119th CONGRESS 1st Session

H. R. 6900

To amend the Internal Revenue Code of 1986 to address the nation’s cost-of-living crisis.

IN THE HOUSE OF REPRESENTATIVES

December 18, 2025

Mr. Thompson of California (for himself, Mr. Larson of Connecticut, Mr. Davis of Illinois, Ms. Sánchez, Ms. Sewell, Ms. DelBene, Ms. Chu, Ms. Moore of Wisconsin, Mr. Boyle of Pennsylvania, Mr. Beyer, Mr. Evans of Pennsylvania, Mr. Schneider, Mr. Panetta, Mr. Gomez, Mr. Horsford, Ms. Plaskett, Mr. Suozzi, Mr. Bell, Ms. Craig, Ms. DeLauro, Mr. Garamendi, Mr. Goldman of New York, Ms. Johnson of Texas, Mr. Kennedy of New York, Ms. Matsui, Ms. McBride, Ms. McDonald Rivet, Mr. McGarvey, Mr. Mrvan, Mr. Quigley, Ms. Salinas, Ms. Titus, and Ms. Scholten) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on Education and Workforce, and Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To amend the Internal Revenue Code of 1986 to address the nation’s cost-of-living crisis.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title; etc.

(a) Short title.—This Act may be cited as the “American Affordability Act of 2025”.

(b) Amendment of 1986 code.—Except as otherwise expressly provided, whenever in this Act an amendment is expressed in terms of an amendment to a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

(c) Table of contents.—The table of contents of this Act is as follows:

Sec. 1. Short title; etc.

TITLE I—HOUSING AND MUNICIPAL INFRASTRUCTURE

Subtitle A—Low-income housing credit

PART 1—REFORM OF STATE ALLOCATION FORMULAS

Sec. 11101. Increases in State allocations.

PART 2—REFORMS RELATING TO TENANT ELIGIBILITY

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.

PART 3—RULES RELATING TO CREDIT ELIGIBILITY AND DETERMINATION

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.

PART 4—REFORMS RELATING TO NATIVE AMERICAN ASSISTANCE

Sec. 11401. Selection criteria under qualified allocation plans.
Sec. 11402. Inclusion of Indian areas as difficult development areas for purposes of certain buildings.

PART 5—REFORMS RELATING TO RURAL ASSISTANCE

Sec. 11501. Inclusion of rural areas as difficult development areas.
Sec. 11502. Uniform income eligibility for rural projects.

PART 6—EXEMPT FACILITY BONDS

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

PART 7—REFORMS RELATING TO DISABLED VETERANS

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

PART 8—REFORMS RELATING TO CERTAIN OTHER POPULATIONS

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

PART 9—QUALIFIED CONTRACTS AND RIGHT OF FIRST REFUSAL

Sec. 11901. Repeal of qualified contract option.
Sec. 11902. Modification and clarification of rights relating to building purchase.

Subtitle B—Additional housing incentives

Sec. 12001. Investment credit for conversion of non-residential buildings to affordable housing.
Sec. 12002. Neighborhood homes credit.
Sec. 12003. Modification of historic rehabilitation tax credit.
Sec. 12004. Increase of exclusion of gain from sale of principal residence.
Sec. 12005. Middle-income housing tax credit.

Subtitle C—Affording the American dream

Sec. 13001. First-time homebuyer refundable tax credit.
Sec. 13002. Refundable credit for rent paid for principal residence.

TITLE II—LOWERING ENERGY COSTS

Subtitle A—Lowering costs through an all-of-the-above energy policy

Sec. 21001. Clean energy production credit.
Sec. 21002. Clean electricity investment credit.
Sec. 21003. Advanced manufacturing production credit.
Sec. 21004. Repeal of restriction on the extension of advance energy project credit program.
Sec. 21005. Reversion of construction date for clean hydrogen production credit.
Sec. 21006. Reversion of termination for residential clean energy credit.
Sec. 21007. Reinstatement of special rate for sustainable aviation fuel.

Subtitle B—Lowering costs through energy efficiency

Sec. 22001. Energy efficient home improvement credit.
Sec. 22002. New energy efficient home credit.
Sec. 22003. Repeal of termination of new energy efficient commercial buildings deduction.
Sec. 22004. Restoration of cost recovery for energy property.

Subtitle C—Lowering costs for electric vehicles and charging infrastructure

Sec. 23001. Reversion of termination date for previously-owned vehicle credit.
Sec. 23002. Reversion of termination date for clean vehicle credit.
Sec. 23003. Qualified commercial clean vehicles credit.
Sec. 23004. Reversion of termination date for alternative fuel vehicle refueling property credit.
Sec. 23005. Credit for certain new electric bicycles.

Subtitle D—Lowering costs of clean infrastructure and resiliency

Sec. 24001. Qualifying water reuse project credit.
Sec. 24002. Recycling property investment credit.
Sec. 24003. Exclusion of amounts received from State-based catastrophe loss mitigation programs.
Sec. 24004. Exclusion from gross income of certain emergency agricultural assistance.
Sec. 24005. Credit for disaster mitigation expenditures.
Sec. 24006. Establishment of electric power transmission line credit.
Sec. 24007. Qualifying advanced battery project credit.

TITLE III—CHILD AND DEPENDENT CARE

Subtitle A—Child tax credit

Sec. 31001. Establishment of refundable child tax credit with monthly advance payment.

Subtitle B—Child and dependent care

Sec. 32001. Enhancement of Child and Dependent Care Tax Credit.
Sec. 32002. Increased maximum contribution to dependent care assistance programs.
Sec. 32003. Credit for working family caregivers.
Sec. 32004. Licensed family child care credit.

Subtitle C—Ensuring affordable adoptions

Sec. 33001. Refundable adoption tax credit.

TITLE IV—EDUCATION AND WORKFORCE TRAINING

Subtitle A—Ensuring affordable higher education

Sec. 41001. American opportunity credit expanded to 6 years, made temporarily fully refundable.
Sec. 41002. Expansion of Pell Grant exclusion from gross income.
Sec. 41003. Expansion of American Opportunity and Lifetime Learning Credits.
Sec. 41004. Elimination of denial of American Opportunity Tax Credit for students convicted of a felony drug offense.
Sec. 41005. Modification of treatment of student loan forgiveness.
Sec. 41006. Student loan interest deduction limitation applied separately to each spouse.

Subtitle B—Supporting our workforce

Sec. 42001. Educator expense deduction to include early childhood educators.
Sec. 42002. Allowance of deduction for certain expenses of the trade or business of being an employee.
Sec. 42003. Modification of deduction for cash tips.
Sec. 42004. Deduction for certain overtime compensation.
Sec. 42005. Above-the-line deduction of expenses of performing artists.
Sec. 42006. Permanent extension of earned income credit rules for individuals without qualifying children.
Sec. 42007. Application of earned income credit to possessions of the United States.
Sec. 42008. Election to use prior year earned income for earned income tax credit.

TITLE V—HEALTHCARE

Sec. 50001. Increase in eligibility for health insurance premium assistance tax credit.
Sec. 50002. Filling the coverage gap.
Sec. 50003. Freeze of premium adjustment percentage increase.
Sec. 50004. Requiring coverage of certain immunizations recommended by the Advisory Committee on Immunization Practices.

TITLE I—Housing and municipal infrastructure

subtitle A—Low-income housing credit

PART 1—Reform of State allocation formulas

SEC. 11101. Increases in State allocations.

(a) In general.—Clause (ii) of section 42(h)(3)(C) of the Internal Revenue Code of 1986 is amended—

(1) in subclause (I), by striking “$1.75” and inserting “the per capita amount”, and

(2) in subclause (II), by striking “$2,000,000” and inserting “the minimum amount”.

(b) Per capita amount; minimum amount.—Section 42(h)(3) of the Internal Revenue Code of 1986 is amended by striking subparagraphs (H) and (I) and inserting the following:

“(H) PER CAPITA AMOUNT.—For purposes of subparagraph (C)(ii)(I), the per capita amount shall be determined as follows:

“(i) CALENDAR YEAR 2026.—For calendar year 2026, the per capita amount is $4.25.

“(ii) CALENDAR YEAR 2027.—For calendar year 2027, the per capita amount is the product of—

“(I) 1.25, and

“(II) the dollar amount under clause (i) increased by an amount equal to—

“(aa) such dollar amount, multiplied by

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

If the amount determined after application of the preceding sentence is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.

“(iii) CALENDAR YEARS AFTER 2027.—In the case of any calendar year after 2027, the per capita amount is the dollar amount determined under clause (ii) 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, determined by substituting ‘calendar year 2026’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.

Any amount increased under the preceding sentence which is not a multiple of 5 cents shall be rounded to the next lowest multiple of 5 cents.

“(I) MINIMUM AMOUNT.—For purposes of subparagraph (C)(ii)(II), the minimum amount shall be determined as follows:

“(i) CALENDAR YEAR 2026.—For calendar year 2026, the minimum amount is $4,876,000.

“(ii) CALENDAR YEAR 2027.—For calendar year 2027, the minimum amount is the product of—

“(I) 1.25, and

“(II) the dollar amount under clause (i) increased by an amount equal to—

“(aa) such dollar amount, multiplied by

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

If the amount determined after application of the preceding sentence is not a multiple of 5 cents, such amount shall be rounded to the next lowest multiple of 5 cents.

“(iii) CALENDAR YEARS AFTER 2027.—In the case of any calendar year after 2027, the minimum amount is the dollar amount determined under clause (ii) 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, determined by substituting ‘calendar year 2026’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.

Any amount increased under the preceding sentence which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.”.

(c) Effective date.—The amendments made by this section shall apply to calendar years beginning after December 31, 2025.

PART 2—Reforms relating to tenant eligibility

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

(a) In general.—Paragraph (1) of section 142(d) is amended—

(1) by striking “(A) or (B)” and inserting “(A), (B), or (C)”, and

(2) by inserting after subparagraph (B) the following new subparagraph:

“(C) AVERAGE INCOME TEST.—A project meets the requirements of this subparagraph if it meets the minimum requirements of section 42(g)(1)(C).”.

(b) Effective date.—The amendments made by this section shall apply to elections made under section 142(d)(1) of the Internal Revenue Code of 1986 after March 23, 2018.

