposes of subparagraph (A)(ii), in any case in which—

(I)

the housing credit agency of a State allocates an amount to a building which is located in an economically distressed area, and

(II)

the Secretary subsequently designates such amount for purposes of this paragraph,

the amount determined under this paragraph with respect to such building shall be the amount originally allocated by the housing credit agency of the State under clause (i).

(ii) Limitation

The aggregate amount which the Secretary may designate under clause (i)(II) shall not exceed $3,000,000,000.

(iii) Manner of designation

Not later than 120 days after the date of the enactment of this section, the Secretary shall establish a program for determining the designation of amounts that may be designated under this subparagraph.

(D) Reallocation of certain amounts

(i) In general

Notwithstanding subparagraph (A)—

(I)

no amount may be allocated under paragraph (1) by a housing credit agency of an undersubscribed State after December 31, 2028, and

(II)

the dollar amount determined under subparagraph (A) with respect to any oversubscribed State after such date shall be increased by such State’s share of the reallocation amount.

(ii) State share

For purposes of clause (i), an oversubscribed State's share of the reallocation amount is the amount which bears the same ratio to the reallocation amount as—

(I)

the population of such State, bears to

(II)

the population of all oversubscribed States.

(iii) Definitions

For purposes of this subparagraph—

(I) Undersubscribed State

The term undersubscribed State means any State that is not an oversubscribed State.

(II) Oversubscribed State

The term oversubscribed State means any State the housing credit agency of which has allocated all of the qualified conversion credit dollar amount which may be allocated by it before the date described in clause (i)(I).

(III) Reallocation amount

The term reallocation amount means the sum of the amounts described in subparagraph (A) which have not been allocated by undersubscribed States before the date described in clause (i)(I).

(3) Manner of allocation

(A) Plan for allocation

(i) In general

Notwithstanding any other provision of this section, the qualified conversion credit dollar amount with respect to any building shall be zero unless such amount was allocated pursuant to a conversion credit allocation plan of the housing credit agency which is approved by the governmental unit (in accordance with rules similar to the rules of section 147(f)(2) (other than subparagraph (B)(ii) thereof)) of which such agency is a part.

(ii) Conversion credit allocation plan

For purposes of this subparagraph, the term conversion credit allocation plan means a plan—

(I)

which sets selection criteria for allocations, taking into account—

(aa)

whether the credit is needed to assure the financial feasibility of the conversion,

(bb)

the extent to which the conversion results in the creation of affordable housing,

(cc)

the extent to which the conversion results in the creation of housing near transportation, employment, and commercial opportunities,

(dd)

the extent to which the conversion will support small businesses and economic revitalization in the surrounding area,

(ee)

the degree of local government support for the conversion, and

(ff)

the readiness of the building for a qualified conversion, and

(II)

which provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the requirements of subsection (d) and in notifying the Internal Revenue Service of such noncompliance.

(B) Binding allocation agreements; reporting

In making allocations of qualified conversion credit dollar amounts, each housing credit agency shall—

(i)

enter into binding agreements with taxpayers for the allocation of qualified conversion credit dollar amounts, which agreements shall specify the amount of qualified conversion credit dollar amount allocated to the building and the terms for any modifications or withdrawal of such allocation, and

(ii)

report to the Secretary, at such time and in such manner as the Secretary may require, the amount of allocations made with respect to any building.

(C) State extended use requirements permitted past 30 years

For purposes of this paragraph, a housing credit agency’s plan shall not fail to be treated as a conversion credit allocation plan merely because it includes, and nothing in this section shall be construed to limit a binding allocation agreement from including, affordability or rent restriction requirements with respect to the building that apply for a longer period than the 30-year period described in subsections (d) and (g)(1)(B).

(4) Definitions and other rules

(A) Housing credit agency

The term housing credit agency means, with respect to any State, the housing credit agency authorized under section 42(h)(8) or such other agency as authorized by the State for purposes of this section.

(B) Economically distressed area

The term economically distressed area means any area which—

(i)

has been designated as a qualified census tract under section 42(d)(5)(B)(ii) or as a difficult development area under section 42(d)(5)(B)(iii), or

(ii)

meets the requirement of section 301(a)(3) of the Public Works and Economic Development Act of 1965.

(C) State

The term State includes a possession of the United States.

(D) Other rules

Rules similar to the rules of subparagraphs (A) and (B) of section 42(h)(7) shall apply for purposes of this section.

(f) Progress expenditures

If the Secretary determines, on the basis of architectural plans and specifications that a qualified conversion is reasonably expected to exceed 2 years, rules similar to the rules of section 47(d) shall apply with respect to such conversion for purposes of this section.

(g) Special rules for certain areas

(1) Qualified census tracts and difficult development areas

In the case of a qualified affordable housing building—

(A)

which is located in any area which is designated as a qualified census tract under section 42(d)(5)(B)(ii) or as a difficult development area under section 42(d)(5)(B)(iii), and

(B)

with respect to which during 30-year period beginning on the date on which such building is placed in service by the taxpayer, not less than 20 percent of the residential units in the building are both rent-restricted and reserved for individuals whose income is 60 percent or less of the area median income,

subsection (a) shall be applied by substituting 30 percent for 20 percent.

(2) Historic preservation in rural areas

(A) In general

In the case of a qualified affordable housing building which is in a rural area and is part of an historic preservation project, the taxpayer may elect to substitute 35 percent for 20 percent under subsection (a) with respect to such portion of the aggregate qualified conversion expenditures taken into account under such subsection as does not exceed $2,000,000.

(B) Definitions

For purposes of this paragraph—

(i) Rural area

The term rural area shall have the meaning given such term under section 1393(a)(2).

(ii) Historic preservation project

The term historic preservation project means a qualified conversion which involves the certified rehabilitation of a certified historic structure. Whether conversion of a certified historic structure involves certified rehabilitation shall be determined under rules similar to the rules of section 47(c)(2)(C).

(h) Regulations

The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—

(1)

providing for the recapture of the credit determined under subsection (a) if the qualified affordable housing building ceases to be a qualified affordable housing building during the 30-year period beginning on the date that such building is placed in service by the taxpayer,

(2)

detailing any certifications required from the taxpayer or any housing credit agency of a State,

(3)

with respect to the application of subsection (b)(4),

(4)

with respect to information reporting on allocations of qualified conversion credit dollar amounts,

(5)

providing rules for making a determination as to whether an area is described in subsection (e)(4)(B), and

(6)

which encourages housing credit agencies to allocate, to the extent practicable, qualified conversion credit dollar amounts to non-metropolitan counties within a State in proportion to the non-metropolitan population of the State, but only to the extent it is demonstrated within such non-metropolitan counties that there are sufficient qualified conversion expenditures to warrant such allocations.

(b) Transferability of credit

Section 6418(f)(1)(A) is amended by adding at the end the following new clause:

(xiii)

The affordable housing conversion credit determined under section 48F.

(c) Conforming amendments

(d) Effective date

The amendments made by this section shall apply to qualified affordable housing buildings (as defined in section 48F of the Internal Revenue Code of 1986, as added by this section) placed in service after the date of the enactment of this Act.

(a) In general

Subpart D of part IV of subchapter A of chapter 1 is amended by inserting after section 42 the following new section:

42A. Neighborhood homes credit

(a) Allowance of credit

For purposes of section 38, the neighborhood homes credit determined under this section for the taxable year is, with respect to each qualified residence sold by the taxpayer during such taxable year in an affordable sale, the lesser of—

(1)

an amount equal to—

(A)

the excess (if any) of—

(i)

the reasonable development costs paid or incurred by the taxpayer with respect to such qualified residence, over

(ii)

the sale price of such qualified residence (reduced by any reasonable expenses paid or incurred by the taxpayer in connection with such sale), or

(B)

if the neighborhood homes credit agency determines it is necessary to ensure financial feasibility, an amount not to exceed 120 percent of the amount under subparagraph (A),

(2)

40 percent of the eligible development costs paid or incurred by the taxpayer with respect to such qualified residence, or

(3)

32 percent of the national median sale price for new homes (as determined pursuant to the most recent census data available as of the date on which the neighborhood homes credit agency makes an allocation for the qualified project).

(b) Development costs

For purposes of this section—

(1) Reasonable development costs

(A) In general

The term reasonable development costs means amounts paid or incurred for the acquisition of buildings and land, construction, substantial rehabilitation, demolition of structures, or environmental remediation, to the extent that the neighborhood homes credit agency determines that such amounts meet the standards specified pursuant to subsection (f)(1)(D) (as of the date on which construction or substantial rehabilitation is substantially complete, as determined by such agency) and are necessary to ensure the financial feasibility of such qualified residence.

(B) Considerations in making determination

In making the determination under subparagraph (A), the neighborhood homes credit agency shall consider—

(i)

the sources and uses of funds and the total financing,

(ii)

any proceeds or receipts generated or expected to be generated by reason of tax benefits, and

(iii)

the reasonableness of the developmental costs and fees.

(2) Eligible development costs

The term eligible development costs means the amount which would be reasonable development costs if the amounts taken into account as paid or incurred for the acquisition of buildings and land did not exceed 75 percent of such costs determined without regard to any amount paid or incurred for the acquisition of buildings and land.

(3) Substantial rehabilitation

The term substantial rehabilitation means amounts paid or incurred for rehabilitation of a qualified residence if such amounts exceed the greater of—

(A)

$25,000, or

(B)

20 percent of the amounts paid or incurred by the taxpayer for the acquisition of buildings and land with respect to such qualified residence.

(4) Construction and rehabilitation only after allocation taken into account

(A) In general

The terms reasonable development costs and eligible development costs shall not include any amount paid or incurred before the date on which an allocation is made to the taxpayer under subsection (e) with respect to the qualified project of which the qualified residence is part unless such amount is paid or incurred for the acquisition of buildings or land.

(B) Land and building acquisition costs

Amounts paid or incurred for the acquisition of buildings or land shall be included under paragraph (A) only if paid or incurred not more than 3 years before the date on which the allocation referred to in subparagraph (A) is made. If the taxpayer acquired any building or land from an entity (or any related party to such entity) that holds an ownership interest in the taxpayer, then such entity must also have acquired such property within such 3-year period, and the acquisition cost included under subparagraph (A) with respect to the taxpayer shall not exceed the amount such entity paid or incurred to acquire such property.

(c) Qualified residence

For purposes of this section—

(1) In general

The term qualified residence means a residence that—

(A)

is real property (constructed on-site or manufactured off-site) affixed on a permanent foundation,

(B)

is—

(i)

a house which is comprised of 4 or fewer residential units,

(ii)

a condominium unit, or

(iii)

a house or an apartment owned by a cooperative housing corporation (as defined in section 216(b)),

(C)

is part of a qualified project with respect to which the neighborhood homes credit agency has made an allocation under subsection (e), and

(D)

is located in a qualified census tract (determined as of the date of such allocation).

(2) Qualified census tract

(A) In general

The term qualified census tract means a census tract—

(i)

which—

(I)

has a median family income which does not exceed 80 percent of the median family income for the applicable area,

(II)

has a poverty rate that is not less than 130 percent of the poverty rate of the applicable area, and

(III)

has a median value for owner-occupied homes that does not exceed the median value for owner-occupied homes in the applicable area,

(ii)

which—

(I)

is located in a city which has a population of not less than 50,000 and such city has a poverty rate that is not less than 150 percent of the poverty rate of the applicable area,

(II)

has a median family income which does not exceed the median family income for the applicable area, and

(III)

has a median value for owner-occupied homes that does not exceed 80 percent of the median value for owner-occupied homes in the applicable area,

(iii)

which—

(I)

is located in a nonmetropolitan county,

(II)

has a median family income which does not exceed the median family income for the applicable area, and

(III)

has been designated by a neighborhood homes credit agency under this clause,

(iv)

which is not otherwise a qualified census tract and is located in a disaster area (as defined in section 7508A(d)(3)), but only with respect to credits allocated in any period during which the President of the United States has determined that such area warrants individual or individual and public assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, or

(v)

which is not otherwise a qualified census tract and is identified by the neighborhood homes credit agency, through methodologies detailed in the qualified allocation plan, as having a shortage of affordable owner-occupied homes.

(B) Applicable area

The term applicable area means—

(i)

in the case of a metropolitan census tract, the metropolitan area in which such census tract is located, and

(ii)

in the case of a census tract other than a census tract described in clause (i), the State.

(d) Affordable sale

For purposes of this section—

(1) In general

The term affordable sale means a sale to a qualified homeowner of a qualified residence that the neighborhood homes credit agency certifies as meeting the standards promulgated under subsection (f)(1)(D) for a price that does not exceed—

(A)

in the case of any qualified residence not described in subparagraph (B), (C), or (D), the amount equal to the product of 4 multiplied by the median family income for the applicable area (as determined pursuant to the most recent census data available as of the date of the contract for such sale),

(B)

in the case of a house comprised of 2 residential units, 125 percent of the amount described in subparagraph (A),

(C)

in the case of a house comprised of 3 residential units, 150 percent of the amount described in subparagraph (A), or

(D)

in the case of a house comprised of 4 residential units, 175 percent of the amount described in subparagraph (A).

(2) Qualified homeowner

The term qualified homeowner means, with respect to a qualified residence, an individual—

(A)

who owns and uses such qualified residence as the principal residence of such individual, and

(B)

whose family income (determined as of the date that a binding contract for the affordable sale of such residence is entered into) is 140 percent or less of the median family income for the applicable area in which the qualified residence is located.

(e) Credit ceiling and allocations

(1) Credit limited based on allocations to qualified projects

(A) In general

The credit allowed under subsection (a) to any taxpayer for any taxable year with respect to one or more qualified residences which are part of the same qualified project shall not exceed the excess (if any) of—

(i)

the amount allocated by the neighborhood homes credit agency under this paragraph to such taxpayer with respect to such qualified project, over

(ii)

the aggregate amount of credit allowed under subsection (a) to such taxpayer with respect to qualified residences which are a part of such qualified project for all prior taxable years.

(B) Deadline for completion

No credit shall be allowed under subsection (a) with respect to any qualified residence unless the affordable sale of such residence is during the 5-year period beginning on the date of the allocation to the qualified project of which such residence is a part (or, in the case of a qualified residence to which subsection (i) applies, the rehabilitation of such residence is completed during such 5-year period).

(2) Limitations on allocations to qualified projects

(A) Allocations limited by State neighborhood homes credit ceiling

The aggregate amount allocated to taxpayers with respect to qualified projects by the neighborhood homes credit agency of any State for any calendar year shall not exceed the State neighborhood homes credit amount of such State for such calendar year.

(B) Set-aside for certain projects involving qualified nonprofit organizations

Rules similar to the rules of section 42(h)(5) shall apply for purposes of this section.

(3) Determination of State neighborhood homes credit ceiling

(A) In general

The State neighborhood homes credit amount for a State for a calendar year is an amount equal to the sum of—

(i)

the greater of—

(I)

the product of $9, multiplied by the State population (determined in accordance with section 146(j)), or

(II)

$12,000,000, and

(ii)

any amount previously allocated to any taxpayer with respect to any qualified project by the neighborhood homes credit agency of such State which can no longer be allocated to any qualified residence because the 5-year period described in paragraph (1)(B) expires during calendar year.