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

(a) In general.—Clause (i) of section 42(g)(2)(D) is amended by striking “clauses (ii), (iii), and (iv)” and all that follows and inserting “clauses (ii), (iii), (iv), and (vi), notwithstanding an increase in the income of the occupants above the income limitation applicable under paragraph (1)—

“(I) a low-income unit shall continue to be treated as a low-income unit if the income of such occupants initially was 60 percent or less of area median gross income and such unit continues to be rent-restricted, and

“(II) a unit to which, at the time of initial occupancy by such occupants, any Federal, State, or local government income restriction applied, and which subsequently becomes part of a building with respect to which rehabilitation expenditures are taken into account under subsection (e), shall be treated as a low-income unit if the income of such occupants initially was 60 percent or less of area median gross income and does not exceed 120 percent of area median gross income as of the date of acquisition of the property by the taxpayer.”.

(b) Exception.—Subparagraph (D) of section 42(g)(2) is amended by adding at the end the following new clause:

“(vi) EXCEPTION TO RULE RELATING TO INCREASED TENANT INCOME.—In the case of an occupant of a low-income unit who initially qualified to occupy such unit by reason of paragraph (1)(C) with an income in excess of 60 percent of area median gross income but not in excess of 80 percent of area median gross income, clause (i) shall be applied for substituting ‘80 percent’ for ‘60 percent’ each place it appears.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 11203. Modification of student occupancy rules.

(a) In General.—Subparagraph (D) of section 42(i)(3) is amended to read as follows:

“(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 low-income unit.

“(ii) EXCEPTION FOR CERTAIN FEDERAL PROGRAMS.—In the case of a federally-assisted building (as defined in subsection (d)(6)(C)(i)), 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.—An individual shall not be treated as described in clause (i) if the individual meets the income limitation applicable under subsection (g)(1) to the project of which the building is a part and—

“(I) is married,

“(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 1 or more qualifying children (as defined in section 152(c)),

“(V) is or has been a victim or threatened victim of domestic violence, dating violence, sexual assault, or stalking (as defined in section 40002 of the Violence Against Women Act of 1994),

“(VI) is or has been a victim of any form of human trafficking, or

“(VII) is, or was 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) 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))).

For purposes of subclause (VI), an individual is or has been a victim of human trafficking if such individual was subjected to an act or practice described in paragraph (11) or (12) of section 103 of the Trafficking Victims Protection Act of 2000.”.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.

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

(a) In general.—Subparagraph (B) of section 42(g)(2) is amended by adding at the end the following new sentence: “In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (C) of paragraph (1), or the portion of a project to which subsection (d)(5)(C) applies, clause (i) shall not apply with respect to any tenant-based assistance (as defined in section 8(f)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437f(f)(7))).”.

(b) Effective date.—The amendments made by this section shall apply to rent paid in taxable years beginning after December 31, 2025.

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

(a) In general.—Subparagraph (B) of section 42(h)(6) is amended by striking “and” at the end of clause (v), by striking the period at the end of clause (vi) and inserting “, and”, and by adding at the end the following new clause:

“(vii) which—

“(I) prohibits the refusal to lease to, or termination of a lease by, a person solely on the basis of criminal activity directly relating to domestic violence, dating violence, sexual assault, or stalking that is engaged in by a member of the household of the tenant or any guest or other person under the control of the tenant, if the tenant or an affiliated individual of the tenant is the victim or threatened victim of such domestic violence, dating violence, sexual assault, or stalking, and

“(II) allows prospective, present, or former occupants of the building the right to enforce in any State court the prohibition of subclause (I).”.

(b) Bifurcation.—

(1) IN GENERAL.—Subparagraph (B) of section 42(h)(6), as amended by subsection (a), is further amended by adding at the end the following new flush sentence:

“For purposes of clause (vii)(I), rules similar to the rules of section 41411(b)(3)(B) of the Violence Against Women Act of 1994 shall apply with respect to the owner or manager of a building.”.

(2) EFFECT OF BIFURCATION.—Paragraph (2) of section 42(g) is amended by adding at the end the following new subparagraph:

“(F) TREATMENT OF BIFURCATION IN CASES OF DOMESTIC VIOLENCE.—In any case in which—

“(i) an occupant is evicted or removed from a low-income unit because such occupant has engaged in criminal activity directly relating to domestic violence, dating violence, sexual assault, or stalking against an affiliated individual or other individual on the basis of criminal activity directly relating to domestic violence, dating violence, sexual assault, or stalking, and

“(ii) the lease on such unit is bifurcated as provided in the last sentence of subsection (h)(6)(B),

then the remaining occupants of such low-income unit shall not be treated as a new tenant for purposes of this section.”.

(c) Clarification of general public use requirement.—Paragraph (9) of section 42(g) is amended by striking “or” at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting “, or”, and by adding at the end the following new subparagraph:

“(D) who are victims or threatened victims of criminal activity directly relating to domestic violence, dating violence, sexual assault, or stalking.”.

(d) Effective dates.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to agreements executed or modified on or after the date that is 30 days after the date of the enactment of this Act.

(2) PUBLIC USE REQUIREMENT.—The amendments made by subsection (c) shall apply to buildings placed in service before, on, or after the date of the enactment of this Act.

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

(a) In general.—Paragraph (9) of section 42(g), as amended by section 11205, is further amended by adding at the end the following flush language:

“Any veteran of the Armed Forces shall be treated as a member of a specified group under a Federal program for purposes of subparagraph (B).”.

(b) Qualified residential rental projects.—Paragraph (2) of section 142(d) is amended by adding at the end the following new subparagraph:

“(F) CLARIFICATION OF GENERAL PUBLIC USE REQUIREMENT.—A unit shall not fail to meet the general public use requirement solely because of occupancy restrictions or preferences, if such restrictions or preferences meet the general public use requirement of section 42.”.

(c) Effective dates.—

(1) IN GENERAL.—The amendment made by subsection (a) shall apply to buildings placed in service before, on, or after the date of the enactment of this Act.

(2) QUALIFIED RESIDENTIAL RENTAL PROJECTS.—The amendment made by subsection (b) shall apply to bonds issued before, on, or after the date of the enactment of this Act.

PART 3—Rules relating to credit eligibility and determination

SEC. 11301. Reconstruction or replacement period after casualty loss.

(a) No recapture following casualty loss.—Subparagraph (E) of section 42(j)(4) is amended to read as follows:

“(E) NO RECAPTURE BY REASON OF CASUALTY LOSS.—

“(i) IN GENERAL.—The increase in tax under this subsection shall not apply to a reduction in qualified basis by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the applicable housing credit agency, not to exceed 25 months from the date on which the qualified casualty loss arises.

“(ii) QUALIFIED CASUALTY LOSSES.—In the case of a qualified casualty loss, the period described in clause (i) may be extended, but not in excess of 12 months, if the applicable housing credit agency determines the qualified casualty arose by reason of an event which was not discrete to the building and which made a reconstruction or replacement within 25 months impractical. In the event the applicable housing credit agency determines a period in excess of 25 months is necessary for such reconstruction or replacement, the compliance period shall be increased by any such additional time.

“(iii) APPLICATION.—The determination under paragraph (1) shall not be made with respect to a property the basis of which is affected by a qualified casualty loss until the period described in clause (i) (as modified by clause (ii), if applicable) with respect to such property has expired.

“(iv) QUALIFIED CASUALTY LOSS.—For purposes of this subparagraph, the term ‘qualified casualty loss’ means a casualty loss that is the result of a federally declared disaster (as defined in section 165(i)(5)).”.

(b) Qualified basis following casualty loss.—Paragraph (1) of section 42(c) is amended by adding at the end the following new subparagraph:

“(F) QUALIFIED BASIS FOLLOWING CASUALTY LOSS.—If a casualty causes the qualified basis of a building in any year to be less than the qualified basis in the immediately preceding year then, in the year of such casualty and each succeeding year until such building or the units affected by the casualty are reconstructed or replaced (but only through the last year of the period permitted for reconstruction or replacement under subsection (j)(4)(E))—

“(i) the qualified basis of such building shall be equal to the qualified basis of such building as of the last day of the year preceding the year in which such casualty occurred,

“(ii) if such building is not reconstructed or replaced by the expiration of the applicable period for such reconstruction or replacement under subsection (j)(4), then the recapture amount provided for in subsection (j)(1) shall include the amount of any credit claimed under this section by reason of the application of clause (i), and

“(iii) a building which was a qualified low-income building as of the last day of the year preceding the year in which such casualty occurred shall not cease to be a qualified low-income building solely because of such casualty.”.

(c) Effective date.—The amendments made by this section shall apply to casualties occurring after December 31, 2025.

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

(a) In general.—Clause (ii) of section 42(d)(2)(B) is amended by inserting “, or the taxpayer elects the application of subparagraph (C)(ii)” after “service”.

(b) Limitation on acquisition basis.—Subparagraph (C) of section 42(d)(2) is amended—

(1) by striking “For purposes of subparagraph (A), the adjusted basis” and inserting “For purposes of subparagraph (A)—

“(i) IN GENERAL.—The adjusted basis”, and

(2) by adding at the end the following new clauses:

“(ii) BUILDINGS IN SERVICE WITHIN PREVIOUS 10 YEARS.—If the period between the date of acquisition of the building by the taxpayer and the date the building was last placed in service is less than 10 years, the taxpayer's basis attributable to the acquisition of the building which is taken into account in determining the adjusted basis shall not exceed the sum of—

“(I) the lowest amount paid for acquisition of the building by any person during the 10 years preceding the date of the acquisition of the building by the taxpayer, adjusted as provided in clause (iii), and

“(II) the value of any capital improvements made by the person who sells the building to the taxpayer which are reflected in such seller's basis.

“(iii) ADJUSTMENT.—With respect to a basis determination made in any taxable year, the amount described in clause (ii)(I) shall be increased by an amount equal to—

“(I) such amount, multiplied by

“(II) a cost-of-living adjustment, determined in the same manner as under section 1(f)(3) for the calendar year in which the taxable year begins by taking into account the acquisition year in lieu of calendar year 1992.

For purposes of the preceding sentence, the acquisition year is the calendar year in which the lowest amount referenced in clause (ii)(I) was paid for the acquisition of the building.”.

(c) Conforming amendments.—Clause (i) of section 42(d)(2)(D) is amended—

(1) by striking “for subparagraph (B)” in the heading, and

(2) by striking “subparagraph (B)(ii)” in the matter preceding subclause (I) and inserting “subparagraph (B)(ii) or (C)(ii)”.

(d) Modification of placed in service rule.—Clause (iii) of section 42(d)(2)(B) is amended to read as follows:

“(iii) the building was not owned by the taxpayer or by any person related (as of the date of acquisition by the taxpayer) to the taxpayer at any time during the 5-year period ending on the date of acquisition by the taxpayer, and”.

(e) Effective date.—The amendments made by this section shall apply to buildings placed in service after December 31, 2025.

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

(a) In general.—Paragraph (2) of section 42(e) is amended by adding at the end the following new subparagraph:

“(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.”.

(b) Effective date.—The amendment made by this section shall apply to expenditures paid or incurred after December 31, 2025.

(c) No inference.—Nothing in the amendment made by this section shall be construed to create any inference with respect to the treatment of relocation costs paid or incurred before January 1, 2026.

SEC. 11304. Repeal of qualified census tract population cap.

(a) In general.—Clause (ii) of section 42(d)(5)(B) is amended—

(1) by striking subclauses (II) and (III), and

(2) by striking “Q ualified census tract.—

“(I) IN GENERAL.—The term”,

and inserting ‘Q ualified census tract.—The term’.

(b) Effective date.—The amendments made by this section shall apply to designations of qualified census tracts under section 42(d)(5)(B)(ii) of the Internal Revenue Code of 1986 after December 31, 2025.

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

(a) In general.—Subclause (III) of section 42(m)(1)(B)(ii) is amended by inserting “, as determined by the housing credit agency according to criteria established by such agency,” after “(d)(5)(B)(ii)) and”.

(b) Criteria.—Paragraph (1) of section 42(m) is amended by adding at the end the following new subparagraph:

“(E) CRITERIA FOR DETERMINATION RELATING TO CONCERTED COMMUNITY REVITALIZATION PLAN.—For purposes of subparagraph (B)(ii)(III), the criteria which shall be established by a housing credit agency for determining whether the development of a project contributes to a concerted community development plan shall take into account any factors the agency deems appropriate, including the extent to which the proposed plan—

“(i) is geographically specific,

“(ii) outlines a clear plan for implementation and goals for outcomes,

“(iii) includes a strategy for applying for or obtaining commitments of public or private investment (or both) in nonhousing infrastructure, amenities, or services, and

“(iv) demonstrates the need for community revitalization.”.

(c) Effective date.—The amendments made by this section shall apply to allocations of housing credit dollar amounts made under qualified allocation plans (as defined in section 42(m)(1)(B) of the Internal Revenue Code of 1986) adopted after December 31, 2025.

SEC. 11306. Prohibition of local approval and contribution requirements.

(a) In general.—Paragraph (1) of section 42(m), as amended by section 11305, is further amended—

(1) by striking clause (ii) of subparagraph (A) and by redesignating clauses (iii) and (iv) thereof as clauses (ii) and (iii), and

(2) by adding at the end the following new subparagraph:

“(F) LOCAL APPROVAL OR CONTRIBUTION NOT TAKEN INTO ACCOUNT.—The selection criteria under a qualified allocation plan shall not include consideration of—

“(i) any support or opposition with respect to the project from local or elected officials, or

“(ii) any local government contribution to the project, except to the extent such contribution is taken into account as part of a broader consideration of the project's ability to leverage outside funding sources, and is not prioritized over any other source of outside funding.”.

(b) Effective date.—The amendments made by this section shall apply to allocations of housing credit dollar amounts made under qualified allocation plans (as defined in section 42(m)(1)(B) of the Internal Revenue Code of 1986) adopted after December 31, 2025.

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

(a) In general.—Paragraph (5) of section 42(d) is amended by adding at the end the following new subparagraph:

“(C) INCREASE IN CREDIT FOR PROJECTS DESIGNATED TO SERVE EXTREMELY LOW-INCOME HOUSEHOLDS.—In the case of any building—

“(i) 20 percent or more of the residential units (determined as if the imputed income limitation applicable to such units were 30 percent of area median gross income) in which are designated by the taxpayer for occupancy by households the aggregate household income of which does not exceed the greater of—

“(I) 30 percent of area median gross income, or

“(II) 100 percent of an amount equal to the Federal poverty line (within the meaning of section 36B(d)(3)), and

“(ii) which is designated by the 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 low-income housing project,

subparagraph (B) shall not apply to the portion of such building which is comprised of such units (determined in a manner similar to the unit fraction under subsection (c)(1)(C)), and the eligible basis of such portion of the building shall be 150 percent of such basis determined without regard to this subparagraph.”.

(b) Effective date.—The amendment made by this section shall apply to buildings which receive allocations of housing credit dollar amount after the date of enactment of this Act, or in the case of buildings that are described in section 42(h)(4)(B) of the Internal Revenue Code of 1986, for obligations that are part of an issue the issue date of which is after December 31, 2025.

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

(a) In general.—Clause (v) of section 42(d)(5)(B) is amended by striking the second sentence.

(b) Technical amendment.—Clause (v) of section 42(d)(5)(B), as amended by subsection (a), is further amended—

(1) by striking “S tate” in the heading, and

(2) by striking “State housing credit agency” and inserting “housing credit agency”.

(c) Effective date.—The amendments made by this section shall apply to buildings that are described in section 42(h)(4)(B) of the Internal Revenue Code of 1986, taking into account only obligations that are part of an issue the issue date of which is after December 31, 2025.

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

(a) Energy efficient commercial buildings deduction.—Subsection (e) of section 179D is amended—

(1) by striking “reduction.—For purposes” and inserting “reduction.—

“(1) IN GENERAL.—For purposes”, and

(2) by adding at the end the following new paragraph:

“(2) EXCEPTION FOR AFFORDABLE HOUSING PROPERTIES.—Paragraph (1) shall not apply for purposes of determining eligible basis under section 42.”.

(b) Effective date.—The amendments made by this section shall apply to buildings which receive allocations of housing credit dollar amount after the date of the enactment of this Act and to buildings that are described in section 42(h)(4)(B) of the Internal Revenue Code of 1986 taking into account only obligations that are part of an issue the issue date of which is after December 31, 2025.

SEC. 11310. Restriction of planned foreclosures.

(a) In general.—Subclause (I) of section 42(h)(6)(E)(i) is amended to read as follows:

“(I) 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, or”.

(b) Conforming amendment.—The second sentence of clause (i) of section 42(h)(6)(E) is amended by striking “Subclause (II)” and inserting “Subclauses (I) and (II)”.

(c) Effective date.—The amendments made by this section shall apply to acquisitions by foreclosure (or instrument in lieu of foreclosure) after December 31, 2025.

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

(a) In general.—Subclause (II) of section 42(d)(5)(B)(iii) is amended by striking “20 percent” and inserting “30 percent”.

(b) Effective date.—The amendment made by this section shall apply to designations made under section 42(d)(5)(B)(iii) of the Internal Revenue Code of 1986 after December 31, 2025.

SEC. 11312. Increased cost oversight and accountability.

(a) In general.—Subparagraph (C) of section 42(m)(1) is amended by striking “and” at the end of clause (ix), by striking the period at the end of clause (x) and inserting “, and”, and by adding at the end the following new clause:

“(xi) the reasonableness of the development costs of the project.”.

(b) Effective date.—The amendments made by this section shall apply to allocations of credits under section 42 of the Internal Revenue Code of 1986 made after December 31, 2025.

PART 4—Reforms relating to Native American assistance

SEC. 11401. Selection criteria under qualified allocation plans.

(a) In general.—Subparagraph (C) of section 42(m)(1), as amended by section 11312, is further amended by striking “and” at the end of clause (x), by striking the period at the end of clause (xi) and inserting “, and”, and by adding at the end the following new clause:

“(xii) the affordable housing needs of individuals in the State who are—

“(I) enrolled members of a tribe with respect to an Indian tribal government (including any agencies or instrumentalities of an Indian tribal government and any Alaska Native regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.)), or

“(II) described in section 801(9) of the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4221(9)).”.

(b) Effective date.—The amendments made by this section shall apply to allocations of credits under section 42 of the Internal Revenue Code of 1986 made after December 31, 2025.

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

(a) In general.—Subclause (I) of section 42(d)(5)(B)(iii) is amended by inserting before the period the following: “, and any Indian area”.

(b) Indian area.—Clause (iii) of section 42(d)(5)(B) is amended by redesignating subclause (II) as subclause (III) and by inserting after subclause (I) the following new subclause:

“(II) 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))) and any housing area (as defined in section 801(5) of such Act (25 U.S.C. 4221(5))).”.

(c) Eligible buildings.—Clause (iii) of section 42(d)(5)(B), as amended by subsection (b), is further amended by adding at the end the following new subclause:

“(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.”.

(d) Effective date.—The amendments made by this section shall apply to buildings placed in service after December 31, 2025.

PART 5—Reforms relating to rural assistance

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

(a) In general.—Subclause (I) of section 42(d)(5)(B)(iii), as amended by section 11402, is further amended by inserting “, any rural area” after “median gross income”.

(b) Rural area.—Clause (iii) of section 42(d)(5)(B), as amended by section 11402, is further amended by redesignating subclause (III) as subclause (IV) and by inserting after subclause (II) the following new subclause:

“(III) 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).”.

(c) Effective date.—The amendments made by this section shall apply to buildings placed in service after December 31, 2025.

SEC. 11502. Uniform income eligibility for rural projects.

(a) In general.—Paragraph (8) of section 42(i) is amended by striking the second sentence.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.

PART 6—Exempt facility bonds

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

(a) In general.—Subparagraph (A) of section 146(i)(6) is amended to read as follows:

“(A) IN GENERAL.—During the 12-month period beginning on the date of a repayment of a loan financed by an issue 95 percent or more of the net proceeds of which are used to provide projects described in section 142(d), if such repayment is used to provide a new loan for any project described in section 142(a)(7) or for any purpose described in subsection (a)(2)(A) or (b) of section 143, any bond which is issued to refinance such issue shall be treated as a refunding issue. Any issue treated as a refunding issue by reason of the preceding sentence shall be so treated only to the extent the principal amount of such refunding issue does not exceed the principal amount of the bonds refunded.”.

(b) Removal of one-Refunding limit.—Subparagraph (B) of section 146(i)(6) is amended—

(1) by striking “4 years” in clause (i) and inserting “10 years”,

(2) by striking “was issued” in clause (ii) and inserting “is issued”,

(3) by redesignating clauses (i) (as so amended), (ii) (as so amended), and (iii) as subclauses (I), (II), and (III), respectively, and by moving such subclauses 2 ems to the right,

(4) by striking “L imitations.—Subparagraph (A) shall apply to only one refunding of the original issue and” and inserting “L imitations.—

“(i) IN GENERAL.—Subparagraph (A) shall apply to a bond”, and

(5) by adding at the end the following new clause:

“(ii) SOURCE OF LOAN REPAYMENT.—Subparagraph (A) shall not apply to any repayment of a loan which is—

“(I) made by a repayment of another loan, or

“(II) financed by an issue treated as a refunding issue under subparagraph (A).”.