(B) 3-year carryforward of unused limitation

The State neighborhood homes credit amount for a State for a calendar year shall be increased by the excess (if any) of the State neighborhood homes credit amount for such State for the preceding calendar year over the aggregate amount allocated by the neighborhood homes credit agency of such State during such preceding calendar year. Any amount carried forward under the preceding sentence shall not be carried past the third calendar year after the calendar year in which such credit amount originally arose, determined on a first-in, first-out basis.

(f) Responsibilities of neighborhood homes credit agencies

(1) In general

Notwithstanding subsection (e), the State neighborhood homes credit dollar amount shall be zero for a calendar year unless the neighborhood homes credit agency of the State—

(A)

allocates such amount pursuant to a qualified allocation plan of the neighborhood homes credit agency,

(B)

subject to paragraph (2), allocates not more than 20 percent of amounts allocated in the previous year (or for allocations made in the first allocation year under this section, not more than 20 percent of the neighborhood homes credit ceiling for such year) to projects with respect to qualified residences which—

(i)

are located in census tracts described in subsection (c)(2)(A)(iii), (c)(2)(A)(iv), (i)(5), or

(ii)

are not located in a qualified census tract but meet the requirements of subsection (i)(8),

(C)

subject to paragraph (2), in addition to any allocation described in subparagraph (B), allocates not more than 20 percent of amounts allocated in the previous year (or for allocations made in the first allocation year under this section, not more than 20 percent of the neighborhood homes credit ceiling for such year) to projects with respect to qualified residences which are located in any census tract described in subsection (c)(2)(A)(v), except that, with respect to any qualified residence located within such census tract which is sold to a qualified homeowner, subsection (d)(2) shall be applied by substituting 120 percent for 140 percent,

(D)

promulgates standards with respect to reasonable qualified development costs and fees,

(E)

promulgates standards with respect to construction quality which are consistent with building codes or other standards required by the State or local jurisdiction in which the project is located,

(F)

in the case of any neighborhood homes credit agency which makes an allocation to a qualified project which includes any qualified residence to which subsection (i) applies, promulgates standards with respect to protecting the owners of such residences, including the capacity of such owners to pay rehabilitation costs not covered by the credit provided by this section and providing for the disclosure to such owners of their rights and responsibilities with respect to the rehabilitation of such residences,

(G)

submits to the Secretary (at such time and in such manner as the Secretary may prescribe) an annual report specifying—

(i)

the amount of the neighborhood homes credits allocated to each qualified project for the previous year,

(ii)

with respect to each qualified residence completed in the preceding calendar year—

(I)

the census tract in which such qualified residence is located,

(II)

with respect to the qualified project that includes such qualified residence, the year in which such project received an allocation under this section,

(III)

whether such qualified residence was new, substantially rehabilitated and sold to a qualified homeowner, or substantially rehabilitated pursuant to subsection (i),

(IV)

the eligible development costs of such qualified residence,

(V)

the amount of the neighborhood homes credit with respect to such qualified residence,

(VI)

the sales price of such qualified residence, if applicable, and

(VII)

the family income of the qualified homeowner (expressed as a percentage of the applicable area median family income for the location of the qualified residence), and

(iii)

such other information as the Secretary may require,

(H)

makes available to the general public a written explanation for any allocation of a neighborhood homes credit dollar amount which is not made in accordance with established priorities and selection criteria of the neighborhood homes credit agency, and

(I)

provide educational outreach on application and compliance requirements, including for small residential builders and remodelers.

(2) Alternative for certain States

(A) In general

In the case of any State which, for a calendar year, is an applicable State (as defined in subparagraph (B)), in lieu of the requirements under subparagraphs (B) and (C) of paragraph (1), the neighborhood homes credit agency of the State may elect to allocate not more than 40 percent of amounts allocated in the previous year (or for allocations made in the first allocation year under this section, not more than 40 percent of the neighborhood homes credit ceiling for such year) to projects with respect to qualified residences which are described in either subparagraph (B) or (C) of paragraph (1).

(B) Applicable State

For purposes of this paragraph, the term applicable State means a State which, for purposes of the determining the amount under subsection (e)(3)(A)(i) for the calendar year with respect to such State, received the amount described in subclause (II) of such subsection.

(3) Qualified allocation plan

For purposes of this subsection, the term qualified allocation plan means any plan which—

(A)

sets forth the selection criteria to be used to prioritize qualified projects for allocations of State neighborhood homes credit dollar amounts, including—

(i)

the need for new or substantially rehabilitated owner-occupied homes in the area addressed by the project,

(ii)

the expected contribution of the project to neighborhood stability and revitalization, including the impact on neighborhood residents,

(iii)

the capability and prior performance of the project sponsor, and

(iv)

the likelihood the project will result in long-term homeownership,

(B)

has been made available for public comment,

(C)

as determined by the neighborhood homes credit agency, is likely to result in the selection of highly qualified applicants while also minimizing, to the extent practicable, application costs and barriers to entry for small residential builders and re-modelers, and

(D)

provides a procedure that the neighborhood homes credit agency (or any agent or contractor of such agency) shall follow for purposes of—

(i)

identifying noncompliance with any provisions of this section, and

(ii)

notifying the Internal Revenue Service of any such noncompliance of which the agency becomes aware.

(g) Repayment

(1) In general

(A) Sold during 5-year period

If a qualified residence is sold during the 5-year period beginning immediately after the affordable sale of such qualified residence referred to in subsection (a), the seller shall transfer an amount equal to the repayment amount to the relevant neighborhood homes credit agency.

(B) Use of repayments

A neighborhood homes credit agency shall use any amount received pursuant to subparagraph (A) only for purposes of qualified projects.

(2) Repayment amount

For purposes of paragraph (1)(A)—

(A) In general

The repayment amount is an amount equal to the applicable percentage of the gain from the sale to which the repayment relates.

(B) Applicable percentage

For purposes of subparagraph (A), the applicable percentage is 50 percent, reduced by 10 percentage points for each year of the 5-year period referred to in paragraph (1)(A) which ends before the date of such sale.

(3) Lien for repayment amount

A neighborhood homes credit agency receiving an allocation under this section shall place a lien on each qualified residence that is built or rehabilitated as part of a qualified project for an amount such agency deems necessary to ensure potential repayment pursuant to paragraph (1)(A).

(4) Waiver

(A) In general

The neighborhood homes credit agency may waive the repayment required under paragraph (1)(A) if the agency determines that making a repayment would constitute a hardship to the seller.

(B) Hardship

For purposes of subparagraph (A), with respect to the seller, a hardship may include—

(i)

divorce,

(ii)

disability,

(iii)

illness, or

(iv)

any other hardship identified by the neighborhood homes credit agency for purposes of this paragraph.

(h) Other definitions and special rules

For purposes of this section—

(1) Neighborhood homes credit agency

The term neighborhood homes credit agency means the agency designated by the governor of a State as the neighborhood homes credit agency of the State.

(2) Qualified project

The term qualified project means a project that a neighborhood homes credit agency certifies will build or substantially rehabilitate one or more qualified residences.

(3) Determinations of family income

Rules similar to the rules of section 143(f)(2) shall apply for purposes of this section.

(4) Possessions treated as states

The term State includes the District of Columbia and the possessions of the United States.

(5) Special rules related to condominiums and cooperative housing corporations

(A) Determination of development costs

In the case of a qualified residence described in clause (ii) or (iii) of subsection (c)(1)(A), the reasonable development costs and eligible development costs of such qualified residence shall be an amount equal to such costs, respectively, of the entire condominium or cooperative housing property in which such qualified residence is located, multiplied by a fraction—

(i)

the numerator of which is the total floor space of such qualified residence, and

(ii)

the denominator of which is the total floor space of all residences within such property.

(B) Tenant-stockholders of cooperative housing corporations treated as owners

In the case of a cooperative housing corporation (as such term is defined in section 216(b)), a tenant-stockholder shall be treated as owning the house or apartment which such person is entitled to occupy.

(6) Related party sales not treated as affordable sales

(A) In general

A sale between related persons shall not be treated as an affordable sale.

(B) Related persons

For purposes of this paragraph, a person (in this subparagraph referred to as the related person) is related to any person if the related person bears a relationship to such person specified in section 267(b) or 707(b)(1), or the related person and such person are engaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52). For purposes of the preceding sentence, in applying section 267(b) or 707(b)(1), 10 percent shall be substituted for 50 percent.

(7) Inflation adjustment

(A) In general

In the case of a calendar year after 2026, the dollar amounts in subsections (b)(3)(A), (e)(3)(A)(i)(I), (e)(3)(A)(i)(II), and (i)(2)(C) shall each be increased by an amount equal to—

(i)

such dollar amount, multiplied by

(ii)

the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting calendar year 2025 for calendar year 2016 in subparagraph (A)(ii) thereof.

(B) Rounding

(i)

In the case of the dollar amounts in subsections (b)(3)(A) and (i)(2)(C), any increase under paragraph (1) which is not a multiple of $1,000 shall be rounded to the nearest multiple of $1,000.

(ii)

In the case of the dollar amount in subsection (e)(3)(A)(i)(I), any increase under paragraph (1) which is not a multiple of $0.01 shall be rounded to the nearest multiple of $0.01.

(iii)

In the case of the dollar amount in subsection (e)(3)(A)(i)(II), any increase under paragraph (1) which is not a multiple of $100,000 shall be rounded to the nearest multiple of $100,000.

(8) Report

(A) In general

The Secretary shall annually issue a report, to be made available to the public, which contains the information submitted pursuant to subsection (f)(1)(G).

(B) De-identification

The Secretary shall ensure that any information made public pursuant to subparagraph (A) excludes any information that would allow for the identification of qualified homeowners.

(9) List of qualified census tracts

The Secretary of Housing and Urban Development shall, for each year, make publicly available a list of qualified census tracts under—

(A)

on a combined basis, clauses (i) and (ii) of subsection (c)(2)(A),

(B)

clause (iii) of such subsection, and

(C)

subsection (i)(5)(A).

(10) Denial of deductions if converted to rental housing

If, during the 5-year period beginning immediately after the affordable sale of a qualified residence referred to in subsection (a), an individual who owns a qualified residence (whether or not such individual was the purchaser in such affordable sale) fails to use such qualified residence as such individual’s principal residence for any period of time, no deduction shall be allowed for expenses paid or incurred by such individual with respect to renting, during such period of time, such qualified residence.

(i) Application of credit with respect to owner-Occupied rehabilitations

(1) In general

In the case of a qualified rehabilitation by the taxpayer of any qualified residence which is owned (as of the date that the written binding contract referred to in paragraph (3) is entered into) by a specified homeowner, the rules of paragraphs (2) through (7) shall apply.

(2) Alternative credit determination

In the case of any qualified residence described in paragraph (1), the neighborhood homes credit determined under subsection (a) with respect to such residence shall (in lieu of any credit otherwise determined under subsection (a) with respect to such residence) be allowed in the taxable year during which the qualified rehabilitation is completed (as determined by the neighborhood homes credit agency) and shall be equal to the least of—

(A)

the excess (if any) of—

(i)

the amounts paid or incurred by the taxpayer for the qualified rehabilitation of the qualified residence to the extent that such amounts are certified by the neighborhood homes credit agency (at the time of the completion of such rehabilitation) as meeting the standards specified pursuant to subsection (f)(1)(D), over

(ii)

any amounts paid to such taxpayer for such rehabilitation,

(B)

50 percent of the amounts described in subparagraph (A)(i), or

(C)

$50,000.

(3) Qualified rehabilitation

(A) In general

For purposes of this subsection, the term qualified rehabilitation means a rehabilitation or reconstruction performed pursuant to a written binding contract between the taxpayer and the specified homeowner if the amount paid or incurred by the taxpayer in the performance of such rehabilitation or reconstruction exceeds the dollar amount in effect under subsection (b)(3)(A).

(B) Application of limitation to expenses paid or incurred after allocation

A rule similar to the rule of section (b)(4) shall apply for purposes of this subsection.

(4) Specified homeowner

For purposes of this subsection, the term specified homeowner means, with respect to a qualified residence, an individual—

(A)

who owns and uses such qualified residence as the principal residence of such individual as of the date that the written binding contract referred to in paragraph (3) is entered into, and

(B)

whose family income (determined as of such date) does not exceed the median family income for the applicable area (with respect to the census tract in which the qualified residence is located).

(5) Additional census tracts in which owner-occupied residences may be located

In the case of any qualified residence described in paragraph (1), the term qualified census tract includes any census tract which—

(A)

meets the requirements of subsection (c)(2)(A)(i) without regard to subclause (III) thereof, and

(B)

is designated by the neighborhood homes credit agency for purposes of this paragraph.

(6) Modification of repayment requirement

In the case of any qualified residence described in paragraph (1), subsection (g) shall be applied by beginning the 5-year period otherwise described therein on the date on which the qualified homeowner acquired such residence.

(7) Related parties

Paragraph (1) shall not apply if the taxpayer is the owner of the qualified residence described in paragraph (1) or is related (within the meaning of subsection (h)(6)(B)) to such owner.

(8) Pyrrhotite remediation

The requirement of subsection (c)(1)(D) shall not apply to a qualified rehabilitation under this subsection of a qualified residence that is documented by an engineer’s report and core testing to have a foundation that is adversely impacted by pyrrhotite or other iron sulfide minerals.

(j) Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations that prevent avoidance of the rules, and abuse of the purposes, of this section.

(b) Credit allowed as part of general business credit

Section 38(b) is amended by striking plus at the end of paragraph (40), by striking the period at the end of paragraph (41) and inserting , plus, and by adding at the end the following new paragraph:

(42)

the neighborhood homes credit determined under section 42A(a).

(c) Credit allowed against alternative minimum tax

Section 38(c)(4)(B) is amended by redesignating clauses (iv) through (xii) as clauses (v) through (xiii), respectively, and by inserting after clause (iii) the following new clause:

(iv)

the credit determined under section 42A,

(d) Basis adjustments

(e) Exclusion from gross income

Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section:

139M. State energy subsidies for qualified residences

(a) Exclusion from gross income

Gross income shall not include the value of any subsidy provided to a taxpayer (whether directly or indirectly) by any State energy office (as defined in section 124(a) of the Energy Policy Act of 2005 (42 U.S.C. 15821(a))) for purposes of any energy improvements made to a qualified residence (as defined in section 42A(c)(1)).

(f) Conforming amendments

(g) Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

(a) Full credit allowed in the year building placed in service

Section 47(a) is amended to read as follows:

(a) General rule

For purposes of section 46, the rehabilitation credit for any taxable year is 20 percent of the qualified rehabilitation expenditures.

(b) Increase in the rehabilitation credit for certain small projects

Section 47 is amended by adding at the end the following new subsection:

(e) Special rule regarding certain small projects

(1) In general

In the case of any qualifying small project with respect to which there is an election in effect under this subsection—

(A)

the total qualified rehabilitation expenditures taken into account for purposes of this section with respect to the rehabilitation shall not exceed $3,750,000,

(B)

subsection (a) shall be applied by substituting 30 percent for 20 percent, and

(C)

subject to paragraph (4) and such regulations or other guidance as the Secretary may provide, the taxpayer may transfer all or a portion of the credit determined under this section with respect to such qualifying small project.