(c) Conforming amendment.—The heading of paragraph (6) of section 146(i) is amended by striking “residential rental project bonds as refunding bonds irrespective of obligor” and inserting “bonds as refunding bonds”.

(d) Effective dates.—

(1) IN GENERAL.—The amendments made by subsections (a) and (c) shall apply to refunding issues described in section 146(i)(6)(A) of the Internal Revenue Code of 1986 issued on or after the date of the enactment of this Act.

(2) REMOVAL OF ONE-REFUNDING LIMIT.—The amendments made by subsection (b) shall apply to repayments of loans received after July 30, 2008.

PART 7—Reforms relating to disabled veterans

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

(a) In general.—Section 142(d)(2)(B) is amended by adding at the end the following new clause:

“(v) VETERAN DISABILITY COMPENSATION OR PENSION.—For purposes of determining income under this subparagraph, payments of disability compensation or pension under chapter 11 or 15 of title 38, United States Code, shall be disregarded.”.

(b) Effective date.—The amendments made by this section shall apply to determinations made after the date of the enactment of this Act.

PART 8—Reforms relating to certain other populations

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

(a) In general.—Section 42 of the Internal Revenue Code of 1986 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:

“(n) Additional allocation for units for certain populations who face unique barriers to affordable housing.—

“(1) IN GENERAL.—A housing credit agency may allocate, in any calendar year, an amount equal to 5 percent of the amount such housing credit agency may allocate under subsection (h)(3)(C) to projects which contain a unit described in paragraph (2).

“(2) UNIT DESCRIBED.—A unit is described in this paragraph if—

“(A) such unit is part of a low-income housing project,

“(B) the housing credit agency and the owner of such unit, not later than the first day of the second year of the credit period of such project, execute a compliance agreement,

“(C) the taxpayer prioritizes populations who face unique barriers to affordable housing for occupancy of such units, and

“(D) the taxpayer, in consultation with covered service providers, makes available to any resident of such unit appropriate supportive services during the compliance period.

“(3) COMPLIANCE AGREEMENT.—For purposes of paragraph (2)(B), the term ‘compliance agreement’ means an agreement which—

“(A) requires the owner of a unit to submit to the housing credit agency for approval a supportive service plan for each calendar year during the compliance period,

“(B) requires the approval of the housing credit agency with respect to any agreement between such owner and any covered service provider relating to services provided pursuant to this subsection, and

“(C) allows the housing credit agency to monitor compliance with such agreement and with the requirements of this subsection.

“(4) POPULATIONS WHO FACE UNIQUE BARRIERS TO AFFORDABLE HOUSING.—For purposes of this subsection, the term ‘populations who face unique barriers to affordable housing’ means individuals who are—

“(A) formerly justice-involved individuals,

“(B) current or former foster youths, or

“(C) kinship caregivers.

“(5) COVERED SERVICE PROVIDER.—For purposes of this subsection, the term ‘covered service provider’ means any entity with demonstrated experience providing supportive services to populations who face unique barriers to affordable housing.

“(6) FORMERLY JUSTICE-INVOLVED INDIVIDUAL.—For purposes of this paragraph, the term ‘formerly justice-involved individual’ means an individual who faces barriers to obtaining housing as a result of being arrested, charged, or convicted of any criminal offense.

“(7) CURRENT OR FORMER FOSTER YOUTH.—The term ‘current or former foster youth’ means an individual who was eligible at any time to receive services under section 477(a) of the Social Security Act.

“(8) NOT INCLUDED IN AGGREGATE HOUSING CREDIT DOLLAR AMOUNT.—An amount allocated under paragraph (1) shall not be included in the aggregate housing credit dollar amount for any calendar year of the State which made such allocation.

“(9) ENFORCEMENT.—The Secretary shall, in consultation with housing credit agencies, establish such mechanisms (including penalties) as the Secretary determines appropriate to ensure that—

“(A) each unit with respect to which a credit is allowed under paragraph (1) meets the requirements described in paragraph (2), and

“(B) each housing credit agency which makes an allocation under paragraph (1) is taking appropriate steps to enforce each compliance agreement to which such housing credit agency is a party under paragraph (3).”.

(b) Allocations allowed in addition to State ceiling.—Section 42(h)(1) of such Code is amended by striking “the housing credit dollar amount allocated to such building under this subsection” and inserting “the sum of the housing credit dollar amounts allocated to such building under this subsection and subsection (n)”.

(c) Effective date.—The amendments made by this section shall apply to calendar years beginning after 2026.

PART 9—Qualified contracts and right of first refusal

SEC. 11901. Repeal of qualified contract option.

(a) Termination of option for certain buildings.—

(1) IN GENERAL.—Subclause (II) of section 42(h)(6)(E)(i) is amended by inserting “in the case of a building described in clause (iii),” before “on the last day”.

(2) BUILDINGS DESCRIBED.—Subparagraph (E) of section 42(h)(6) is amended by adding at the end the following new clause:

“(iii) BUILDINGS DESCRIBED.—A building described in this clause is a building—

“(I) which received its allocation of housing credit dollar amount before January 1, 2026, or

“(II) in the case of a building any portion of which is financed as described in paragraph (4), and which received before January 1, 2026, under the rules of paragraphs (1) and (2) of subsection (m), a determination from the issuer of the tax-exempt bonds or the housing credit agency that the building would be eligible under the qualified allocation plan to receive an allocation of housing credit dollar amount or that the credits to be earned are necessary for financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period.”.

(b) Rules relating to existing projects.—Subparagraph (F) of section 42(h)(6) is amended by striking “the nonlow-income portion” and all that follows and inserting “the nonlow-income portion and the low-income portion of the building for fair market value (determined by the housing credit agency by taking into account the rent restrictions required for the low-income portion of the building to continue to meet the standards of paragraphs (1) and (2) of subsection (g)). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph.”.

(c) Conforming amendments.—

(1) Paragraph (6) of section 42(h) is amended by striking subparagraph (G) and by redesignating subparagraphs (H), (I), (J), and (K) as subparagraphs (G), (H), (I), and (J), respectively.

(2) Subclause (II) of section 42(h)(6)(E)(i) is amended by striking “subparagraph (I)” and inserting “subparagraph (H)”.

(d) Effective dates.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act.

(2) SUBSECTION (b).—The amendments made by subsection (b) shall apply to buildings with respect to which a written request described in section 42(h)(6)(H) of the Internal Revenue Code of 1986, as redesignated by subsection (c), is submitted after the date of the enactment of this Act.

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

(a) Modification of right of first refusal.—

(1) IN GENERAL.—Subparagraph (A) of section 42(i)(7) is amended by striking “a right of 1st refusal” and inserting “an option”.

(2) CONFORMING AMENDMENT.—The heading of paragraph (7) of section 42(i) is amended by striking “right of 1st refusal” and inserting “option”.

(b) Clarification with respect to right of first refusal and purchase options.—

(1) PURCHASE OF PARTNERSHIP INTEREST.—

(A) IN GENERAL.—Subparagraph (A) of section 42(i)(7), as amended by subsection (a), is amended by striking “the property” and inserting “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”.

(B) APPLICATION TO S CORPORATIONS AND OTHER PASS-THROUGH ENTITIES.—Subparagraph (A) of section 42(i)(7) is amended by adding at the end the following: “Except as provided by the Secretary, the rules of this paragraph shall apply to S corporations and other pass-through entities in the same manner as such rules apply to partnerships.”.

(C) CONFORMING AMENDMENT.—Subparagraph (B) of section 42(i)(7) is amended by adding at the end the following: “In the case of a purchase of all of the partnership interests, the minimum purchase price under this subparagraph shall be an amount not less than the sum of the interests’ shares of the amount which would be determined with respect to the property under this subparagraph without regard to this sentence.”.

(2) PROPERTY INCLUDES ASSETS RELATING TO THE BUILDING.—Paragraph (7) of section 42(i) is amended by adding at the end the following new subparagraph:

“(C) PROPERTY.—For purposes of subparagraph (A), the term ‘property’ may include all or any of the assets held for the development, operation, or maintenance of a building.”.

(3) EXERCISE OF RIGHT OF FIRST REFUSAL AND PURCHASE OPTIONS.—Subparagraph (A) of section 42(i)(7), as amended by subsection (a) and paragraph (1)(A), is amended by adding at the end the following: “For purposes of determining whether an option, including a right of first refusal, to purchase property or all of the partnership interests holding (directly or indirectly) such property is described in the preceding sentence—

“(i) such option or right of first refusal shall be exercisable with or without the approval of any owner of the project (including any partner, member, or affiliated organization of such an owner), and

“(ii) a right of first refusal shall be exercisable in response to any offer to purchase the property or all of the partnership interests, including an offer by a related party.”.

(c) Other conforming amendment.—Subparagraph (B) of section 42(i)(7), as amended by subsection (b), is amended by striking “the sum of” and all that follows through “application of clause (ii).” and inserting the following: “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).”.

(d) Effective dates.—

(1) MODIFICATION OF RIGHT OF FIRST REFUSAL.—The amendments made by subsections (a) and (c) shall apply to agreements entered into or amended after the date of the enactment of this Act.

(2) CLARIFICATION.—The amendments made by subsection (b) shall apply to agreements among the owners of the project (including partners, members, and their affiliated organizations) and persons described in section 42(i)(7)(A) of the Internal Revenue Code of 1986 entered into before, on, or after the date of the enactment of this Act.

(3) NO EFFECT ON AGREEMENTS.—None of the amendments made by this section is intended to supersede express language in any agreement with respect to the terms of a right of first refusal or option permitted by section 42(i)(7) of the Internal Revenue Code of 1986 in effect on the date of the enactment of this Act.

subtitle B—Additional housing incentives

SEC. 12001. Investment credit for conversion of non-residential buildings to affordable housing.

(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:

“SEC. 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.—

(1) Section 46 is amended in paragraph (6) by striking “and” at the end, in paragraph (7) by striking the period at the end and inserting “, and”, and by adding at the end the following new paragraph:

“(8) the affordable housing conversion credit.”.

(2) Section 49(a)(1)(C) is amended by striking “and” at the end of clause (vii), in clause (viii) by striking the period at the end and inserting “, and”, and by adding at the end the follow new clause:

“(ix) the basis of any property which is being converted as part of a qualified conversion under section 48F.”.

(3) Section 50(a)(2)(E) is amended by striking “or 48E(e)” and inserting “48E(e), or 48F(f)”.

(4) The table of sections for subpart E of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item:

“Sec. 48F. Affordable housing conversion credit.”.

(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.

SEC. 12002. Neighborhood homes credit.

(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:

“SEC. 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.—

(1) ENERGY EFFICIENT HOME IMPROVEMENT CREDIT.—Section 25C(g) is amended by adding after the first sentence the following new sentence: “This subsection shall not apply for purposes of determining the eligible development costs or adjusted basis of any building under section 42A.”.

(2) RESIDENTIAL CLEAN ENERGY CREDIT.—Section 25D(f) is amended by adding after the first sentence the following new sentence: “This subsection shall not apply for purposes of determining the eligible development costs or adjusted basis of any building under section 42A.”.

(3) NEW ENERGY EFFICIENT HOME CREDIT.—Section 45L(e) is amended by inserting “or for purposes of determining the eligible development costs or adjusted basis of any building under section 42A” after “section 42”.

(e) Exclusion from gross income.—Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section:

“SEC. 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.—

(1) Subsections (i)(3)(C), (i)(6)(B)(i), and (k)(1) of section 469 are each amended by inserting “or 42A” after “section 42”.

(2) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 42 the following new item:

“Sec. 42A. Neighborhood homes credit.”.

(3) The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 140 the following new item:

“Sec. 139M. State energy subsidies for qualified residences.”.

(g) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 12003. Modification of historic rehabilitation tax credit.

(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.—

(1) IN GENERAL.—Section 50(c) is amended by adding at the end the following new paragraph:

“(6) EXCEPTION FOR REHABILITATION CREDIT.—In the case of the rehabilitation credit, paragraph (1) shall not apply.”.

(2) TREATMENT IN CASE OF CREDIT ALLOWED TO LESSEE.—Section 50(d) is amended by adding at the end the following: “In the case of the rehabilitation credit, paragraph (5)(B) of the section 48(d) referred to in paragraph (5) of this subsection shall not apply.”.

(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.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.

(2) FULL CREDIT ALLOWED IN THE YEAR BUILDING PLACED IN SERVICE.—The amendment made by subsection (a) shall apply to property placed in service after December 31, 2025.

SEC. 12004. Increase of exclusion of gain from sale of principal residence.

(a) In general.—Section 121(b) is amended—

(1) by striking “$250,000” and inserting “$500,000” each place it appears,

(2) by striking “500,000” and inserting “$1,000,000” each place it appears,

(3) in paragraph (2)(A), in the heading, by striking “$500,000” and inserting “$1,000,000”, and

(4) by adding at the end the following new paragraph:

“(5) ADJUSTMENT FOR INFLATION.—In the case of a taxable year beginning after 2026, the $500,000 and $1,000,000 amounts in paragraphs (1), (2), and (4) 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 ‘2025’ for ‘2016’ in subparagraph (A)(ii) thereof.

If any increase under this clause is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.”.

(b) Effective date.—The amendments made by this section shall apply to sales and exchanges after December 31, 2025.

SEC. 12005. Middle-income housing tax credit.

(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:

“SEC. 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—

(1) by striking “regulations” in the matter preceding paragraph (1),

(2) by inserting “regulations” before “dealing with” in paragraph (1),

(3) by inserting “regulations” before “providing” in paragraphs (2) and (4),

(4) by inserting “regulations” before “preventing” in paragraph (3),

(5) by striking “and” at the end of paragraph (3),

(6) by striking the period at the end of paragraph (4) and inserting “, and”, and

(7) by adding at the end the following new paragraph:

“(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 low-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.”.

(f) Conforming amendments.—

(1) Section 45L(e) is amended by inserting “or 42A” after “42”.

(2) Section 50(c)(3)(C) is amended by inserting “or 42A” after “42”.

(3) Section 55(c)(1) is amended by inserting “42A(j),” before “45(e)(11)(C)”.

(4) Subsections (i)(3)(C), (i)(6)(B)(i), and (k)(1) of section 469 are each amended by inserting “or 42A” after “42”.

(5) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 42 the following new item:

“Sec. 42A. Middle-income housing credit.”.

(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.

subtitle C—Affording the American dream

SEC. 13001. First-time homebuyer refundable tax credit.

(a) In general.—Section 36 is amended to read as follows:

“SEC. 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.

SEC. 13002. Refundable credit for rent paid for principal residence.

(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:

“SEC. 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:

“SEC. 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.—

(1) Section 6211(b)(4)(A) is amended by inserting “36C,” after “36B,”.

(2) Section 1324(b)(2) of title 31, United States Code, is amended by inserting “36C,” after “36B,”.

(3) The table of sections for subpart C of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 36B the following new item:

“Sec. 36C. Renter tax credit.”.

(4) The table of sections for chapter 77 is amended by inserting after the item relating to section 7527A the following new item:

“Sec. 7527B. Advance payment of renter tax credit.”.

(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.

TITLE II—Lowering energy costs

subtitle A—Lowering costs through an all-of-the-above energy policy

SEC. 21001. Clean energy production credit.

(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—

(1) in paragraph (1), by striking “Subject to paragraph (4), the amount” and inserting “The amount”, and

(2) by striking paragraph (4).

(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.

SEC. 21002. Clean electricity investment credit.

(a) Repeal of termination for wind and solar facilities.—Section 48E(e) is amended—

(1) in paragraph (1), by striking “Subject to paragraph (4), the amount” and inserting “The amount”, and

(2) by striking paragraph (4).

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

(1) IN GENERAL.—Section 48E is amended by striking subsection (i) and by redesignating subsections (j) and (k) as subsections (i) and (j), respectively.

(2) CONFORMING RULE REPEAL.—Section 50 is amended by striking subsection (e).

(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.

SEC. 21003. Advanced manufacturing production credit.

(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.—

(1) Section 45X(b)(1)(M) is amended by striking “(2.5 percent in the case of metallurgical coal)”.

(2) The heading of section 45X(b)(3) is amended by striking “and termination”.

(3) Section 45X(b)(3)(A) is amended by striking “subparagraphs (C) and (D)” and inserting “subparagraph (C)”.

(4) The heading of section 45X(b)(3)(C) is amended by striking “other than metallurgical coal”.

(5) The heading of section 45X(b)(3)(C)(ii) is amended by striking “other than metallurgical coal”.

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

(d) Effective date.—The amendments made by this section shall take effect as if included in section 70514 of Public Law 119–21.

SEC. 21004. Repeal of restriction on the extension of advance energy project credit program.

(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.

SEC. 21005. Reversion of construction date for clean hydrogen production credit.

(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.

SEC. 21006. Reversion of termination for residential clean energy credit.

(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.

SEC. 21007. Reinstatement of special rate for sustainable aviation fuel.

(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.

subtitle B—Lowering costs through energy efficiency

SEC. 22001. Energy efficient home improvement credit.

(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.

SEC. 22002. New energy efficient home credit.

(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.

SEC. 22003. Repeal of termination of new energy efficient commercial buildings deduction.

(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.

SEC. 22004. Restoration of cost recovery for energy property.

(a) In general.—Section 168(e)(3)(B)(vi) is amended—

(1) by redesignating subclauses (I) and (II) as subclauses (II) and (III), respectively, and

(2) by inserting before subclause (II) (as so redesignated) the following subclause:

“(I) is described in subparagraph (A) of section 48(a)(3) (or would be so described if ‘solar or wind energy’ were substituted for ‘solar energy’ in clause (i) thereof and the last sentence of such section did not apply to such subparagraph),”.

(b) Effective date.—The amendment made by this section shall take effect as if included in section 70509 of Public Law 119–21.

subtitle C—Lowering costs for electric vehicles and charging infrastructure

SEC. 23001. Reversion of termination date for previously-owned vehicle credit.

(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.

SEC. 23002. Reversion of termination date for clean vehicle credit.

(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.—

(1) Section 30D(e)(1)(B) is amended by striking “and” at the end of clause (iii), by striking the period at the end of clause (iv) and inserting “, and”, and by adding at the end the following clause:

“(v) in the case of a vehicle placed in service after December 31, 2026, 80 percent.”.

(2) Section 30D(e)(2)(B) is amended by striking “and” at the end of clause (ii), by striking the period at the end of clause (iii), and by adding at the end the following clauses:

“(iv) in the case of a vehicle placed in service during calendar year 2027, 80 percent,

“(v) in the case of a vehicle placed in service during calendar year 2028, 90 percent, and

“(vi) in the case of a vehicle placed in service after December 31, 2028, 100 percent.”.

(c) Effective date.—The amendments made by this section shall take effect as if included in section 70502 of Public Law 119–21.

SEC. 23003. Qualified commercial clean vehicles credit.

(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.—

(1) IN GENERAL.—Section 45W(c)(2) is amended—

(A) in subparagraph (A), by striking “primarily”, and

(B) in subparagraph (B), by striking “mobile machinery, as defined in section 4053(8)” and inserting “a vehicle that performs a construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operation”.

(2) QUALIFIED MANUFACTURER AND VIN REQUIREMENTS NOT APPLICABLE.—

(A) QUALIFIED MANUFACTURER REQUIREMENTS.—Section 45W(c) is amended—

(i) in paragraph (1), by striking “meets the requirements of section 30D(d)(1)(C) and”,

(ii) in paragraph (2)(A), by striking “subparagraph (D)” and inserting “subparagraphs (C) and (D)”, and

(iii) in paragraph (3), by striking “either—” and inserting “meets the requirements of section 30D(d)(1)(C) and either—”.

(B) VIN REQUIREMENTS.—Section 45W(e) is amended by inserting “(other than a vehicle described in subsection (c)(2)(B))” after “any vehicle”.

(c) Effective date.—The amendments made by this section shall take effect as if included in section 70503 of Public Law 119–21.

SEC. 23004. Reversion of termination date for alternative fuel vehicle refueling property credit.

(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.

SEC. 23005. Credit for certain new electric bicycles.

(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:

“SEC. 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.—

(1) Section 1016(a), as amended by the preceding provisions of this Act, is amended by striking “and” at the end of paragraph (38), by striking the period at the end of paragraph (39) and inserting “, and”, and by adding at the end the following new paragraph:

“(40) to the extent provided in section 36D(f)(1).”.