(2) Qualifying small project

For purposes of this subsection, the term qualifying small project means any qualified rehabilitated building or portion thereof if—

(A)

such building is placed in service after the date of the enactment of this subsection, and

(B)

no credit was allowed under this section (other than a credits allowed by reason of subsection (d)) for either of the two immediately preceding taxable years with respect to such building.

(3) Special rule for rural projects

(A) In general

In the case of any qualifying small project in a rural area, paragraph (1)(A) shall be applied by substituting $5,000,000 for $3,750,000.

(B) Rural area

For purposes of this subparagraph, the term rural area means any area other than—

(i)

a city or town that has a population of greater than 50,000 inhabitants, or

(ii)

the urbanized area contiguous and adjacent to a city or town described in clause (i), as defined by the Bureau of the Census based on the latest decennial census of the United States.

(4) Transfer of credit for qualifying small projects

(A) Certification

(i) In general

A transfer under paragraph (1)(C) shall be accompanied by a certificate which includes—

(I)

the certification for the certified historic structure referred to in subsection (c)(3),

(II)

the taxpayer’s name, address, tax identification number, date of project completion, and the amount of credit being transferred,

(III)

the transferee’s name, address, tax identification number, and the amount of credit being transferred, and

(IV)

such other information as may be required by the Secretary.

(ii) Transferability of certificate

A certificate issued under this subsection to a taxpayer shall be transferable to any other taxpayer.

(B) Tax treatment relating to certificate

(i) Disallowance of deduction

No deduction shall be allowed for the amount of consideration paid or incurred by the transferee.

(ii) Allowance of credit

The amount of credit transferred under paragraph (1)(C)—

(I)

shall not be allowed to the transferor for any taxable year, and

(II)

shall be allowable to the transferee as a credit determined under this section for the taxable year of the transferee in which such credit is transferred.

(iii) Exclusion

Gross income shall not include any amount received in connection with the transfer of the certificate.

(C) Recapture and other special rules

The taxpayer who claims a credit determined under this section by reason of a transfer of an amount of credit under paragraph (1)(A) with respect to an applicable rural project shall be treated as the taxpayer with respect to such project for purposes of section 50.

(D) Information reporting

The transferor and the transferee shall each make such reports regarding the transfer of an amount of credit under paragraph (1)(C) and containing such information as the Secretary may require. The reports required by this subparagraph shall be filed at such time and in such manner as may be required by the Secretary.

(E) Regulations

The Secretary shall prescribe regulations or other guidance to carry out paragraph (1)(C) and this paragraph in a manner which is consistent with applicable requirements with respect to transfer of credits under section 6418.

(5) Election

An election under this subsection shall be made at such time and in such manner as the Secretary may by regulations prescribe.

(c) Increasing the type of buildings eligible for rehabilitation

Section 47(c)(1)(B)(i)(I) is amended by inserting 50 percent of before the adjusted basis.

(d) Elimination of rehabilitation credit basis adjustment

(e) Modifications regarding certain tax-Exempt use property

Section 47(c)(2)(B)(v) is amended by adding at the end the following new subclause:

(III) Disqualified lease rules to apply only in case of government entity

For purposes of subclause (I), except in the case of a tax-exempt entity described in section 168(h)(2)(A)(i), the determination of whether property is tax-exempt use property shall be made under section 168(h) without regard to whether the property is leased in a disqualified lease (as defined in section 168(h)(1)(B)(ii)).

(f) Effective date

(a) In general

Section 121(b) is amended—

(b) Effective date

The amendments made by this section shall apply to sales and exchanges after December 31, 2025.

(a) In general

Subpart D of part IV of subchapter A of chapter 1 is amended by inserting after section 42 the following new section:

42A. Middle-income housing credit

(a) In general

For purposes of section 38, the amount of the middle-income housing credit determined under this section for any taxable year in the credit period shall be an amount equal to—

(1)

the applicable percentage, of

(2)

the qualified basis of each qualified middle-income building.

(b) Applicable percentage

(1) Determination of applicable percentage

For purposes of this section—

(A) In general

The term applicable percentage means, with respect to any building, the appropriate percentage prescribed by the Secretary for the earlier of—

(i)

the month in which such building is placed in service, or

(ii)

at the election of the taxpayer, the month in which the taxpayer and the housing credit agency enter into an agreement with respect to such building (which is binding on such agency, the taxpayer, and all successors in interest) as to the housing credit dollar amount to be allocated to such building.

A month may be elected under clause (ii) only if the election is made not later than the 5th day after the close of such month. Such an election, once made, shall be irrevocable.

(B) Method of prescribing percentages

The percentages prescribed by the Secretary for any month shall be percentages which will yield over a 15-year period amounts of credit under subsection (a) which have a present value equal to—

(i)

50 percent of the qualified basis of a new building which is not Federally subsidized for the taxable year, and

(ii)

20 percent of the qualified basis of a building not described in clause (i).

(C) Method of discounting

The present value under subparagraph (B) shall be determined—

(i)

as of the last day of the 1st year of the 15-year period referred to in subparagraph (B),

(ii)

by using a discount rate equal to 72 percent of the average of the annual Federal mid-term rate and the annual Federal long-term rate applicable under section 1274(d)(1) to the month applicable under clause (i) or (ii) of subparagraph (A) and compounded annually, and

(iii)

by assuming that the credit allowable under this section for any year is received on the last day of such year.

(2) Minimum credit rate

(A) In general

The applicable percentage for any building which is not Federally subsidized for the taxable year shall not be less than 5 percent.

(B) Minimum credit rate for Federally subsidized buildings

In the case of any building to which subparagraph (A) does not apply, except as provided in paragraph (3), the applicable percentage shall not be less than 2 percent.

(3) Exception for certain Federally subsidized buildings

In the case of any building to which paragraph (2)(A) does not apply, the applicable percentage is zero unless—

(A)

a credit is allowed under section 42 with respect to such building for the taxable year, and

(B)

such building is financed by tax-exempt bonds as described in section 42(h)(4).

(4) Cross references

(A)

For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e).

(B)

For determination of applicable percentage for increases in qualified basis after the 1st year of the credit period, see subsection (f)(3).

(C)

For authority of housing credit agency to limit applicable percentage and qualified basis which may be taken into account under this section with respect to any building, see subsection (h)(6).

(c) Qualified basis; qualified middle-Income building

For purposes of this section—

(1) Qualified basis

(A) Determination

The qualified basis of any qualified middle-income building for any taxable year is an amount equal to—

(i)

the applicable fraction (determined as of the close of such taxable year) of

(ii)

the eligible basis of such building (determined under subsection (d)).

(B) Applicable fraction

For purposes of subparagraph (A), the term applicable fraction means the smaller of the unit fraction or the floor space fraction.

(C) Unit fraction

For purposes of subparagraph (B), the term unit fraction means the fraction—

(i)

the numerator of which is the number of middle-income units in the building, and

(ii)

the denominator of which is the number of residential rental units (whether or not occupied) in such building.

(D) Floor space fraction

For purposes of subparagraph (B), the term floor space fraction means the fraction—

(i)

the numerator of which is the total floor space of the middle-income units in such building, and

(ii)

the denominator of which is the total floor space of the residential rental units (whether or not occupied) in such building.

(2) Qualified middle-income building

The term qualified middle-income building means any building which is part of a qualified middle-income housing project at all times during the period—

(A)

beginning on the 1st day in the credit period on which such building is part of such a project, and

(B)

ending on the last day of the credit period with respect to such building.

(d) Eligible basis

For purposes of this section—

(1) New buildings

The eligible basis of a new building is its adjusted basis as of the close of the 1st taxable year of the credit period.

(2) Existing buildings

(A) In general

The eligible basis of an existing building is—

(i)

in the case of a building which meets the requirements of subparagraph (B), its adjusted basis as of the close of the 1st taxable year of the credit period, and

(ii)

zero in any other case.

(B) Requirements

A building meets the requirements of this subparagraph if—

(i)

the building is acquired by purchase (as defined in section 179(d)(2)),

(ii)

there is a period of at least 10 years between the date of its acquisition by the taxpayer and the date the building was last placed in service,

(iii)

the building was not previously placed in service by the taxpayer or by any person who was a related person with respect to the taxpayer as of the time previously placed in service, and

(iv)

except as provided in subsection (f)(5), a credit is allowable under subsection (a) by reason of subsection (e) with respect to the building.

(C) Adjusted basis

For purposes of subparagraph (A), the adjusted basis of any building shall not include so much of the basis of such building as is determined by reference to the basis of other property held at any time by the person acquiring the building.

(D) Special rules

(i) Special rules for certain transfers

For purposes of determining under subparagraph (B)(ii) when a building was last placed in service, there shall not be taken into account any placement in service—

(I)

in connection with the acquisition of the building in a transaction in which the basis of the building in the hands of the person acquiring it is determined in whole or in part by reference to the adjusted basis of such building in the hands of the person from whom acquired,

(II)

by a person whose basis in such building is determined under section 1014(a) (relating to property acquired from a decedent),

(III)

by any governmental unit or qualified nonprofit organization if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such unit or organization and all the income from such property is exempt from Federal income taxation,

(IV)

by any person who acquired such building by foreclosure (or by instrument in lieu of foreclosure) of any purchase-money security interest held by such person if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such person and such building is resold within 12 months after the date such building is placed in service by such person after such foreclosure, or

(V)

of a single-family residence by any individual who owned and used such residence for no other purpose than as his principal residence.

(ii) Related person

For purposes of subparagraph (B)(iii), a person (hereinafter in this subclause referred to as the related person) is related to any person if the related person bears a relationship to such person specified in section 267(b) or 707(b)(1), or the related person and such person are engaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52).

(3) Special rules relating to determination of adjusted basis

For purposes of this subsection—

(A) In general

Except as provided in subparagraph (B), the adjusted basis of any building shall be determined without regard to the adjusted basis of any property which is not residential rental property.

(B) Basis of property in common areas, etc., included

(i) In general

Except as provided in clause (ii), the adjusted basis of any building shall be determined by taking into account the adjusted basis of property (of a character subject to the allowance for depreciation) used in common areas or provided as comparable amenities to all residential rental units in such building.

(ii) Special rule

In the case of any building for which the low-income housing tax credit is allowable under section 42, the adjusted basis of the building under this section shall be determined without regard to property used in common areas or provided as comparable amenities to all residential rental units in such building.

(C) No reduction for depreciation

The adjusted basis of any building shall be determined without regard to paragraphs (2) and (3) of section 1016(a).

(4) Special rules for determining eligible basis

(A) Federal grants not taken into account in determining eligible basis

The eligible basis of a building shall not include any costs financed with the proceeds of a Federally funded grant.

(B) Increase in credit for buildings in high cost areas

(i) In general

In the case of any building located in a difficult development area which is designated for purposes of this subparagraph—

(I)

in the case of a new building, the eligible basis of such building shall be 130 percent of such basis determined without regard to this subparagraph, and

(II)

in the case of an existing building, the rehabilitation expenditures taken into account under subsection (e) shall be 130 percent of such expenditures determined without regard to this subparagraph.

(ii) Limitation

Clause (i) shall not apply to any building if paragraph (1) of subsection (h) does not apply to any portion of the eligible basis of such building by reason of paragraph (9) of such subsection.

(iii) Difficult development areas

(I) In general

The term difficult development areas means any area designated by the Secretary of Housing and Urban Development as an area which has high construction, land, or utility costs relative to area median gross income, any rural area, and any Indian area.

(II) Rural area

For purposes of subclause (I), the term rural area means any non-metropolitan area, or any rural area as defined by section 520 of the Housing Act of 1949, which is identified by the qualified allocation plan under subsection (m)(1)(B).

(III) Indian area

For purposes of subclause (I), the term Indian area means any Indian area (as defined in section 4(11) of the Native American Housing Assistance and Self Determination Act of 1996 (25 U.S.C. 4103(11))).

(IV) Special rule for buildings in Indian areas

In the case of an area which is a difficult development area solely because it is an Indian area, a building shall not be treated as located in such area unless such building is assisted or financed under the Native American Housing Assistance and Self Determination Act of 1996 (25 U.S.C. 4101 et seq.) or the project sponsor is an Indian tribe (as defined in section 45A(c)(6)), a tribally designated housing entity (as defined in section 4(22) of such Act (25 U.S.C. 4103(22))), or wholly owned or controlled by such an Indian tribe or tribally designated housing entity.

(V) Limit on areas designated

The portions of metropolitan statistical areas which may be designated for purposes of this subparagraph shall not exceed an aggregate area having 20 percent of the population of such metropolitan statistical areas. A comparable rule shall apply to nonmetropolitan areas.

(iv) Special rules and definitions

For purposes of this subparagraph—

(I)

population shall be determined on the basis of the most recent decennial census for which data are available,

(II)

area median gross income shall be determined in accordance with subsection (g)(4),

(III)

the term metropolitan statistical area has the same meaning as when used in section 143(k)(2)(B), and

(IV)

the term nonmetropolitan area means any county (or portion thereof) which is not within a metropolitan statistical area.

(v) Buildings designated by State Housing Credit Agency

Any building which is designated by the State housing credit agency as requiring the increase in credit under this subparagraph in order for such building to be financially feasible as part of a qualified middle-income housing project shall be treated for purposes of this subparagraph as located in a difficult development area which is designated for purposes of this subparagraph.

(5) Credit allowable for certain buildings acquired during 10-year period

On application by the taxpayer, the Secretary may waive paragraph (2)(B)(ii) with respect to any building acquired from an insured depository institution in default (as defined in section 3 of the Federal Deposit Insurance Act) or from a receiver or conservator of such an institution.

(6) Acquisition of building before end of prior credit period

(A) In general

Under regulations prescribed by the Secretary, in the case of a building described in subparagraph (B) (or interest therein) which is acquired by the taxpayer—

(i)

paragraph (2)(B) shall not apply, but

(ii)

the credit allowable by reason of subsection (a) to the taxpayer for any period after such acquisition shall be equal to the amount of credit which would have been allowable under subsection (a) for such period to the prior owner referred to in subparagraph (B) had such owner not disposed of the building.

(B) Description of building

A building is described in this subparagraph if—

(i)

a credit was allowed by reason of subsection (a) to any prior owner of such building, and

(ii)

the taxpayer acquired such building before the end of the credit period for such building with respect to such prior owner (determined without regard to any disposition by such prior owner).

(e) Rehabilitation expenditures treated as separate new building

(1) In general

Rehabilitation expenditures paid or incurred by the taxpayer with respect to any building shall be treated for purposes of this section as a separate new building.

(2) Rehabilitation expenditures

For purposes of paragraph (1)—

(A) In general

The term rehabilitation expenditures means amounts chargeable to capital account and incurred for property (or additions or improvements to property) of a character subject to the allowance for depreciation in connection with the rehabilitation of a building.

(B) Cost of acquisition, etc., not included

Such term does not include the cost of acquiring any building (or interest therein) or any amount not permitted to be taken into account under paragraph (3) of subsection (d).

(C) Certain relocation costs

In the case of a rehabilitation of a building to which section 280B does not apply, costs relating to the relocation of occupants, including—

(i)

amounts paid to occupants,

(ii)

amounts paid to third parties for services relating to such relocation, and

(iii)

amounts paid for temporary housing for occupants,

shall be treated as chargeable to capital account and taken into account as rehabilitation expenditures.

(3) Minimum expenditures to qualify

(A) In general

Paragraph (1) shall apply to rehabilitation expenditures with respect to any building only if—

(i)

the expenditures are allocable to 1 or more middle-income units or substantially benefit such units, and

(ii)

the amount of such expenditures during any 24-month period meets the requirements of whichever of the following subclauses requires the greater amount of such expenditures:

(I)

The requirement of this subclause is met if such amount is not less than 20 percent of the adjusted basis of the building (determined as of the 1st day of such period and without regard to paragraphs (2) and (3) of section 1016(a)).

(II)

The requirement of this subclause is met if the qualified basis attributable to such amount, when divided by the number of middle-income units in the building, is equal to or greater than the dollar amount in effect under section 42(e)(3)(A)(ii)(II) for the calendar year in which such expenditures are treated as placed in service under paragraph (4).

(B) Date of determination

The determination under subparagraph (A) shall be made as of the close of the 1st taxable year in the credit period with respect to such expenditures.

(4) Special rules

For purposes of applying this section with respect to expenditures which are treated as a separate building by reason of this subsection—

(A)

such expenditures shall be treated as placed in service at the close of the 24-month period referred to in paragraph (3)(A), and

(B)

the applicable fraction under subsection (c)(1) shall be the applicable fraction for the building (without regard to paragraph (1)) with respect to which the expenditures were incurred.

Nothing in subsection (d)(2) shall prevent a credit from being allowed by reason of this subsection.

(5) No double counting

Rehabilitation expenditures may, at the election of the taxpayer, be taken into account under this subsection or subsection (d)(2)(A)(i) but not under both such subsections.

(6) Regulations to apply subsection with respect to group of units in building

The Secretary may prescribe regulations, consistent with the purposes of this subsection, treating a group of units with respect to which rehabilitation expenditures are incurred as a separate new building.

(f) Definition and special rules relating to credit period

(1) Credit period defined

For purposes of this section, the term credit period means, with respect to any building, the period of 15 taxable years beginning with—

(A)

the taxable year in which the building is placed in service, or

(B)

at the election of the taxpayer, the succeeding taxable year,

but only if the building is a qualified middle-income building as of the close of the 1st year of such period. The election under subparagraph (B), once made, shall be irrevocable.

(2) Special rule for 1st year of credit period

(A) In general

The credit allowable under subsection (a) with respect to any building for the 1st taxable year of the credit period shall be determined by substituting for the applicable fraction under subsection (c)(1) the fraction—

(i)

the numerator of which is the sum of the applicable fractions determined under subsection (c)(1) as of the close of each full month of such year during which such building was in service, and

(ii)

the denominator of which is 12.

(B) Disallowed 1st-year credit allowed in 16th year

Any reduction by reason of subparagraph (A) in the credit allowable (without regard to subparagraph (A)) for the 1st taxable year of the credit period shall be allowable under subsection (a) for the 1st taxable year following the credit period.

(3) Determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period

(A) In general

In the case of any building which was a qualified middle-income building as of the close of the 1st year of the credit period, if—

(i)

as of the close of any taxable year in the credit period (after the 1st year of such period) the qualified basis of such building, exceeds

(ii)

the qualified basis of such building as of the close of the 1st year of the credit period,

the applicable percentage which shall apply under subsection (a) for the taxable year to such excess shall be the percentage equal to 2/3 of the applicable percentage which (after the application of subsection (h)) would but for this paragraph apply to such basis.

(B) 1st year computation applies

A rule similar to the rule of paragraph (2)(A) shall apply to any increase in qualified basis to which subparagraph (A) applies for the 1st year of such increase.

(4) Dispositions of property

If a building (or an interest therein) is disposed of during any year for which credit is allowable under subsection (a), such credit shall be allocated between the parties on the basis of the number of days during such year the building (or interest) was held by each.

(5) Credit period for existing buildings not to begin before rehabilitation credit allowed

(A) In general

The credit period for an existing building shall not begin before the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building.

(B) Acquisition credit allowed for certain buildings not allowed a rehabilitation credit

(i) In general

In the case of a building described in clause (ii)—

(I)

subsection (d)(2)(B)(iv) shall not apply, and

(II)

the credit period for such building shall not begin before the taxable year which would be the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building under the modifications described in clause (ii)(II).

(ii) Building described

A building is described in this clause if—

(I)

a waiver is granted under subsection (d)(4) with respect to the acquisition of the building, and

(II)

a credit would be allowed for rehabilitation expenditures with respect to such building if subsection (e)(3)(A)(ii)(I) did not apply and if the dollar amount in effect under subsection (e)(3)(A)(ii)(II) were two-thirds of such amount.

(g) Qualified middle-Income housing project

For purposes of this section—

(1) In general

The term qualified middle-income housing project means any project for residential rental property if—

(A)

60 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 100 percent or less of area median gross income, and

(B)

not less than 20 percent of the residential units in such project are units which—

(i)

are described in subparagraph (A), and

(ii)

are not residential units which are taken into account under section 42.

(2) Rent-restricted units

(A) In general

For purposes of paragraph (1), a residential unit is rent-restricted if the gross rent with respect to such unit does not exceed 30 percent of the imputed income limitation applicable to such unit. For purposes of the preceding sentence, the amount of the income limitation under paragraph (1) applicable for any period shall not be less than such limitation applicable for the earliest period the building (which contains the unit) was included in the determination of whether the project is a qualified middle-income housing project.

(B) Gross rent

For purposes of subparagraph (A), gross rent—

(i)

includes any utility allowance determined by the Secretary after taking into account such determinations under section 8 of the United States Housing Act of 1937,

(ii)

does not include any fee for a supportive service which is paid to the owner of the unit (on the basis of the middle-income status of the tenant of the unit) by any governmental program of assistance (or by an organization described in section 501(c)(3) and exempt from tax under section 501(a)) if such program (or organization) provides assistance for rent and the amount of assistance provided for rent is not separable from the amount of assistance provided for supportive services, and

(iii)

does not include any rental payment to the owner of the unit to the extent such owner pays an equivalent amount to the Farmers' Home Administration under section 515 of the Housing Act of 1949.

For purposes of clause (ii), the term supportive service means any service provided under a planned program of services designed to enable residents of a residential rental property to remain independent and avoid placement in a hospital, nursing home, or intermediate care facility for the mentally or physically handicapped.

(C) Imputed income limitation applicable to unit

For purposes of this paragraph, the imputed income limitation applicable to a unit is the income limitation which would apply under paragraph (1) to individuals occupying the unit if the number of individuals occupying the unit were as follows:

(i)

In the case of a unit which does not have a separate bedroom, 1 individual.

(ii)

In the case of a unit which has 1 or more separate bedrooms, 1.5 individuals for each separate bedroom.

In the case of a project with respect to which a credit is allowable by reason of this section and for which financing is provided by a bond described in section 142(a)(7), the imputed income limitation shall apply in lieu of the otherwise applicable income limitation for purposes of applying section 142(d)(4)(B)(ii).

(D) Treatment of units occupied by individuals whose incomes rise above limit

(i) In general

Except as provided in clause (ii), notwithstanding an increase in the income of the occupants of a middle-income unit above the income limitation applicable under paragraph (1), such unit shall continue to be treated as a middle-income unit if the income of such occupants initially met such income limitation and such unit continues to be rent-restricted.

(ii) Next available unit must be rented to middle-income tenant if income rises above 140 percent of income limit

If the income of the occupants of the unit increases above 140 percent of the income limitation applicable under paragraph (1), clause (i) shall cease to apply to such unit if any residential rental unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation.

(3) Date for meeting requirements

(A) In general

Except as otherwise provided in this paragraph, a building shall be treated as a qualified middle-income building only if the project (of which such building is a part) meets the requirements of paragraph (1) not later than the close of the 1st year of the credit period for such building.

(B) Buildings which rely on later buildings for qualification

(i) In general

In determining whether a building (hereinafter in this subparagraph referred to as the prior building) is a qualified middle-income building, the taxpayer may take into account 1 or more additional buildings placed in service during the 12-month period described in subparagraph (A) with respect to the prior building only if the taxpayer elects to apply clause (ii) with respect to each additional building taken into account.

(ii) Treatment of elected buildings

In the case of a building which the taxpayer elects to take into account under clause (i), the period under subparagraph (A) for such building shall end at the close of the 12-month period applicable to the prior building.

(iii) Date prior building is treated as placed in service

For purposes of determining the credit period for the prior building, the prior building shall be treated for purposes of this section as placed in service on the most recent date any additional building elected by the taxpayer (with respect to such prior building) was placed in service.

(C) Special rule

A building—

(i)

other than the 1st building placed in service as part of a project, and

(ii)

other than a building which is placed in service during the 12-month period described in subparagraph (A) with respect to a prior building which becomes a qualified middle-income building,

shall in no event be treated as a qualified middle-income building unless the project is a qualified middle-income housing project (without regard to such building) on the date such building is placed in service.

(D) Projects with more than 1 building must be identified

For purposes of this section, a project shall be treated as consisting of only 1 building unless, before the close of the 1st calendar year in the project period (as defined in subsection (h)(1)(F)(ii)), each building which is (or will be) part of such project is identified in such form and manner as the Secretary may provide.

(4) Certain rules made applicable

Paragraphs (2) (other than subparagraph (A) thereof), (3), and (7) of section 142(d), and section 6652(j), shall apply for purposes of determining whether any project is a qualified middle-income housing project and whether any unit is a middle-income unit; except that, in applying such provisions for such purposes—

(A)

the term gross rent shall have the meaning given such term by paragraph (2)(B) of this subsection, and

(B)

the term applicable income limit means the limitation under paragraph (1) of this subsection.

(5) Election to treat building after credit period as not part of a project

For purposes of this section, the taxpayer may elect to treat any building as not part of a qualified middle-income housing project for any period beginning after the credit period for such building.

(6) Special rule where de minimis equity contribution

Property shall not be treated as failing to be residential rental property for purposes of this section merely because the occupant of a residential unit in the project pays (on a voluntary basis) to the lessor a de minimis amount to be held toward the purchase by such occupant of a residential unit in such project if—

(A)

all amounts so paid are refunded to the occupant on the cessation of his occupancy of a unit in the project, and

(B)

the purchase of the unit is not permitted until after the close of the credit period with respect to the building in which the unit is located.

Any amount paid to the lessor as described in the preceding sentence shall be included in gross rent under paragraph (2) for purposes of determining whether the unit is rent-restricted.

(7) Scattered site projects

Buildings which would (but for their lack of proximity) be treated as a project for purposes of this section shall be so treated if all of the dwelling units in each of the buildings are rent-restricted (within the meaning of paragraph (2)) residential rental units.

(8) Waiver of certain recertifications

On application by the taxpayer, the Secretary may waive any annual recertification of tenant income for purposes of this subsection, if the entire building is occupied by middle-income tenants.

(9) Clarification of general public use requirement

A project does not fail to meet the general public use requirement solely because of occupancy restrictions or preferences that favor tenants—

(A)

with special needs, or

(B)

who are members of a specified group under a Federal program or State program or policy that supports housing for such a specified group.

(h) Limitation on aggregate credit allowable with respect to projects located in a State

(1) Credit may not exceed credit amount allocated to building

(A) In general

The amount of the credit determined under this section for any taxable year with respect to any building shall not exceed the housing credit dollar amount allocated to such building under this subsection.

(B) Time for making allocation

Except in the case of an allocation which meets the requirements of subparagraph (C), (D), (E), or (F), an allocation shall be taken into account under subparagraph (A) only if it is made not later than the close of the calendar year in which the building is placed in service.

(C) Exception where binding commitment

An allocation meets the requirements of this subparagraph if there is a binding commitment (not later than the close of the calendar year in which the building is placed in service) by the housing credit agency to allocate a specified housing credit dollar amount to such building beginning in a specified later taxable year.

(D) Exception where increase in qualified basis

(i) In general

An allocation meets the requirements of this subparagraph if such allocation is made not later than the close of the calendar year in which ends the taxable year to which it will 1st apply but only to the extent the amount of such allocation does not exceed the limitation under clause (ii).

(ii) Limitation

The limitation under this clause is the amount of credit allowable under this section (without regard to this subsection) for a taxable year with respect to an increase in the qualified basis of the building equal to the excess of—

(I)

the qualified basis of such building as of the close of the 1st taxable year to which such allocation will apply, over

(II)

the qualified basis of such building as of the close of the 1st taxable year to which the most recent prior housing credit allocation with respect to such building applied.

(iii) Housing credit dollar amount reduced by full allocation

Notwithstanding clause (i), the full amount of the allocation shall be taken into account under paragraph (2).

(E) Exception where 10 percent of cost incurred

(i) In general

An allocation meets the requirements of this subparagraph if such allocation is made with respect to a qualified building which is placed in service not later than the close of the second calendar year following the calendar year in which the allocation is made.

(ii) Qualified building

For purposes of clause (i), the term qualified building means any building which is part of a project if the taxpayer's basis in such project (as of the date which is 1 year after the date that the allocation was made) is more than 10 percent of the taxpayer's reasonably expected basis in such project (as of the close of the second calendar year referred to in clause (i)). Such term does not include any existing building unless a credit is allowable under subsection (e) for rehabilitation expenditures paid or incurred by the taxpayer with respect to such building for a taxable year ending during the second calendar year referred to in clause (i) or the prior taxable year.

(F) Allocation of credit on a project basis

(i) In general

In the case of a project which includes (or will include) more than 1 building, an allocation meets the requirements of this subparagraph if—

(I)

the allocation is made to the project for a calendar year during the project period,

(II)

the allocation only applies to buildings placed in service during or after the calendar year for which the allocation is made, and

(III)

the portion of such allocation which is allocated to any building in such project is specified not later than the close of the calendar year in which the building is placed in service.

(ii) Project period

For purposes of clause (i), the term project period means the period—

(I)

beginning with the 1st calendar year for which an allocation may be made for the 1st building placed in service as part of such project, and

(II)

ending with the calendar year the last building is placed in service as part of such project.

(2) Allocated credit amount to apply to all taxable years ending during or after credit allocation year

Any housing credit dollar amount allocated to any building for any calendar year—

(A)

shall apply to such building for all taxable years in the credit period ending during or after such calendar year, and

(B)

shall reduce the aggregate housing credit dollar amount of the allocating agency only for such calendar year.

(3) Housing credit dollar amount for agencies

(A) In general

The aggregate housing credit dollar amount which a housing credit agency may allocate for any calendar year is the portion of the State housing credit ceiling allocated under this paragraph for such calendar year to such agency.

(B) State ceiling initially allocated to State housing credit agencies

Except as provided in subparagraph (D), the State housing credit ceiling for each calendar year shall be allocated to the housing credit agency of such State. If there is more than 1 housing credit agency of a State, all such agencies shall be treated as a single agency.

(C) State housing credit ceiling

The State housing credit ceiling applicable to any State for any calendar year shall be an amount equal to the sum of—

(i)

the unused State housing credit ceiling (if any) of such State for the preceding calendar year,

(ii)

the greater of—

(I)

$1.00 multiplied by the State population, or

(II)

$1,500,000, plus

(iii)

the amount of State housing credit ceiling returned in the calendar year.