(2) Section 6211(b)(4)(A), as amended by the preceding provisions of this Act, is amended by inserting “36D,” after “36C,”.

(3) Section 6213(g)(2) is amended—

(A) in subparagraph (Z), by striking “and” at the end,

(B) in subparagraph (AA), by striking the period at the end and inserting “, and”, and

(C) by adding at the end the following:

“(BB) an omission of a correct vehicle identification number required under section 36D(e) (relating to electric bicycles credit) to be included on a return.”.

(4) Section 6501(m) is amended by inserting “36D(f)(5),” after “35(g)(11),”.

(5) Section 1324(b)(2) of title 31, United States Code, as amended by the preceding provisions of this Act, is amended by inserting “36D,” after “36C,”.

(c) Clerical amendment.—The table of sections for subpart C of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by adding at the end the following new item:

“Sec. 36D. Electric bicycles.”.

(d) Effective date.—The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act, in taxable years ending after such date.

(e) Treasury report.—Not later than 3 years after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s delegate) shall make publicly available a written report specifying the number of taxpayers claiming the credit allowed under section 36D of the Internal Revenue Code of 1986 (as added by this section) and the aggregate dollar amount of such credits so allowed. Such information shall be stated separately for taxable years beginning in 2026 and 2027, and shall be stated separately with respect to each such years with respect to taxpayers in each of the income brackets to which section 1 of such Code applies.

subtitle D—Lowering costs of clean infrastructure and resiliency

SEC. 24001. Qualifying water reuse project credit.

(a) In general.—Subpart E of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after section 48H the following new section:

“SEC. 48I. Qualifying water reuse project credit.

“(a) In general.—For purposes of section 46, the qualifying water reuse project credit for any taxable year is an amount equal to 30 percent of the qualified investment for such taxable year with respect to any qualifying water reuse project of the taxpayer.

“(b) Qualified investment.—

“(1) IN GENERAL.—For purposes of subsection (a), the qualified investment with respect to any qualifying water reuse project for any taxable year is the basis of qualified property placed in service by the taxpayer during such taxable year which is part of such qualifying water reuse project.

“(2) QUALIFIED PROPERTY.—For purposes of this subsection, the term ‘qualified property’ means property—

“(A) which is tangible property,

“(B) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and

“(C) which is—

“(i) constructed, reconstructed, or erected by the taxpayer, or

“(ii) acquired by the taxpayer if the original use of such property commences with the taxpayer.

“(3) CERTAIN QUALIFIED PROGRESS EXPENDITURES RULES MADE APPLICABLE.—Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this section.

“(c) Qualifying water reuse project.—For purposes of this section—

“(1) IN GENERAL.—The term ‘qualifying water reuse project’ means a project which—

“(A) installs, replaces, or modifies an onsite water recycling system within an industrial, manufacturing, data center, or food processing facility,

“(B) replaces the use of freshwater, such as groundwater, with recycled water from a municipal water provider for the production of goods or provision of services, or

“(C) builds or expands a municipal water recycling system for the purpose of securing recycled water for the production of goods or provision of services.

“(2) PREVAILING WAGE AND APPRENTICESHIP REQUIREMENTS.—Such term shall not include any project unless such project meets the requirements of paragraph (7) and (8) of section 45(b).

“(d) Special rule for certain property transferred to utilities.—

“(1) IN GENERAL.—In the case of any qualified transfer property transferred from a person to a utility—

“(A) such property shall be treated as qualified property with respect to such person,

“(B) such person shall be treated as having placed such property in service at the time of such transfer,

“(C) the basis of such person in such property which is taken into account under subsection (b)(1) shall be the basis of such person in such property at the time of such transfer, and

“(D) such property shall not be taken into account for purposes of determining any credit allowed under this section to such utility.

“(2) QUALIFIED TRANSFER PROPERTY.—For purposes of this subsection, the term ‘qualified transfer property’ means property transferred from a person to a utility if—

“(A) such property is qualified property with respect to such utility, and

“(B) such person and such utility enter into a binding written agreement under which such person is treated as eligible for the credit allowed under this section with respect to such property in lieu of such utility.

“(e) Termination.—This section shall not apply to any property the construction of which begins after December 31, 2032.”.

(b) Part of investment credit.—Section 46, as amended by the preceding provisions of this Act, is amended by striking “and” at the end of paragraph (9), by striking the period at the end of paragraph (10) and inserting “, and”, and by adding at the end the following new paragraph:

“(11) the qualifying water reuse project credit.”.

(c) Clerical amendment.—The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after the item relating to section 48H the following new item:

“Sec. 48I. Qualifying water reuse project credit.”.

(d) Effective date.—The amendments made by this section shall apply to periods after the date of the enactment of this section under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1986 (as in effect on the date of the enactment of the Revenue Reconciliation Act of 1990).

SEC. 24002. Recycling property investment credit.

(a) In general.—Subpart E of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after section 48I the following new section:

“SEC. 48J. Recycling property investment credit.

“(a) In general.—For purposes of section 46, the recycling property investment credit for any taxable year is an amount equal to 30 percent of the qualified investment for such taxable year.

“(b) Qualified investment.—

“(1) IN GENERAL.—For purposes of subsection (a), the qualified investment for any taxable year is the basis of any eligible property placed in service by the taxpayer during such taxable year.

“(2) ELIGIBLE PROPERTY.—For purposes of this section—

“(A) IN GENERAL.—The term ‘eligible property’ means property—

“(i) which is qualified recycling property,

“(ii) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and

“(iii) (I) the construction, reconstruction, addition, or erection of which is completed by the taxpayer, or

“(II) which is acquired by the taxpayer if the original use of such property commences with the taxpayer, and

“(B) PREVAILING WAGE AND APPRENTICESHIP REQUIREMENTS.—Such term shall not include any property unless such property meets the requirements of paragraph (7) and (8) of section 45(b).

“(c) Special rules.—For purposes of this section—

“(1) CERTAIN PROGRESS EXPENDITURE RULES MADE APPLICABLE.—Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply.

“(2) SPECIAL RULE FOR CERTAIN SUBSIDIZED PROPERTY.—Rules similar to section 45(b)(3) shall apply.

“(3) DOMESTIC CONTENT BONUS CREDIT AMOUNT.—

“(A) IN GENERAL.—In the case of any qualified investment which satisfies the requirement under subparagraph (B), the amount of the credit determined under subsection (a) (determined without regard to this paragraph before the application of subsection (d) and after the application of any other provision of this section) shall be increased by an amount equal to 10 percentage points of the amount so determined.

“(B) REQUIREMENT.—Rules similar to the rules of section 45(b)(9)(B) shall apply.

“(4) PHASEOUT FOR ELECTIVE PAYMENT.—In the case of a taxpayer making an election under section 6417 with respect to a credit under this section, rules similar to the rules of section 45(b)(10) shall apply.

“(d) Credit phase-Out.—

“(1) IN GENERAL.—The amount of the credit determined under subsection (a) with respect to any qualified investment shall be equal to the product of—

“(A) the amount of the credit determined under subsection (a) without regard to this subsection, multiplied by

“(B) the phase-out percentage under paragraph (2).

“(2) PHASE-OUT PERCENTAGE.—The phase-out percentage under this paragraph is equal to—

“(A) in the case of any eligible property with a determination date beginning on or after January 1, 2026, and before December 31, 2032, 100 percent,

“(B) in the case of any eligible property with a determination date beginning on or after January 1, 2033, and before December 31, 2033, 80 percent,

“(C) in the case of any eligible property with a determination date beginning on or after January 1, 2034, and before December 31, 2034, 60 percent,

“(D) in the case of any eligible property with a determination date beginning on or after January 1, 2035, and before December 31, 2035, 40 percent,

“(E) in the case of any eligible property with a determination date beginning on or after January 1, 2036, and before December 31, 2036, 20 percent, and

“(F) in the case of any eligible property with a determination date beginning on or after January 1, 2037, 0 percent.

“(3) DETERMINATION DATE.—For purposes of paragraph (2), the determination date of an eligible property is—

“(A) in the case such property is described in subsection (b)(2)(C)(i), the date on which the construction, reconstruction, addition, or erection of such property begins, and

“(B) in any other case, the date on which such property is placed in service.

“(e) Denial of double benefit.—In the case of any eligible property with respect to which credit is allowed under subsection (a)—

“(1) no other credit or deduction shall be allowed for, or by reason of, such property to the extent of the amount of such credit, and

“(2) the basis of such property shall be reduced by the amount of such credit.

“(f) Regulations and guidance.—The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this section, including regulations or other guidance which provides for requirements for recordkeeping or information reporting for purposes of administering the requirements of this section.

“(g) Definitions.—For purposes of this section—

“(1) QUALIFIED RECYCLING PROPERTY.—The term ‘qualified recycling property’ has the meaning given the term ‘reuse and recycling property’ in section 168(m)(3)(A).

“(2) QUALIFIED REUSE AND RECYCLABLE MATERIALS.—The term ‘qualified reuse and recyclable materials’ has the meaning given such term in section 168(m)(3)(B), except that for purposes of this section such term includes any video display device and any computer device (including computer peripherals, such as keyboards, mice, speakers, cables, printers, and scanners).

“(3) RECYCLE.—The term ‘recycle’ has the meaning given such term in section 168(m)(3)(C), except that for purposes of this section such term does not include—

“(A) any method of sorting, processing, and aggregating materials from solid waste that—

“(i) does not preserve the original quality of such materials, and

“(ii) results in the aggregated material not being usable—

“(I) for the initial purpose (or a substantially similar purpose) of such materials, or

“(II) as feedstock in lieu of virgin feedstock in the production of specification grade commodities, or

“(B) the primary use of waste or qualified reuse and recyclable materials—

“(i) as a fuel or fuel substitute;

“(ii) for the production or generation of energy (including heat and electricity);

“(iii) for incineration;

“(iv) for alternate operating cover; or

“(v) within the footprint of a landfill.”.

(b) Credit made part of investment credit.—Section 46, as amended by the preceding provisions of this Act, is amended by striking “and” at the end of paragraph (10), by striking the period at the end of paragraph (11) and inserting “, and”, and by adding at the end the following new paragraph:

“(12) the recycling property investment credit.”.

(c) Clerical amendment.—The table of sections for subpart E of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after the item relating to section 48I the following new item:

“48J. Recycling property investment credit.”.