For purposes of clause (i), the unused State housing credit ceiling for any calendar year is the excess (if any) of the sum of the amounts described in clauses (ii) (reduced by the aggregate amounts described in paragraph (10)(A)(i) with respect to all elections made for such calendar year) and (iii) over the aggregate housing credit dollar amount allocated for such year. For purposes of clause (iii), the amount of State housing credit ceiling returned in the calendar year equals the housing credit dollar amount previously allocated within the State to any project which fails to meet the 10 percent test under paragraph (1)(E)(ii) on a date after the close of the calendar year in which the allocation was made or which does not become a qualified middle-income housing project within the period required by this section or the terms of the allocation or to any project with respect to which an allocation is cancelled by mutual consent of the housing credit agency and the allocation recipient.

(D) State may provide for different allocation

Rules similar to the rules of section 146(e) (other than paragraph (2)(B) thereof) shall apply for purposes of this paragraph.

(E) Population

For purposes of this paragraph, population shall be determined in accordance with section 146(j).

(F) Cost-of-living adjustment

(i) In general

In the case of a calendar year after 2026, the $1,500,000 and $1.00 amounts in subparagraph (C) shall each be increased by an amount equal to—

(I)

such dollar amount, multiplied by

(II)

the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting calendar year 2025 for calendar year 2016 in subparagraph (A)(ii) thereof.

(ii) Rounding

(I)

In the case of the $1,140,000 amount, any increase under clause (i) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.

(II)

In the case of the $1.00 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.

(4) Portion of State ceiling set-aside for certain projects involving qualified nonprofit organizations

(A) In general

Not more than 90 percent of the State housing credit ceiling (determined without regard to paragraph (7)) for any State for any calendar year shall be allocated to projects other than qualified middle-income housing projects described in subparagraph (B).

(B) Projects involving qualified nonprofit organizations

For purposes of subparagraph (A), a qualified middle-income housing project is described in this subparagraph if a qualified nonprofit organization is to own an interest in the project (directly or through a partnership) 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 organization

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 housing credit agency not to be affiliated with or controlled by a for-profit organization, and

(iii)

one of the exempt purposes of such organization includes the fostering of middle-income housing.

(D) Treatment of certain subsidiaries

(i) In general

For purposes of this paragraph, a qualified nonprofit organization shall be treated as satisfying the ownership and material participation test of subparagraph (B) if any qualified corporation 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 organizations at all times during the period such corporation is in existence.

(E) State may not override set-aside

Nothing in subparagraph (E) of paragraph (3) shall be construed to permit a State not to comply with subparagraph (A) of this paragraph.

(5) Buildings eligible for credit only if minimum long-term commitment to middle-income housing

(A) In general

No credit shall be allowed by reason of this section with respect to any building for the taxable year unless an extended middle-income housing commitment is in effect as of the end of such taxable year.

(B) Extended middle-income housing commitment

For purposes of this paragraph, the term extended middle-income housing commitment means any agreement between the taxpayer and the housing credit agency—

(i)

which requires that the applicable fraction (as defined in subsection (c)(1)) for the building for each taxable year in the extended use period will not be less than the applicable fraction specified in such agreement and which prohibits the actions described in subclauses (I) and (II) of subparagraph (E)(ii),

(ii)

which allows individuals who meet the income limitation applicable to the building under subsection (g) (whether prospective, present, or former occupants of the building) the right to enforce in any State court the requirement and prohibitions of clause (i),

(iii)

which prohibits the disposition to any person of any portion of the building to which such agreement applies unless all of the building to which such agreement applies is disposed of to such person,

(iv)

which prohibits the refusal to lease to a holder of a voucher or certificate of eligibility under section 8 of the United States Housing Act of 1937 because of the status of the prospective tenant as such a holder,

(v)

which is binding on all successors of the taxpayer, and

(vi)

which, with respect to the property, is recorded pursuant to State law as a restrictive covenant.

(C) Allocation of credit may not exceed amount necessary to support commitment

The housing credit dollar amount allocated to any building may not exceed the amount necessary to support the applicable fraction specified in the extended middle-income housing commitment for such building, including any increase in such fraction pursuant to the application of subsection (f)(3) if such increase is reflected in an amended middle-income housing commitment.

(D) Extended use period

For purposes of this paragraph, the term extended use period means the period—

(i)

beginning on the 1st day in the credit period on which such building is part of a qualified middle-income housing project, and

(ii)

ending on the later of—

(I)

the date specified by such agency in such agreement, or

(II)

the date which is 15 years after the close of the credit period.

(E) Exceptions if foreclosure or if no buyer willing to maintain middle-income status

(i) In general

The extended use period for any building shall terminate on the 61st day after the taxpayer (or a successor in interest) provides notice to the Secretary and the housing credit agency that the building has been acquired by foreclosure (or instrument in lieu of foreclosure) and that the taxpayer intends the termination of such period, unless, before such date, the Secretary or the housing credit agency determines that such acquisition is part of an arrangement with the taxpayer a purpose of which is to terminate such period.

(ii) Eviction, etc., of existing middle-income tenants not permitted

The termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination—

(I)

the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any middle-income unit, or

(II)

any increase in the gross rent with respect to such unit not otherwise permitted under this section.

(F) Effect of noncompliance

If, during a taxable year, there is a determination that an extended middle-income housing agreement was not in effect as of the beginning of such year, such determination shall not apply to any period before such year and subparagraph (A) shall be applied without regard to such determination if the failure is corrected within 1 year from the date of the determination.

(G) Projects which consist of more than 1 building

The application of this paragraph to projects which consist of more than 1 building shall be made under regulations prescribed by the Secretary.

(6) Special rules

(A) Building must be located within jurisdiction of credit agency

A housing credit agency may allocate its aggregate housing credit dollar amount only to buildings located in the jurisdiction of the governmental unit of which such agency is a part.

(B) Agency allocations in excess of limit

If the aggregate housing credit dollar amounts allocated by a housing credit agency for any calendar year exceed the portion of the State housing credit ceiling allocated to such agency for such calendar year, the housing credit dollar amounts so allocated shall be reduced (to the extent of such excess) for buildings in the reverse of the order in which the allocations of such amounts were made.

(C) Credit reduced if allocated credit dollar amount is less than credit which would be allowable without regard to placed in service convention, etc

(i) In general

The amount of the credit determined under this section with respect to any building shall not exceed the clause (ii) percentage of the amount of the credit which would (but for this subparagraph) be determined under this section with respect to such building.

(ii) Determination of percentage

For purposes of clause (i), the clause (ii) percentage with respect to any building is the percentage which—

(I)

the housing credit dollar amount allocated to such building, bears to

(II)

the credit amount determined in accordance with clause (iii).

(iii) Determination of credit amount

The credit amount determined in accordance with this clause is the amount of the credit which would (but for this subparagraph) be determined under this section with respect to the building if—

(I)

this section were applied without regard to paragraphs (2)(A) and (3)(B) of subsection (f), and

(II)

subsection (f)(3)(A) were applied without regard to the percentage equal to 2/3 of.

(D) Housing credit agency to specify applicable percentage and maximum qualified basis

In allocating a housing credit dollar amount to any building, the housing credit agency shall specify the applicable percentage and the maximum qualified basis which may be taken into account under this section with respect to such building. The applicable percentage and maximum qualified basis so specified shall not exceed the applicable percentage and qualified basis determined under this section without regard to this subsection.

(7) Increase in State ceiling dedicated to certain rural development projects

(A) In general

The State housing credit ceiling for any calendar year shall be increased by an amount equal to 5 percent of the amount determined under paragraph (3)(C)(ii).

(B) Use of increased amount

(i) In general

The amount of the increase under subparagraph (A) for any calendar year may only be allocated to buildings located in a rural area.

(ii) Rural area

For purposes of clause (i), the term rural area means any non-metropolitan area, or any rural area as defined by section 520 of the Housing Act of 1949, which is identified by the qualified allocation plan under subsection (l)(1)(B).

(8) Other definitions

For purposes of this subsection—

(A) Housing credit agency

The term housing credit agency means any agency authorized to carry out this subsection.

(B) Possessions treated as States

The term State includes a possession of the United States.

(9) Credit for buildings financed by tax-exempt bonds subject to volume cap not taken into account

Rules similar to the rules of subsections (h)(4), (m)(1)(D), and (m)(2)(D) of section 42 shall apply for purposes of this subsection.

(10) Election to transfer State housing credit ceiling for allocations to low-income buildings

(A) In general

If a State housing credit agency makes an election under this paragraph with respect to a calendar year—

(i)

the State housing credit ceiling for such calendar year under paragraph (3) (determined before application of paragraph (7)) shall be reduced by the amount specified in such election,

(ii)

the amount determined under paragraph (7) for such calendar year shall be reduced by the amount specified in such election, and

(iii)

the amount determined under section 42(h)(3)(C)(ii) for such calendar year shall be increased by the sum of the amounts specified in clauses (i) and (ii), except that any amount specified under clause (ii)—

(I)

may only be allocated under such section to qualified low-income buildings (as defined in section 42) located in a rural area (as defined in paragraph (7)), and

(II)

shall not be taken into account for purposes of determining the unused housing credit ceiling under the second sentence of section 42(h)(3)(C).

(B) Time and manner for making election

(i) In general

An election under this paragraph—

(I)

shall be made before the end of the calendar year with respect to which such election applies,

(II)

shall be made in such manner as specified by the Secretary, and

(III)

shall separately specify the amount of reductions to be made under paragraph (3) and paragraph (7).

(ii) Frequency

A State housing credit agency may make more than one election under this section with respect to any calendar year, and any such election, once made, shall be revocable only if such revocation is made before the end of the calendar year with respect to which such election is made.

(C) Limitation

The aggregate amount specified in elections under this paragraph with respect to any State housing credit agency for calendar year shall not exceed the sum of—

(i)

the amount determined under paragraph (3)(C)(ii) for such calendar year, plus

(ii)

the amount determined under paragraph (7) for such calendar year.

(i) Definitions and special rules

For purposes of this section—

(1) Middle-income unit

(A) In general

The term middle-income unit means any unit in a building if—

(i)

such unit is rent-restricted (as defined in subsection (g)(2)), and

(ii)

the individuals occupying such unit meet the income limitation applicable under subsection (g)(1) to the project of which such building is a part.

(B) Exceptions

(i) Exclusion of low-income units

A unit shall not be treated as a middle-income unit if such unit is a low-income unit (as defined under section 42(i)(3)).

(ii) Unit must be suitable for permanent occupancy

(I) In general

A unit shall not be treated as a middle-income unit unless the unit is suitable for occupancy and used other than on a transient basis.

(II) Suitability for occupancy

For purposes of subclause (I), the suitability of a unit for occupancy shall be determined under regulations prescribed by the Secretary taking into account local health, safety, and building codes.

(III) Single-room occupancy units

For purposes of subclause (I), a single-room occupancy unit shall not be treated as used on a transient basis merely because it is rented on a month-by-month basis.

(C) Special rule for buildings having 4 or fewer units

In the case of any building which has 4 or fewer residential rental units, no unit in such building shall be treated as a middle-income unit if the units in such building are owned by—

(i)

any individual who occupies a residential unit in such building, or

(ii)

any person who is related (as defined in subsection (d)(2)(D)(ii)) to such individual.

(D) Rules relating to students

(i) In general

A unit occupied solely by individuals who—

(I)

have not attained age 24, and

(II)

are enrolled in a full-time course of study at an institution of higher education (as defined in section 3304(f)),

shall not be treated as a middle-income unit.

(ii) Exception for certain federal programs

In the case of a Federally-assisted building (as defined in subsection (d)(6)(C)(i) of section 42), clause (i) shall not apply to a unit all of the occupants of which meet all applicable requirements under the housing program described in such subsection through which the building is assisted, financed, or operated.

(iii) Other exceptions

Clause (i) shall not apply to a unit occupied by an individual who—

(I)

is married, if such individual's spouse also occupies the unit,

(II)

is a person with disabilities (as defined in section 3(b)(3)(E) of the United States Housing Act of 1937),

(III)

is a veteran (as defined in section 101(2) of title 38, United States Code),

(IV)

has one or more qualifying children (as defined in section 152(c)), if such children also occupy the unit, the individual is not a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of another individual, and such children are not claimed as dependents (as so defined) of another individual, or

(V)

is, or was immediately prior to attaining the age of majority—

(aa)

an emancipated minor or in legal guardianship as determined by a court of competent jurisdiction in the individual's State of legal residence,

(bb)

under the care and placement responsibility of the State agency responsible for administering a plan under part B or part E of title IV of the Social Security Act, or

(cc)

was an unaccompanied youth (within the meaning of section 725(6) of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11434a(6))) or a homeless child or youth (within the meaning of section 725(2) of such Act (42 U.S.C. 11434a(2))).

(E) Owner-occupied buildings having 4 or fewer units eligible for credit where development plan

(i) In general

Subparagraph (C) shall not apply to the acquisition or rehabilitation of a building pursuant to a development plan of action sponsored by a State or local government or a qualified nonprofit organization.

(ii) Limitation on credit

In the case of a building to which clause (i) applies, the applicable fraction shall not exceed 80 percent of the unit fraction.

(iii) Certain unrented units treated as owner-occupied

In the case of a building to which clause (i) applies, any unit which is not rented for 90 days or more shall be treated as occupied by the owner of the building as of the 1st day it is not rented.

(2) New building

The term new building means a building the original use of which begins with the taxpayer.

(3) Existing building

The term existing building means any building which is not a new building.

(4) Application to estates and trusts

In the case of an estate or trust, the amount of the credit determined under subsection (a) shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each.

(5) Impact of tenant's option to acquire property

(A) In general

No Federal income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified middle-income building merely by reason of an option held by the tenants (in cooperative form or otherwise) or resident management corporation of such building or by a qualified nonprofit organization or government agency to purchase the property or all of the partnership interests (other than interests of the person exercising such option or a related party thereto (within the meaning of section 267(b) or 707(b)(1))) relating to the property after the close of the credit period for a price which is not less than the minimum purchase price determined under subparagraph (B).

(B) Minimum purchase price

For purposes of subparagraph (A), the minimum purchase price under this subparagraph is an amount equal to the principal amount of outstanding indebtedness secured by the building (other than indebtedness incurred within the 5-year period ending on the date of the sale to the tenants). In the case of a purchase of a partnership interest, the minimum purchase price is an amount equal to such interest's ratable share of the amount determined under the preceding sentence.

(6) Treatment of rural projects

For purposes of this section, in the case of any project for residential rental property located in a rural area (as defined in section 520 of the Housing Act of 1949), any income limitation measured by reference to area median gross income shall be measured by reference to the greater of area median gross income or national non-metropolitan median income.

(7) Determination of whether building is Federally subsidized

(A) In general

Except as otherwise provided in this paragraph, for purposes of this section, a project shall be treated as Federally subsidized for any taxable year if, at any time during such taxable year or any prior taxable year, there is or was outstanding any obligation the interest on which is exempt from tax under section 103 the proceeds of which are or were used (directly or indirectly) with respect to such project or the operation thereof.

(B) Special rule for subsidized construction financing

Subparagraph (A) shall not apply to any tax-exempt obligation used to provide construction financing for any building if—

(i)

such obligation (when issued) identified the building for which the proceeds of such obligation would be used, and

(ii)

such obligation is redeemed before such building is placed in service.

(8) Reduction in basis

In the case of any building for which a credit is allowable under this section and section 42, the basis of the building shall be reduced by the amount of such credit allowed under subsection (a).

(j) Application of at-Risk rules

For purposes of this section—

(1) In general

Except as otherwise provided in this subsection, rules similar to the rules of section 49(a)(1) (other than subparagraphs (D)(ii)(II) and (D)(iv)(I) thereof), section 49(a)(2), and section 49(b)(1) shall apply in determining the qualified basis of any building in the same manner as such sections apply in determining the credit base of property.

(2) Special rules for determining qualified person

For purposes of paragraph (1)—

(A) In general

If the requirements of subparagraphs (B), (C), and (D) are met with respect to any financing borrowed from a qualified nonprofit organization, the determination of whether such financing is qualified commercial financing with respect to any qualified middle-income building shall be made without regard to whether such organization—

(i)

is actively and regularly engaged in the business of lending money, or

(ii)

is a person described in section 49(a)(1)(D)(iv)(II).

(B) Financing secured by property

The requirements of this subparagraph are met with respect to any financing if such financing is secured by the qualified middle-income building, except that this subparagraph shall not apply in the case of a federally assisted building described in section 42(d)(6)(C) if—

(i)

a security interest in such building is not permitted by a Federal agency holding or insuring the mortgage secured by such building, and

(ii)

the proceeds from the financing (if any) are applied to acquire or improve such building.

(C) Portion of building attributable to financing

The requirements of this subparagraph are met with respect to any financing for any taxable year in the credit period if, as of the close of such taxable year, not more than 60 percent of the eligible basis of the qualified middle-income building is attributable to such financing (reduced by the principal and interest of any governmental financing which is part of a wrap-around mortgage involving such financing).

(D) Repayment of principal and interest

The requirements of this subparagraph are met with respect to any financing if such financing is fully repaid on or before the earliest of—

(i)

the date on which such financing matures,

(ii)

the 90th day after the close of the credit period with respect to the qualified middle-income building, or

(iii)

the date of its refinancing or the sale of the building to which such financing relates.

In the case of a qualified nonprofit organization which is not described in section 49(a)(1)(D)(iv)(II) with respect to a building, clause (ii) of this subparagraph shall be applied as if the date described therein were the 90th day after the earlier of the date the building ceases to be a qualified middle-income building or the date which is 15 years after the close of a credit period with respect thereto.

(3) Present value of financing

If the rate of interest on any financing described in paragraph (2)(A) is less than the rate which is 1 percentage point below the applicable Federal rate as of the time such financing is incurred, then the qualified basis (to which such financing relates) of the qualified middle-income building shall be the present value of the amount of such financing, using as the discount rate such applicable Federal rate. For purposes of the preceding sentence, the rate of interest on any financing shall be determined by treating interest to the extent of government subsidies as not payable.

(4) Failure to fully repay

(A) In general

To the extent that the requirements of paragraph (2)(D) are not met, then the taxpayer's tax under this chapter for the taxable year in which such failure occurs shall be increased by an amount equal to the applicable portion of the credit under this section with respect to such building, increased by an amount of interest for the period—

(i)

beginning with the due date for the filing of the return of tax imposed by chapter 1 for the 1st taxable year for which such credit was allowable, and

(ii)

ending with the due date for the taxable year in which such failure occurs,

determined by using the underpayment rate and method under section 6621.

(B) Applicable portion

For purposes of subparagraph (A), the term applicable portion means the aggregate decrease in the credits allowed to a taxpayer under section 38 for all prior taxable years which would have resulted if the eligible basis of the building were reduced by the amount of financing which does not meet requirements of paragraph (2)(D).

(C) Certain rules to apply

Rules similar to the rules of subparagraphs (A) and (D) of section 42(j)(4) shall apply for purposes of this subsection.

(k) Certifications and other reports to Secretary

(1) Certification with respect to 1st year of credit period

Following the close of the 1st taxable year in the credit period with respect to any qualified middle-income building, the taxpayer shall certify to the Secretary (at such time and in such form and in such manner as the Secretary prescribes)—

(A)

the taxable year, and calendar year, in which such building was placed in service,

(B)

the adjusted basis and eligible basis of such building as of the close of the 1st year of the credit period,

(C)

the maximum applicable percentage and qualified basis permitted to be taken into account by the appropriate housing credit agency under subsection (h), and

(D)

such other information as the Secretary may require.

In the case of a failure to make the certification required by the preceding sentence on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, no credit shall be allowable by reason of subsection (a) with respect to such building for any taxable year ending before such certification is made.

(2) Annual reports to the Secretary

The Secretary may require taxpayers to submit an information return (at such time and in such form and manner as the Secretary prescribes) for each taxable year setting forth—

(A)

the qualified basis for the taxable year of each qualified middle-income building of the taxpayer,

(B)

the information described in paragraph (1)(C) for the taxable year, and

(C)

such other information as the Secretary may require.

The penalty under section 6652(j) shall apply to any failure to submit the return required by the Secretary under the preceding sentence on the date prescribed therefor.

(3) Annual reports from housing credit agencies

Each agency which allocates any housing credit amount to any building for any calendar year shall submit to the Secretary (at such time and in such manner as the Secretary shall prescribe) an annual report specifying—

(A)

the amount of housing credit amount allocated to each building for such year,

(B)

sufficient information to identify each such building and the taxpayer with respect thereto, and

(C)

such other information as the Secretary may require.

The penalty under section 6652(j) shall apply to any failure to submit the report required by the preceding sentence on the date prescribed therefor.

(l) Responsibilities of housing credit agencies

(1) Plans for allocation of credit among projects

(A) In general

Notwithstanding any other provision of this section, the housing credit dollar amount with respect to any building shall be zero unless—

(i)

such amount was allocated pursuant to a qualified allocation plan of the housing credit agency which is approved by the governmental unit (in accordance with rules similar to the rules of section 42(m)(1)) of which such agency is a part,

(ii)

a comprehensive market study of the housing needs of middle-income individuals in the area to be served by the project is conducted before the credit allocation is made and at the developer's expense by a disinterested party who is approved by such agency, and

(iii)

a written explanation is available to the general public for any allocation of a housing credit dollar amount which is not made in accordance with established priorities and selection criteria of the housing credit agency.

(B) Qualified allocation plan

For purposes of this paragraph, the term qualified allocation plan means any plan—

(i)

which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions,

(ii)

which also gives preference in allocating housing credit dollar amounts among selected projects to—

(I)

projects obligated to serve qualified tenants for the longest periods,

(II)

projects in areas with insufficient supply of housing affordable to median income households,

(III)

projects which target housing to tenants at a range of incomes between 60 and 100 percent of area median gross income, and

(IV)

projects located near transit hubs, and

(iii)

which provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the provisions of this section and in notifying the Internal Revenue Service of such noncompliance which such agency becomes aware of and in monitoring for noncompliance with habitability standards through regular site visits.

(C) Certain selection criteria must be used

The selection criteria set forth in a qualified allocation plan must include—

(i)

project location,

(ii)

housing needs characteristics,

(iii)

project characteristics, including whether the project includes the use of existing housing as part of a community revitalization plan,

(iv)

sponsor characteristics,

(v)

tenant populations with special housing needs,

(vi)

tenant populations of individuals with children,

(vii)

projects intended for eventual tenant ownership,

(viii)

the energy efficiency of the project, and

(ix)

the historic nature of the project.

(D) Certain selection criteria prohibited

The selection criteria set forth in a qualified allocation plan shall not include a requirement of local approval or local contributions, either as a threshold qualification requirement or as part of a point system to be considered for allocations of housing credit dollar amount.

(2) Credit allocated to building not to exceed amount necessary to assure project feasibility

(A) In general

The housing credit dollar amount allocated to a project shall not exceed the amount the housing credit agency determines is necessary for the financial feasibility of the project and its viability as a qualified middle-income housing project throughout the credit period.

(B) Agency evaluation

In making the determination under subparagraph (A), the housing credit agency shall consider—

(i)

the sources and uses of funds and the total financing planned for the project,

(ii)

any proceeds or receipts expected to be generated by reason of tax benefits,

(iii)

the percentage of the housing credit dollar amount used for project costs other than the cost of intermediaries, and

(iv)

the reasonableness of the developmental and operational costs of the project.

Clause (iii) shall not be applied so as to impede the development of projects in hard-to-develop areas. Such a determination shall not be construed to be a representation or warranty as to the feasibility or viability of the project.

(C) Determination made when credit amount applied for and when building placed in service

(i) In general

A determination under subparagraph (A) shall be made as of each of the following times:

(I)

The application for the housing credit dollar amount.

(II)

The allocation of the housing credit dollar amount.

(III)

The date the building is placed in service.

(ii) Certification as to amount of other subsidies

Prior to each determination under clause (i), the taxpayer shall certify to the housing credit agency the full extent of all Federal, State, and local subsidies which apply (or which the taxpayer expects to apply) with respect to the building.

(m) Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including—

(1)

regulations dealing with—

(A)

projects which include more than 1 building or only a portion of a building, or

(B)

buildings which are placed in service in portions,

(2)

regulations providing for the application of this section to short taxable years,

(3)

regulations preventing the avoidance of the rules of this section,

(4)

regulations providing the opportunity for housing credit agencies to correct administrative errors and omissions with respect to allocations and record keeping within a reasonable period after their discovery, taking into account the availability of regulations and other administrative guidance from the Secretary, and

(5)

in consultation with the Secretary of Housing and Urban Development, regulations or guidance to promote uniform definitions and to streamline requirements for with respect to qualified middle-income buildings which receive funding from programs administrated by the Department of Housing and Urban Development, including programs authorized by Native American Housing Assistance and Self-Determination Act of 1996.

(b) Treatment as part of general business credit

Section 38(b), as amended by the preceding provisions of this Act, is amended by striking plus at the end of paragraph (41), by striking the period at the end of paragraph (42) and inserting , plus, and by adding at the end the following new paragraph:

(43)

the middle-income housing credit determined under section 42A(a).

(c) Reduction in basis

Section 1016(a) is amended by striking and at the end of paragraph (37), by striking the period at the end of paragraph (38) and inserting , and, and by adding at the end the following new paragraph:

(39)

to the extent provided in section 42A(i)(8).

(d) Treatment under base erosion minimum tax

Section 59A(b)(4) is amended by redesignating subparagraphs (B) and (C) as subparagraphs (C) and (D), respectively, and by inserting after subparagraphs (A) the following new subparagraph:

(B)

the middle-income housing credit determined under section 42A(a),

(e) Conforming amendments relating to low-Income housing tax credit

Section 42(n) is amended—

(f) Conforming amendments

(g) Effective date

The amendments made by this section shall apply to buildings placed in service after December 31, 2025, in taxable years ending after such date.

(a) In general

Section 36 is amended to read as follows:

36. First-time homebuyer credit

(a) Allowance of credit

In the case of an individual who is a first-time homebuyer of a principal residence in the United States during a taxable year, there shall be allowed as a credit against the tax imposed by this subtitle for such taxable year an amount equal to 10 percent of the purchase price of the residence.

(b) Limitations

(1) Dollar limitation

(A) In general

Except as otherwise provided in this paragraph, the credit allowed under subsection (a) shall not exceed $15,000.

(B) Married individuals filing separately

In the case of a married individual filing a separate return, subparagraph (A) shall be applied by substituting $7,500 for $15,000.

(C) Other individuals

If 2 or more individuals who are not married purchase a principal residence, the amount of the credit allowed under subsection (a) shall be allocated among such individuals in such manner as the Secretary may prescribe, except that the total amount of the credits allowed to all such individuals shall not exceed $15,000.

(2) Phaseout based on area median income

(A) In general

The amount allowable as a credit under subsection (a) (determined without regard to this paragraph) shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so allowable as—

(i)

the excess (if any) of—

(I)

the modified adjusted gross income of the taxpayer for the taxable year, over

(II)

150 percent of the applicable Area Medium Income, bears to

(ii)

20 percent of the applicable Area Median Income.

(B) Modified adjusted gross income

For purposes of subparagraph (A), the term modified adjusted gross income means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

(C) Applicable Area Median Income

For purposes of subparagraph (A), the term applicable Area Median Income means the Area Median Income set by the Secretary of Housing and Urban Development with respect to—

(i)

the area in which the principal residence is located,

(ii)

the size of the household of the taxpayer, and

(iii)

the calendar year in which the principal residence is purchased.

(D) Regulations and guidance

The Secretary, after consultation with the Secretary of Housing and Urban Development, shall issue such regulations and guidance as are necessary to carry out the purposes of this subparagraph.

(3) Limitation based on area median purchase price

(A) In general

The amount allowable as a credit under subsection (a) (determined without regard to this paragraph) shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so allowable as—

(i)

the excess (if any) of—

(I)

the purchase price of the principal residence, over

(II)

the amount which is equal to 110 percent of the area median purchase price, bears to

(ii)

the amount which is equal to 15 percent of the area median purchase price.

(B) Area median purchase price

For purposes of this paragraph, the term area median purchase price means the median purchase price for a home in both the area and the calendar year in which the purchase of the principal residence takes place.

(C) Regulations and guidance

The Secretary, after consultation with the Secretary of Housing and Urban Development, shall promulgate such regulations and guidance as are necessary to carry out the purposes of this subparagraph, including for determining the area median purchase price with respect to different localities.

(4) Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2026, each of the dollar amounts in paragraph (1) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2025 for calendar year 2016 in subparagraph (A)(ii) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $100.

(5) Age limitation

No credit shall be allowed under subsection (a) with respect to the purchase of any residence unless the taxpayer has attained age 18 as of the date of such purchase. In the case of any taxpayer who is married (within the meaning of section 7703), the taxpayer shall be treated as meeting the age requirement of the preceding sentence if the taxpayer or the taxpayer’s spouse meets such age requirement.

(c) Definitions

For purposes of this section—

(1) First-time homebuyer

The term first-time homebuyer means any individual if such individual (and if married, such individual’s spouse)—

(A)

has no present ownership interest in any residence during the 3-year period ending on the date of the purchase of the principal residence to which this section applies, and

(B)

has not taken the credit under this section in any other taxable year.

(2) Principal residence

The term principal residence has the same meaning as when used in section 121.

(3) Purchase

(A) In general

The term purchase means any acquisition, but only if—

(i)

the property is not acquired from a person related to the person acquiring such property (or, if married, such individual’s spouse),

(ii)

the acquisition is financed through a federally backed mortgage loan (as defined in section 4022 of the CARES Act), and

(iii)

the basis of the property in the hands of the person acquiring such property 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 acquired, or

(II)

under section 1014(a) (relating to property acquired from a decedent).

(B) Construction

A residence which is constructed by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence.

(4) Purchase price

The term purchase price means the adjusted basis of the principal residence on the date such residence is purchased.

(5) Related persons

A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b).

(d) Exceptions

No credit under subsection (a) shall be allowed to any taxpayer for any taxable year with respect to the purchase of a residence if—

(1)

the taxpayer disposes of such residence (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer's spouse)) before the close of such taxable year,

(2)

a deduction under section 151 with respect to such taxpayer is allowable to another taxpayer for such taxable year, or

(3)

the taxpayer fails to attach to the return of tax for such taxable year a properly executed copy of the settlement statement used to complete such purchase.