(d) Effective date.—The amendments made by this section shall apply to—

(1) in the case of property described in section 48J(b)(2)(C)(i) of the Internal Revenue Code of 1986 (as added by subsection (a)), property which is constructed, reconstructed, added, or erected after December 31, 2025, and

(2) in any other case, property which is placed in service after December 31, 2025.

SEC. 24003. Exclusion of amounts received from State-based catastrophe loss mitigation programs.

(a) In general.—Section 139 is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:

“(h) State-Based catastrophe loss mitigation programs.—

“(1) IN GENERAL.—Gross income shall not include any amount received by an individual as a qualified catastrophe loss mitigation payment under a program established or administered by a State, or a political subdivision or instrumentality thereof, for the purpose of making such payments.

“(2) QUALIFIED CATASTROPHE LOSS MITIGATION PAYMENT.—For purposes of this section, the term ‘qualified catastrophe loss mitigation payment’ means any amount which is received by an individual to make improvements to such individual’s residence for the sole purpose of hazard mitigation with respect to such residence.

“(3) NO INCREASE IN BASIS.—Rules similar to the rules of subsection (g)(3) shall apply in the case of this subsection.”.

(b) Conforming amendments.—

(1) Section 139(d) is amended by striking “and qualified” and inserting “, qualified catastrophe mitigation payments, and qualified”.

(2) Section 139(i) (as redesignated by subsection (a)) is amended by striking “or qualified” and inserting “, qualified catastrophe mitigation payment, or qualified”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 24004. Exclusion from gross income of certain emergency agricultural assistance.

(a) In general.—Section 139, as amended by the preceding provisions of this Act, is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:

“(i) Certain agricultural assistance.—For purposes of this section, the term ‘qualified disaster relief payment’ shall include any assistance received under any of the following:

“(1) Assistance received under the Wildfires and Hurricanes Indemnity Program Plus under subpart O of part 760 of title 7, Code of Federal Regulations.

“(2) Assistance received under section 1501 of the Agricultural Act of 2014 (7 U.S.C. 9081).

“(3) Noninsured crop assistance under section 196 of the Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7333).

“(4) Assistance under a food assistance program under part 9 of title 7, Code of Federal Regulations.

“(5) Assistance under title IV of the Agricultural Credit Act of 1978 (16 U.S.C. 2201 et seq.).

“(6) Assistance under the Quality Loss Assistance Program.”.

(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 24005. Credit for disaster mitigation expenditures.

(a) In general.—Subpart B of part IV of subchapter A of chapter 1 is amended by inserting after section 27 the following new section:

“SEC. 28. Disaster mitigation expenditures.

“(a) In general.—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 expenditures paid for qualifying mitigation activities paid or incurred by the taxpayer during such taxable year with respect to real property owned or leased by the taxpayer.

“(b) Qualifying mitigation activities.—For purposes of this section, the term ‘qualifying mitigation activity’ means an activity relating to a housing unit—

“(1) for property to—

“(A) improve the strength of a roof deck attachment;

“(B) create a secondary water barrier to prevent water intrusion or mitigate against potential water intrusion from wind-driven rain;

“(C) improve the durability, impact resistance (not less than class 3 or 4 rating), or fire resistance (not less than class A rating) of a roof covering;

“(D) brace gable-end walls;

“(E) reinforce the connection between a roof and supporting wall;

“(F) protect openings from penetration by wind-borne debris;

“(G) protect exterior doors and garages from natural hazards;

“(H) complete measures contained in the publication of the Federal Emergency Management Agency entitled ‘Wind Retrofit Guide for Residential Buildings’ (P–804);

“(I) elevate the qualified dwelling unit, as well as utilities, machinery, or equipment, above the base flood elevation or other applicable minimum elevation requirement;

“(J) seal walls in the basement of the qualified dwelling unit using waterproofing compounds; or

“(K) protect propane tanks or other external fuel sources;

“(2) to install—

“(A) check valves to prevent flood water from backing up into drains;

“(B) flood vents, breakaway walls or open lattice for homes located in V zones;

“(C) a stormwater drainage system or improve an existing system;

“(D) natural or nature-based features for flood control, including living shorelines;

“(E) roof coverings, sheathing, flashing, roof and attic vents, eaves, or gutters that conform to ignition-resistant construction standards;

“(F) wall components for wall assemblies that conform to ignition-resistant construction standards;

“(G) a wall-to-foundation anchor or connector, or a shear transfer anchor or connector;

“(H) wood structural panel sheathing for strengthening cripple walls;

“(I) anchorage of the masonry chimney to the framing;

“(J) prefabricated lateral resisting systems;

“(K) a standby generator system consisting of a standby generator and an automatic transfer switch;

“(L) a storm shelter that meets the design and construction standards established by the International Code Council and the National Storm Shelter Association (ICC–500), or a safe room that satisfies the criteria contained in—

“(i) the publication of the Federal Emergency Management Agency entitled ‘Safe Rooms for Tornadoes and Hurricanes’ (P–361); or

“(ii) the publication of the Federal Emergency Management Agency entitled ‘Taking Shelter from the Storm’ (P–320);

“(M) a lightning protection system;

“(N) exterior walls, doors, windows, or other exterior dwelling unit elements that conform to ignition-resistant construction standards;

“(O) exterior deck or fence components that conform to ignition-resistant construction standards;

“(P) structure-specific water hydration systems, including fire mitigation systems such as interior sprinkler systems;

“(Q) flood openings for fully enclosed areas below the lowest floor of the dwelling unit;

“(R) lateral bracing for wall elements, foundation elements, and garage doors or other large openings to resist seismic loads; or

“(S) automatic shutoff valves for water and gas lines;

“(3) for services or equipment to—

“(A) create buffers around the qualified dwelling unit through the removal or reduction of flammable vegetation, including vertical clearance of tree branches;

“(B) create buffers around the dwelling unit through—

“(i) the removal of exterior deck or fence components or ignition-prone landscape features; or

“(ii) replacement of the components or features described in clause (i) with components or features that conform to ignition-resistant construction standards;

“(C) perform fire maintenance procedures identified by the Federal Emergency Management Agency or the United States Forest Service, including fuel management techniques such as creating fuel and fire breaks; or

“(D) replace flammable vegetation with less flammable species;

“(4) for property relating to satisfying the standards required for receipt of a FORTIFIED designation from the Insurance Institute for Business and Home Safety, provided that the qualified dwelling unit receives such designation following installation of such property;

“(5) for property relating to satisfying the standards required for receipt of a Wildfire Prepared Homes designation from the Insurance Institute for Business and Home Safety, provided that the qualified dwelling unit receives such designation following installation of such property; or

“(6) for any other hazard mitigation activity identified by the President, in consultation with the Administrator of the Federal Emergency Management Agency, for mitigation of a natural hazard.

“(c) Application with other credits.—

“(1) BUSINESS CREDIT TREATED AS PART OF GENERAL BUSINESS CREDIT.—So much of the credit which would be allowed under subsection (a) for any taxable year (determined without regard to this subsection) that is attributable to expenditures made in the ordinary course of the taxpayer’s trade or business (or, in the case of expenditures made by a State, would have been expenditures made in the ordinary course of the taxpayer’s trade or business if made by the taxpayer) shall be treated as a credit listed in section 38(b) for taxable year (and not allowed under subsection (a)).

“(2) PERSONAL CREDIT.—For purposes of this title, the credit allowed under subsection (a) for any taxable year (determined after application of paragraph (1)) shall be treated as a credit allowable under subpart A for such taxable year.

“(d) Reduction of credit percentage where taxpayer expenditures less than 30 percent.—

“(1) IN GENERAL.—If the expenditure percentage with respect to any item of expenditure described under subsection (a) is less than 30 percent, subsection (a) shall be applied by substituting ‘the expenditure percentage’ for ‘30 percent’ with respect to such item of expenditure.

“(2) EXPENDITURE PERCENTAGE.—For purposes of this section, the term ‘expenditure percentage’ means, with respect to any item of expenditure described under subsection (a) any portion of which is paid or incurred by a State, the ratio (expressed as a percentage) of—

“(A) the taxpayer’s expenditure for such item, divided by

“(B) the sum of the taxpayer’s and such State’s expenditures for such item.

“(e) Special rules.—

“(1) TREATMENT OF EXPENDITURES RELATED TO MARKETABLE TIMBER.—An expenditure shall not be taken into account for purposes of this section (whether made by the taxpayer or a State) if such expenditure is properly allocable to timber which is sold or exchanged by the taxpayer. The preceding sentence shall not apply to the extent that such amount exceeds the gain on such sale or exchange.

“(2) TREATMENT OF REIMBURSEMENTS.—Any amount originally paid or incurred by the taxpayer which is reimbursed by a State under a qualified State disaster mitigation program shall be treated as paid by such State (and not by such taxpayer).

“(3) BASIS REDUCTION.—For purposes of this subtitle, if the basis of any property would (but for this paragraph) be determined by taking into account any expenditure described under subsection (a), the basis of such property shall be reduced by the amount of the credit allowed under subsection (a) with respect to such expenditure (determined without regard to subsection (c)).

“(4) DENIAL OF DOUBLE BENEFIT.—The amount of any deduction or other credit allowable under this chapter for any expenditure for which a credit is allowable under subsection (a) shall be reduced by the amount of credit allowed under such subsection for such expenditure (determined without regard to subsection (c)).”.

(b) Conforming amendments.—

(1) Section 38(b), as amended by the preceding provisions of this Act, is amended by striking “plus” at the end of paragraph (42), by striking the period at the end of paragraph (43) and inserting “, plus”, and by adding at the end the following new paragraph:

“(44) the portion of the disaster mitigation expenditures credit to which section 28(c)(1) applies.”.

(2) Section 1016(a), as amended by the preceding provisions of this Act, is amended by striking “and” at the end of paragraph (39), by striking the period at the end of paragraph (40) and inserting “, and”, and by adding at the end the following new paragraph:

“(41) to the extent provided in section 28(e)(2).”.

(3) The table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 27 the following new item:

“Sec. 28. Qualified disaster mitigation expenditures.”.

(c) Effective date.—The amendments made by this section shall apply to expenditures paid or incurred after the date of the enactment of this Act, in taxable years ending after such date.

SEC. 24006. Establishment of electric power transmission line credit.

(a) In general.—Subpart E of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after section 48F the following new section:

“SEC. 48G. Qualifying electric power transmission line credit.

“(a) Allowance of credit.—For purposes of section 46, the qualifying electric power transmission line credit for any taxable year is an amount equal to 30 percent of the qualified investment for such taxable year with respect to any qualifying electric power transmission line property of the taxpayer.