(e) Reporting

If the Secretary requires information reporting under section 6045 by a person described in subsection (e)(2) thereof to verify the eligibility of taxpayers for the credit allowable by this section, the exception provided by section 6045(e)(5) shall not apply.

(f) Recapture of credit

(1) In general

Except as otherwise provided in this subsection, if, during any taxable year before the close of the recapture period, a taxpayer disposes of the principal residence with respect to which a credit was allowed under subsection (a) (or such residence ceases to be the principal residence of the taxpayer), the tax imposed by this chapter for such taxable year shall be increased by the recoverable amount determined in paragraph (2).

(2) Recoverable amount

For purposes of paragraph (1), the recoverable amount is the product of—

(A)

25 percent of the amount of the credit allowed under subsection (a), multiplied by

(B)

the number of taxable years remaining in the recapture period as of the beginning of the taxable year in which the taxpayer disposes of the principal residence.

(3) Limitation based on gain

In the case of the sale of the principal residence to a person who is not related to the taxpayer, the increase in tax determined under paragraph (1) shall not exceed the amount of gain (if any) on such sale. Solely for purposes of the preceding sentence, the adjusted basis of such residence shall be reduced by the amount of the credit allowed under subsection (a).

(4) Exceptions

(A) Death of a taxpayer

Paragraph (1) shall not apply to any taxable year ending after the date of the taxpayer’s death.

(B) Involuntary conversion

Paragraph (1) shall not apply in the case of a residence which is compulsorily or involuntarily converted (within the meaning of section 1033(a)) if the taxpayer acquires a new principal residence during the 2-year period beginning on the date of the disposition or cessation referred to in paragraph (1). Paragraph (1) shall apply to such new principal residence during the recapture period in the same manner as if such new principal residence were the converted residence.

(C) Transfers between spouses or incident to divorce

In the case of a transfer of a residence to which section 1041(a) applies—

(i)

paragraph (1) shall not apply to such transfer, and

(ii)

in the case of taxable years ending after such transfer, paragraph (1) shall apply to the transferee in the same manner as if such transferee were the transferor (and shall not apply to the transferor).

(D) Special rule for members of the Armed Forces, etc

(i) In general

In the case of the disposition of a principal residence by an individual (or a cessation referred to in paragraph (1)) after the date of the enactment of this section, in connection with Government orders received by such individual, or such individual’s spouse, for qualified official extended duty service, paragraph (1) and subsection (d)(2) shall not apply to such disposition (or cessation).

(ii) Qualified official extended duty service

For purposes of this section, the term qualified official extended duty service means service on qualified official extended duty as—

(I)

a member of the uniformed services,

(II)

a member of the Foreign Service of the United States, or

(III)

an employee of the intelligence community.

(iii) Definitions

Any term used in this subparagraph which is also used in paragraph (9) of section 121(d) shall have the same meaning as when used in such paragraph.

(E) Disposition of residence in connection with change of employment

In the case of the disposition of a principal residence by an individual (or a cessation referred to in paragraph (1)) after December 31, 2022, in connection with a change of employment which meets the conditions described in section 217(c), paragraph (1) shall not apply to such disposition (or cessation).

(5) Joint returns

In the case of a credit allowed under subsection (a) with respect to a joint return, half of such credit shall be treated as having been allowed to each individual filing such return for purposes of this subsection.

(6) Return requirement

If the tax imposed by this chapter for the taxable year is increased under this subsection, the taxpayer shall, notwithstanding section 6012, be required to file a return with respect to the taxes imposed under this subtitle.

(7) Recapture period

For purposes of this subsection, the term recapture period means the 4 taxable years beginning with the taxable year in which the purchase of the principal residence for which a credit is allowed under subsection (a) was made.

(g) Election To treat purchase in prior year

In the case of a purchase of a principal residence after December 31, 2026, a taxpayer may elect to treat such purchase as made on December 31 of the calendar year preceding such purchase for purposes of this section (other than subsections (b)(4), (c), and (h)).

(h) Transfer of credit

(1) In general

Subject to such regulations and other guidance as the Secretary determines necessary, a taxpayer may elect that the credit which would (but for this subsection) be allowed to such taxpayer with respect to the purchase of a principal residence shall be allowed to the mortgage lender with respect to such purchase and not to such taxpayer.

(2) Eligible entity

For purposes of this subsection, the term eligible entity means, with respect to the purchase of the principal residence for which the credit is allowed under subsection (a), the mortgage lender which provides the mortgage to the taxpayer and has—

(A)

registered with the Secretary for purposes of this paragraph, at such time, and in such form and manner, as the Secretary may prescribe,

(B)

prior to the election described in paragraph (1) and not later than at the time of such purchase, disclosed to the taxpayer making such purchase—

(i)

the value of the credit allowed under subsection (a), and

(ii)

the amount provided by the mortgage lender to such taxpayer as a condition of the election described in paragraph (1).

(C)

not later than at the time of such purchase, made payment to such taxpayer (whether in cash or in the form of a partial payment or down payment for the purchase of such principal residence) in an amount equal to the credit otherwise allowable to such taxpayer, and

(D)

with respect to any incentive otherwise available for taking a mortgage for which a credit is allowed under this section, including any incentive in the form of a rebate or discount provided by the mortgage lender, ensured that—

(i)

the availability or use of such incentive shall not limit the ability of a taxpayer to make an election described in paragraph (1), and

(ii)

such election shall not limit the value or use of such incentive.

(3) Timing

An election described in paragraph (1) shall be made by the taxpayer not later than the date on which the purchase of the principal residence with respect to which the credit under subsection (a) is allowed is made.

(4) Revocation of registration

Upon determination by the Secretary that a mortgage lender has failed to comply with the requirements described in paragraph (2), the Secretary may revoke the registration (as described in subparagraph (A) of such paragraph) of such mortgage lender.

(5) Tax treatment of payments

With respect to any payment described in paragraph (2)(C), such payment—

(A)

shall not be includible in the gross income of the taxpayer, and

(B)

with respect to the mortgage lender, shall not be deductible under this title.

(6) Advance payment to mortgage lenders

(A) In general

The Secretary shall establish a program to make advance payments to any eligible entity in an amount equal to the cumulative amount of the credits allowed under subsection (a) with respect to any mortgages issued by such entity for which an election described in paragraph (1) has been made.

(B) Excessive payments

Rules similar to the rules of section 6417(d)(6) shall apply for purposes of this paragraph.

(C) Treatment of advance payments

For purposes of section 1324 of title 31, United States Code, the payments under subparagraph (A) shall be treated in the same manner as a refund due from a credit provision referred to in subsection (b)(2) of such section.

(7) Recapture

In the case of any taxpayer who has made an election described in paragraph (1) with respect to the purchase of a principal residence and received a payment described in paragraph (2)(C) from an eligible entity, such principal residence shall be treated as a principal residence with respect to which a credit was allowed under subsection (a) for purposes of subsection (f).

(b) Certain errors with respect to first-Time homebuyer tax credit treated as mathematical or clerical errors

Paragraph (2) of section 6213(g), as amended by Public Law 119–21, is amended by striking and at the end of subparagraph (Z), by striking the period at the end of subparagraph (AA) and inserting , and, and by inserting after subparagraph (AA) the following new subparagraph:

(BB)

an entry on a return claiming the credit under section 36 if—

(i)

the Secretary obtains information from the person issuing the TIN of the taxpayer that indicates that the taxpayer does not meet the age requirement of section 36(b)(4),

(ii)

information provided to the Secretary by the taxpayer on an income tax return for at least one of the 2 preceding taxable years is inconsistent with eligibility for such credit, or

(iii)

the taxpayer fails to attach to the return the form described in section 36(d)(3).

(c) Effective date

The amendments made by this section shall apply with respect to principal residences purchased after the date of the enactment of this Act.

(a) In general

Subpart C of part IV of subchapter A of chapter 1 is amended by inserting after section 36B the following new section:

36C. Renter tax credit

(a) In general

In the case of an individual who leases the individual’s principal residence (within the meaning of section 121) during the taxable year and who pays rent with respect to such residence in excess of 30 percent of the taxpayer’s adjusted gross income for such taxable year, there shall be allowed as a credit against the tax imposed by this subtitle for such taxable year an amount equal to the applicable percentage of such excess.

(b) Credit limited by 100 percent of small area fair market rent

Solely for purposes of determining the amount of the credit allowed under subsection (a) with respect to a residence for the taxable year, there shall not be taken into account rent in excess of an amount equal to 100 percent of the small area fair market rent (including the utility allowance) applicable to the residence involved (as most recently published, as of the beginning of the taxable year, by the Department of Housing and Urban Development).

(c) Definitions and special rules

For purposes of this section—

(1) Applicable percentage

The term applicable percentage means the percentage determined in accordance with the following table:

	The applicable
If the taxpayer’s adjusted gross income is:	percentage is:
Not over $25,000	100 percent
Over $25,000, but not over $50,000	75 percent
Over $50,000, but not over $75,000	50 percent
Over $75,000, but not over $100,000	25 percent
Over $100,000	0 percent.

(2) Partial year residence

The Secretary shall prescribe such rules as are necessary to carry out the purposes of this section for taxpayers with respect to whom a residence is a principal residence for only a portion of the taxable year.

(3) Rent

The term rent includes any amount paid for utilities of a type taken into account for purposes of determining the utility allowance under section 42(g)(2)(B)(ii).

(4) Married individuals filing separate returns

In the case of individuals who are married to each other, have the same principal residence, and do not file a joint return for the taxable year, the credit determined under this section with respect to each such individual shall be 50 percent of the amount of the credit which would be determined under this section if such individuals filed a joint return, unless such individuals agree on a different division of such credit (in such manner as the Secretary may provide) which does not aggregate to more 100 percent of such amount.

(d) Reconciliation of credit and advance payments

The amount of the credit allowed under this section for any taxable year shall be reduced (but not below zero) by the aggregate amount of any advance payments of such credit under section 7527B for such taxable year.

(b) Advance payment

Chapter 77 is amended by inserting after section 7527A the following new section:

7527B. Advance payment of renter tax credit

(a) In general

Not later than 6 months after the date of the enactment of this section, the Secretary shall establish a program for making advance payments of the credit allowed under section 36C on a monthly basis to any taxpayer who—

(1)

the Secretary has determined will be allowed such credit for the taxable year, and

(2)

has made an election under subsection (c).

(b) Amount of advance payment

(1) In general

For purposes of subsection (a), the amount of the monthly advance payment of the credit provided to a taxpayer during the applicable period shall be equal to the lesser of—

(A)

an amount equal to—

(i)

the amount of the credit which the Secretary has determined will be allowed to such taxpayer under section 36C for the taxable year ending in such applicable period, divided by

(ii)

12, or

(B)

such other amount as is elected by the taxpayer.

(2) Applicable period

For purposes of this section, the term applicable period means the 12-month period from the month of July of the taxable year through the month of June of the subsequent taxable year.

(c) Election of advance payment

A taxpayer may elect to receive an advance payment of the credit allowed under section 36C for any taxable year by including such election on a timely filed return for the preceding taxable year.

(d) Internal Revenue Service notification

The Internal Revenue Service shall take such steps as may be appropriate to ensure that taxpayers who are eligible to receive the credit under section 36C are aware of the availability of the advance payment of such credit under this section.

(e) Treatment of payments

For purposes of section 1324 of title 31, United States Code, the payments under this section shall be treated in the same manner as a refund due from a credit provision referred to in subsection (b)(2) of such section.

(f) Regulations

The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes this section.

(c) Conforming amendments

(d) Effective date

The amendments made by this section shall apply with respect to taxable years beginning after December 31, 2025.

(e) Community outreach

Immediately upon the enactment of this Act, in addition to amounts otherwise available, there are appropriated out of any money in the Treasury not otherwise appropriated $50,000,000 to remain available until 5 years after the enactment of this Act for necessary expenses for the Internal Revenue Service to support efforts to increase enrollment of eligible households in the Renter Tax Credit allowed under section 36C of the Internal Revenue Code of 1986 (including the advance payment of such credit under section 7527B of such Code), including but not limited to program outreach, costs of data sharing arrangements, systems changes, forms changes, and related efforts, and efforts by Federal agencies to facilitate the cross-enrollment of beneficiaries of other programs in such Renter Tax Credit, including by establishing intergovernmental cooperative agreements with States and local governments, tribal governments, and possessions of the United States: Provided, that such amount shall be available in addition to any amounts otherwise available: Provided further, that these funds may be awarded by Federal agencies to State and local governments, tribal governments, and possessions of the United States, and private entities, including organizations dedicated to free tax return preparation.

(a) Restoration of phase-Out

Section 45Y(d)(3) is amended by striking calendar year 2032. and inserting

means the later of—

(A)

the calendar year in which the Secretary determines that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022, or

(B)

2032.

(b) Restoration of credit for wind and solar facilities

Section 45Y(d) is amended—

(c) Restoration of credit for wind and solar leasing arrangements

Section 45Y is amended by striking subsection (h).

(d) Repeal of provision for existing studies

Section 45Y(b)(2)(C) is amended by striking clause (iii).

(e) Effective dates

The amendments made by this section shall take effect as if included in section 70512 of Public Law 119–21.

(a) Repeal of termination for wind and solar facilities

Section 48E(e) is amended—

(b) Restoration of credit for expenditures for wind and solar leasing arrangements

(c) Restoration of credit for certain energy property

Section 48(a)(2)(A)(ii) is amended by striking 0 percent and inserting 2 percent.

(d) Effective dates

The amendments made by this section shall take effect as if included in section 70513 of Public Law 119–21.

(a) Repeal of inclusion of metallurgical coal as an applicable critical mineral

Section 45X(c)(6) is amended by striking subparagraph (R) and by redesignating subparagraphs (S) through (AA) as subparagraphs (R) through (ZZ), respectively.

(b) Repeal of termination for wind energy components

Section 45X(b)(3) is amended by striking subparagraph (D).

(c) Conforming amendments

(d) Effective date

The amendments made by this section shall take effect as if included in section 70514 of Public Law 119–21.

(a) In general

Section 48C(e)(3)(C) is amended by striking shall not be increased and inserting shall be increased.

(b) Effective date

The amendment made by this section shall take effect as if included in section 70515 of Public Law 119–21.

(a) In general

Section 45V(c)(3)(C) is amended by striking January 1, 2028 and inserting January 1, 2033.

(b) Effective date

The amendment made by this section shall take effect as if included in section 70511 of Public Law 119–21.

(a) In general

Section 25D(h) is amended by striking with respect to any expenditures made after December 31, 2025 and inserting to property placed in service after December 31, 2034.

(b) Conforming amendment

Section 25D(g) is amended by striking and at the end of paragraph (2), by striking 30 percent. at the end of paragraph (3) and inserting and before January 1, 2033, 30 percent, and by adding at the end the following new paragraphs:

(4)

in the case of property placed in service after December 31, 2032, and before January 1, 2034, 26 percent, and

(5)

in the case of property placed in service after December 31, 2033, and before January 1, 2035, 22 percent.

(c) Effective date

The amendments made by this section shall take effect as if included in section 70506 of Public Law 119–21.

(a) In general

Section 45Z(a)(3) is amended to read as follows:

(3) Special rate for sustainable aviation fuel

(A) In general

In the case of a transportation fuel which is sustainable aviation fuel, paragraph (2) shall be applied—

(i)

in the case of fuel produced at a qualified facility described in paragraph (2)(A), by substituting 35 cents for 20 cents, and

(ii)

in the case of fuel produced at a qualified facility described in paragraph (2)(B), by substituting $1.75 for $1.00.

(B) Sustainable aviation fuel

For purposes of subparagraph (A), the term sustainable aviation fuel means liquid fuel, the portion of which is not kerosene, which is sold for use in an aircraft and which—

(i)

meets the requirements of—

(I)

ASTM International Standard D7566, or

(II)

the Fischer Tropsch provisions of ASTM International Standard D1655, Annex A1, and

(ii)

is not derived from palm fatty acid distillates or petroleum.

(b) Conforming amendment

Section 45Z(c)(1) is amended by striking and the $1.00 amount in subsection (a)(2)(B) and inserting the $1.00 amount in subsection (a)(2)(B), the 35 cent amount in subsection (a)(3)(A)(i), and the $1.75 amount in subsection (a)(3)(A)(ii).

(c) Effective date

The amendments made by this section shall take effect as if included in section 70521 of Public Law 119–21.

(a) Restoring product identification number requirement

Section 25C(h) is amended to read as follows:

(h) Product identification number requirement

(1) In general

No credit shall be allowed under subsection (a) with respect to any item of specified property placed in service after December 31, 2025, unless—

(A)

such item is produced by a qualified manufacturer, and

(B)

the taxpayer includes the qualified product identification number of such item on the return of tax for the taxable year.

(2) Qualified product identification number

For purposes of this section, the term qualified product identification number means, with respect to any item of specified property, the product identification number assigned to such item by the qualified manufacturer pursuant to the methodology referred to in paragraph (3).

(3) Qualified manufacturer

For purposes of this section, the term qualified manufacturer means any manufacturer of specified property which enters into an agreement with the Secretary which provides that such manufacturer will—

(A)

assign a product identification number to each item of specified property produced by such manufacturer utilizing a methodology that will ensure that such number (including any alphanumeric) is unique to each such item (by utilizing numbers or letters which are unique to such manufacturer or by such other method as the Secretary may provide),

(B)

label such item with such number in such manner as the Secretary may provide, and

(C)

make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) of the product identification numbers so assigned and including such information as the Secretary may require with respect to the item of specified property to which such number was so assigned.

(4) Specified property

For purposes of this subsection, the term specified property means any qualified energy property and any property described in subparagraph (B) or (C) of subsection (c)(3).

(b) Effective date

The amendment made by this section shall take effect as if included in the enactment of section 70505 of Public Law 119–21.

(a) In general

Section 45L(h) is amended by striking acquired after June 30, 2026 and inserting acquired after December 31, 2032.

(b) Effective date

The amendment made by this section shall take effect as if included in section 70508 of Public Law 119–21.

(a) In general

Section 179D is amended by striking subsection (i).

(b) Effective date

The amendment made by this section shall take effect as if included in section 70507 of Public Law 119–21.

(a) In general

Section 168(e)(3)(B)(vi) is amended—

(b) Effective date

The amendment made by this section shall take effect as if included in section 70509 of Public Law 119–21.

(a) In general

Section 25E(g) is amended by striking acquired after September 30, 2025 and inserting acquired after December 31, 2032.

(b) Effective date

The amendment made by this section shall take effect as if included in section 70501 of Public Law 119–21.

(a) In general

Section 30D(h) is amended by striking acquired after September 30, 2025 and inserting placed in service after December 31, 2032.

(b) Conforming amendments

(c) Effective date

The amendments made by this section shall take effect as if included in section 70502 of Public Law 119–21.

(a) Reversion of termination date

Section 45W(g) is amended by striking September 30, 2025 and inserting December 31, 2032.

(b) Clarification of application to mobile machinery

(c) Effective date

The amendments made by this section shall take effect as if included in section 70503 of Public Law 119–21.

(a) In general

Section 30C(i) is amended by striking June 30, 2026 and inserting December 31, 2032.

(b) Effective date

The amendment made by this section shall take effect as if included in section 70504 of Public Law 119–21.

(a) In general

Subpart C of part IV of subchapter A of chapter 1, as amended by the preceding provision of this Act, is amended by inserting after section 36C the following new section:

36D. Electric bicycles

(a) Allowance of credit

In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 30 percent of the cost of each qualified electric bicycle placed in service by the taxpayer during such taxable year.

(b) Limitations

(1) Limitation on cost per bicycle taken into account

The amount taken into account under subsection (a) as the cost of any qualified electric bicycle shall not exceed $5,000.

(2) Limitation on number of bicycles

In the case of any taxpayer for any taxable year, the number of qualified electric bicycles taken into account under subsection (a) shall not exceed the excess (if any) of—

(A)

1 (2 in the case of a joint return), reduced by

(B)

the aggregate number of qualified electric bicycles taken into account by the taxpayer under subsection (a) for the 2 preceding taxable years.

(3) Phaseout based on income

(A) Phaseout based on modified adjusted gross income

The credit allowed under subsection (a) shall be reduced by $100 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds—

(i)

$300,000 in the case of a joint return or a surviving spouse (as defined in section 2(a)),

(ii)

$225,000 in the case of a head of household (as defined in section 2(b)), and

(iii)

$150,000 in the case of a taxpayer not described in clause (i) or (ii).

(B) Special rule for modified adjusted gross income taken into account

The modified adjusted gross income of the taxpayer that is taken into account for purposes of subparagraph (A) shall be the lesser of—

(i)

the modified adjusted gross income for the taxable year with respect to which the credit is claimed, or

(ii)

the modified adjusted gross income for the immediately preceding taxable year.

(C) Modified adjusted gross income

For purposes of subparagraph (A), the term modified adjusted gross income means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.

(c) Qualified electric bicycle

For purposes of this section—

(1) In general

The term qualified electric bicycle means a bicycle or tricycle—

(A)

the original use of which commences with the taxpayer,

(B)

which is acquired for use by the taxpayer and not for resale,

(C)

which is not property of a character subject to an allowance for depreciation or amortization in the hands of the taxpayer,

(D)

which is made by a qualified manufacturer and is labeled with the qualified vehicle identification number assigned to such bicycle or tricycle by such manufacturer,

(E)

with respect to which the aggregate amount paid for such acquisition does not exceed $8,000,

(F)

which is a class 1 electric bicycle or tricycle, a class 2 electric bicycle or tricycle, or a class 3 electric bicycle or tricycle,

(G)

which is equipped with—

(i)

fully operable pedals,

(ii)

a saddle or seat for the rider, and

(iii)

an electric motor of less than 750 watts which is designed to provide assistance in propelling the bicycle or tricycle and—

(I)

does not provide such assistance if the bicycle or tricycle is moving in excess of 20 miles per hour, or

(II)

if such motor only provides such assistance when the rider is pedaling, does not provide such assistance if the bicycle or tricycle is moving in excess of 28 miles per hour,

(H)

which is not equipped with any motor other than the motor described in subparagraph (G)(iii),

(I)

which is not capable of exceeding the speed limitation in paragraph (2) by means of any electronic switch, setting or software modification provided or made available by the manufacturer, and

(J)

which has a drive system that has been certified by an accredited laboratory to Underwriters Laboratory (UL) standard UL 2849, or a battery that has been certified to any of the battery safety standards listed in such standard UL 2849 or such other drive system or battery safety standard as may be recognized by the United States Consumer Product Safety Commission.

(2) Class 1 electric bicycle or tricycle

The term class 1 electric bicycle or tricycle means a two- or three-wheeled vehicle equipped with an electric motor that provides assistance only when the rider is pedaling, that is not capable of providing assistance when the speed of the vehicle exceeds 20 miles per hour, and that is not a class 3 electric bicycle or tricycle.

(3) Class 2 electric bicycle or tricycle

The term class 2 electric bicycle or tricycle means a two- or three-wheeled vehicle equipped with an electric motor that may be used to propel the vehicle without the need of any additional assistance, and that is not capable of providing assistance when the speed of the vehicle exceeds 20 miles per hour.

(4) Class 3 electric bicycle or tricycle

The term class 3 electric bicycle or tricycle means a two- or three-wheeled vehicle equipped with an electric motor that provides assistance only when the rider is pedaling, and that is not capable of providing assistance when the speed of the vehicle exceeds 28 miles per hour.

(d) Special rule for bicycles used by an individual in a trade or business

In the case of any bicycle or tricycle with respect to which the taxpayer elects (at such time and in such manner as the Secretary may provide) the application of this subsection—

(1)

subsections (c)(1)(C) and (f)(2) shall not apply with respect to such bicycle or tricycle, and

(2)

no deduction (including any deduction for depreciation or amortization) or credit (other than the credit allowed under this section) shall be allowed for the cost of such bicycle or tricycle.

(e) VIN number requirement

(1) In general

No credit shall be allowed under subsection (a) with respect to any qualified electric bicycle unless the taxpayer includes the qualified vehicle identification number of such bicycle on the return of tax for the taxable year.

(2) Qualified vehicle identification number

For purposes of this section, the term qualified vehicle identification number means, with respect to any qualified electric bicycle, the vehicle identification number assigned to such bicycle by a qualified manufacturer pursuant to the methodology referred to in paragraph (3)(A).

(3) Qualified manufacturer

For purposes of this section, the term qualified manufacturer means any manufacturer of qualified electric bicycles which enters into an agreement with the Secretary which provides that such manufacturer will—

(A)

assign a vehicle identification number to each qualified electric bicycle produced by such manufacturer utilizing a methodology that will ensure that such number (including any alphanumeric) is unique to such bicycle (by utilizing numbers or letters which are unique to such manufacturer or by such other method as the Secretary may provide),

(B)

label such bicycle with such number in such manner as the Secretary may provide, and

(C)

make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) of the vehicle identification numbers so assigned and including such information as the Secretary may require with respect to the qualified electric bicycle to which such number was so assigned.

(f) Special rules

(1) Basis reduction

For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed.

(2) No double benefit

The amount of any deduction or other credit allowable under this chapter for a qualified electric bicycle for which a credit is allowable under subsection (a) shall be reduced by the amount of credit allowed under such subsection for such bicycle.

(3) Property used outside united states not qualified

No credit shall be allowable under subsection (a) with respect to any property referred to in section 50(b)(1).

(4) Recapture

The Secretary shall, by regulations or other guidance, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property which ceases to be property eligible for such credit.

(5) Election not to take credit

No credit shall be allowed under subsection (a) for any qualified electric bicycle if the taxpayer elects to not have this section apply to such bicycle.

(g) Treatment of certain possessions

(1) Payments to possessions with mirror code tax systems

The Secretary shall pay to each possession of the United States which has a mirror code tax system amounts equal to the loss (if any) to that possession by reason of the application of the provisions of this section (determined without regard to this subsection). Such amounts shall be determined by the Secretary based on information provided by the government of the respective possession.

(2) Payments to other possessions

The Secretary shall pay to each possession of the United States which does not have a mirror code tax system amounts estimated by the Secretary as being equal to the aggregate benefits (if any) that would have been provided to residents of such possession by reason of the provisions of this section if a mirror code tax system had been in effect in such possession. The preceding sentence shall not apply unless the respective possession has a plan which has been approved by the Secretary under which such possession will promptly distribute such payments to its residents.

(3) Mirror code tax system; treatment of payments

Rules similar to the rules of paragraphs (3), (4), and (5) of section 21(h) shall apply for purposes of this section.

(h) Transfer of credit

(1) In general

Subject to such regulations or other guidance as the Secretary determines necessary or appropriate, if the taxpayer who acquires a qualified electric bicycle is an individual and elects the application of this subsection with respect to such qualified electric bicycle, the credit which would (but for this subsection) be allowed to such taxpayer with respect to such qualified electric bicycle shall be allowed to the eligible entity specified in such election (and not to such taxpayer).

(2) Eligible entity

For purposes of this paragraph, the term eligible entity means, with respect to the qualified electric bicycle for which the credit is allowed under subsection (a), the retailer which sold such qualified electric bicycle to the taxpayer and has—

(A)

subject to paragraph (4), registered with the Secretary for purposes of this paragraph, at such time, and in such form and manner, as the Secretary may prescribe,

(B)

prior to the election described in paragraph (1) and no later than at the time of such sale, disclosed to the taxpayer purchasing such qualified electric bicycle—

(i)

the retail price,

(ii)

the value of the credit allowed or other incentive available for the purchase of such qualified electric bicycle,

(iii)

all fees associated with the purchase of such qualified electric bicycle, and

(iv)

the amount provided by the retailer to such taxpayer as a condition of the election described in paragraph (1),

(C)

made payment to such taxpayer (whether in cash or in the form of a partial payment or down payment for the purchase of such qualified electric bicycle) in an amount equal to the credit otherwise allowable to such taxpayer, and

(D)

with respect to any incentive otherwise available for the purchase of a qualified electric bicycle for which a credit is allowed under this section, including any incentive in the form of a rebate or discount provided by the retailer or manufacturer, ensured that—

(i)

the availability or use of such incentive shall not limit the ability of a taxpayer to make an election described in paragraph (1), and

(ii)

such election shall not limit the value or use of such incentive.

(3) Timing

An election described in paragraph (1) shall be made by the taxpayer not later than the date on which the qualified electric bicycle for which the credit is allowed under subsection (a) is purchased.

(4) Revocation of registration

Upon determination by the Secretary that a retailer has failed to comply with the requirements described in paragraph (2), the Secretary may revoke the registration (as described in subparagraph (A) of such paragraph) of such retailer.

(5) Tax treatment of payments

With respect to any payment described in paragraph (2)(C), such payment—

(A)

shall not be includible in the gross income of the taxpayer, and

(B)

with respect to the retailer, shall not be deductible under this title.

(6) Application of certain other requirements

In the case of any election under paragraph (1) with respect to any qualified electric bicycle—

(A)

the amount of the reduction under subsection (b) shall be determined with respect to the modified adjusted gross income of the taxpayer for the taxable year preceding the taxable year in which such qualified electric bicycle was acquired (and not with respect to such income for the taxable year in which such qualified electric bicycle was acquired),

(B)

the requirements of paragraphs (1) and (2) of subsection (f) shall apply to the taxpayer who acquired the qualified electric bicycle in the same manner as if the credit determined under this section with respect to such qualified electric bicycle were allowed to such taxpayer, and

(C)

subsection (f)(5) shall not apply.

(7) Advance payment to registered retailers

(A) In general

The Secretary shall establish a program to make advance payments to any eligible entity in an amount equal to the cumulative amount of the credits allowed under subsection (a) with respect to any qualified electric bicycles sold by such entity for which an election described in paragraph (1) has been made.

(B) Excessive payments

Rules similar to the rules of section 6417(c)(6) shall apply for purposes of this paragraph.

(8) Retailer

For purposes of this subsection, the term retailer means a person engaged in the trade or business of selling qualified electric bicycles in a State, the District of Columbia, the Commonwealth of Puerto Rico, or any other territory or possession of the United States.

(b) Conforming amendments