“(b) Qualifying investment.—

“(1) IN GENERAL.—For purposes of subsection (a), the qualified investment for any taxable year is the basis of any qualifying electric power transmission line property placed in service by the taxpayer during such taxable year.

“(2) CERTAIN QUALIFIED PROGRESS EXPENDITURES RULES MADE APPLICABLE.—Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this section.

“(c) Qualifying electric power transmission line property.—For purposes of this section—

“(1) IN GENERAL.—The term ‘qualifying electric power transmission line property’ means any overhead, submarine, or underground property—

“(A) which is a qualifying electric power transmission line that transmits electricity—

“(i) across not less than 2 States or not less than 150 continuous miles, or

“(ii) across the Outer Continental Shelf (as defined in section 2 of the Outer Continental Lands Act (43 U.S.C. 1331)), or

“(B) which is related transmission property.

“(2) PREVAILING WAGE AND APPRENTICESHIP REQUIREMENTS.—Such term shall not include any property unless such property meets the requirements of paragraph (7) and (8) of section 45(b).

“(d) Qualifying electric power transmission line.—For purposes of this section—

“(1) IN GENERAL.—The term ‘qualifying electric power transmission line’ means any of the following:

“(A) NEW TRANSMISSION PROPERTY.—

“(i) IN GENERAL.—Any electric power transmission line which is—

“(I) originally placed in service after the date of enactment of this section,

“(II) primarily used for one or more purposes described in clause (ii), and

“(III) described in clause (iv).

“(ii) PURPOSES DESCRIBED.—The purposes described in this clause are—

“(I) enhancing resilience to prepare for, withstand, and recover rapidly from disruptions from the impact of weather events, wildfires, or natural disasters,

“(II) addressing clearance concerns,

“(III) facilitating the interconnection of electric generation capacity to the bulk-power system (as defined in section 215 of the Federal Power Act), or

“(IV) addressing high load needs of 2,000 ampere and above.

“(iii) MULTIPLE TRANSMISSION LINES LOCATED IN THE SAME RIGHT-OF-WAY.—A transmission line is described in this clause if such a transmission line—

“(I) is co-located in the same right-of-way or adjacent right-of-way as one or more other overhead, submarine, or underground transmission lines, and

“(II) together with the other transmission lines described in subclause (I), has a transmission capacity of not less than 1,000 megawatts.

“(iv) ADDITIONAL REQUIREMENTS FOR NEW TRANSMISSION PROPERTY.—An electric power transmission line is described in this clause if—

“(I) such transmission line—

“(aa) includes an advanced transmission conductor, and

“(bb) is capable of transmitting electricity at a voltage of not less than 100 kilovolts, or

“(II) such transmission line—

“(aa) is—

“(AA) capable of transmitting electricity at a voltage of not less than 345 kilovolts, or

“(BB) a superconducting transmission line, and

“(bb) has a transmission capacity of not less than 750 megawatts or is a transmission line described in clause (iii).

“(B) MODIFICATION OF EXISTING TRANSMISSION PROPERTY.—Any electric power transmission line which—

“(i) was placed in service before the date of the enactment of this section,

“(ii) is modified after the date of the enactment of this Act in a manner that increases the transmission capacity of such transmission line by not less than 500 megawatts, and

“(iii) after the completion of such modification, is an electric power transmission line which satisfies the requirements under subclauses (II) and (III) of subparagraph (A)(i).

“(2) ADVANCED TRANSMISSION CONDUCTOR.—The term ‘advanced transmission conductor’ means a transmission conductor technology that uses recently developed technology or materials such as a composite core and such other future advances as determined by the Secretary, in consultation with the Secretary of Energy.

“(3) SUPERCONDUCTING TRANSMISSION LINE.—The term ‘superconducting transmission line’ means a transmission line that conducts all of its current over a super-conducting material.

“(e) Related transmission property.—For purposes of this section—

“(1) IN GENERAL.—The term ‘related transmission property’ means any of the following:

“(A) TRANSMISSION PROPERTY USED FOR INTERCONNECTION OR GENERATOR TIE-LINE.—Any electric power transmission line which is—

“(i) placed in service after the date of enactment of this section,

“(ii) primarily used—

“(I) as a generator interconnection tie line at an associated facility that extends from the secondary (high) side of a generator step-up transformer to the point of interconnection with the host transmission owner from interconnecting new generation resources or facilities to the electric grid, or

“(II) for network upgrades associated with the interconnection of new generation resources or facilities to the electric grid,

“(iii) primarily used for one or more purposes described in subparagraph (d)(1)(A)(ii), and

“(iv) capable of transmitting electricity at a voltage of not less than 230 kilovolts.

“(B) GRID ENHANCING TECHNOLOGY.—Any grid enhancing technology property used in the operation of the electric power transmission line described in subparagraph (A) or (B) of subsection (d)(1).

“(C) SUBCOMPONENTS.—Any conductors or cables, towers, insulators, reactors, capacitors, circuit breakers, static VAR compensators, static synchronous compensators, power converters, transformers, synchronous condensers, braking resistors, and any ancillary facilities and equipment necessary for the proper operation of the electric transmission line described in subparagraph (A) or (B) of subsection (d)(1) or for the proper operation of any property described in subsection (1)(A).

“(2) GRID ENHANCING TECHNOLOGY PROPERTY.—The term ‘grid enhancing technology property’ means power flow controls and transmission switching equipment, storage technology, and hardware or software that enables dynamic line ratings, advanced line rating management technologies, on new or existing transmission property for the purpose of enhancing the capacity, efficiency, resiliency, or reliability of an electric power transmission system and such other similar property determined by the Secretary, in consultation with the Secretary of Energy.

“(f) Termination.—This section shall not apply to any property the construction of which begins after December 31, 2033.”.

(b) Public utility property.—Paragraph (2) of section 50(d) is amended—

(1) by striking “(as defined in section 48(c)(6))” and inserting “(as defined in section 48(c)(6), except that subparagraph (D) of such section shall not apply) or any qualifying electric power transmission line property (as defined by section 48G(c))”, and

(2) in subparagraph (B)—

(A) by inserting “or qualifying electric transmission line property” after “each energy storage technology”, and

(B) by inserting “or the qualifying electric transmission line property” after “the energy storage technology”.

(c) Transfer of certain credits.—Section 6418(f)(1)(A), as amended by the preceding provisions of this Act, is amended by adding the following new clause:

“(xiv) The qualifying electric power transmission line credit under section 48G.”.

(d) Conforming amendments.—

(1) Section 46, as amended by the preceding provisions of this Act, is amended—

(A) by striking “and” at the end of paragraph (7),

(B) by striking the period at the end of paragraph (8) and inserting “, and”, and

(C) by adding at the end the following new paragraph:

“(9) the qualifying electric power transmission line credit.”.

(2) Section 49(a)(1)(C), as amended by the preceding provisions of this Act, is amended—

(A) by striking “and” at the end of clause (viii),

(B) by striking the period at the end of clause (ix) and inserting “, and”, and

(C) by adding at the end the following new clause:

“(x) the basis of any qualifying electric power transmission line property under section 48G.”.

(3) The table of sections for subpart E of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after the item relating to section 48F the following new item:

“Sec. 48G. Qualifying electric power transmission line credit.”.

(e) Effective date.—The amendments made by this section shall apply to property placed in service after December 31, 2025.

SEC. 24007. Qualifying advanced battery project credit.

(a) In general.—Subpart E of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after section 48G the following new section:

“SEC. 48H. Qualifying advanced battery project credit.

“(a) In general.—For purposes of section 46, the qualifying advanced battery project credit for any taxable year is an amount equal to 30 percent of the qualified investment for such taxable year with respect to any qualifying advanced battery project of the taxpayer.

“(b) Qualified investment.—

“(1) IN GENERAL.—For purposes of subsection (a), the qualified investment for any taxable year is the basis of eligible property placed in service by the taxpayer during such taxable year which is part of a qualifying advanced battery project.

“(2) CERTAIN QUALIFIED PROGRESS EXPENDITURES RULES MADE APPLICABLE.—Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this section.

“(3) LIMITATION.—The amount which is treated as the qualified investment for all taxable years with respect to any qualifying advanced battery project shall not exceed the amount designated by the Secretary as eligible for the credit under this section.

“(c) Definitions.—For purposes of this section—

“(1) QUALIFYING ADVANCED BATTERY PROJECT.—The term ‘qualifying advanced battery project’ means a project, any portion of the qualified investment of which is certified by the Secretary under subsection (e) as eligible for a credit under this section, which re-equips, expands, or establishes a qualified advanced battery manufacturing and research facility.

“(2) QUALIFIED ADVANCED BATTERY MANUFACTURING AND RESEARCH FACILITY.—The term ‘qualified advanced battery manufacturing or research facility’—

“(A) means a facility—

“(i) located within the United States, and

“(ii) primarily used for the production or research and development of batteries or battery components employing advanced chemistries or technologies that improve battery performance, fire safety, and longevity, including—

“(I) solid-state lithium metal batteries,

“(II) lithium-sulfur batteries,

“(III) metal-air batteries,

“(IV) sodium-ion batteries, and

“(V) such other chemistries or technologies as the Secretary, after consultation with the Secretary of Energy, determines to offer significant advancements over traditional lithium-ion technology with respect to performance or fire safety, and

“(B) does not include facilities which produce only traditional lithium-ion batteries without incorporating advanced chemistries or technologies described in subparagraph (A)(ii).

“(d) Qualifying advanced battery project program.—

“(1) ESTABLISHMENT.—

“(A) IN GENERAL.—Not later than 180 days after the date of enactment of this section, the Secretary, in consultation with the Secretary of Energy, shall establish a qualifying advanced battery project program to consider and award certifications for qualified investments eligible for credits under this section to qualifying advanced battery project sponsors.

“(B) LIMITATION.—The total amount of credits that may be allocated under the program shall not exceed $3,000,000,000.

“(2) CERTIFICATION.—

“(A) APPLICATION PERIOD.—Each applicant for certification under this paragraph shall submit an application containing such information as the Secretary may require during the 2-year period beginning on the date the Secretary establishes the program under paragraph (1).

“(B) TIME TO MEET CRITERIA FOR CERTIFICATION.—Each applicant for certification shall have 1 year from the date of acceptance by the Secretary of the application during which to provide to the Secretary evidence that the requirements of the certification have been met.

“(C) PERIOD OF ISSUANCE.—An applicant which receives a certification shall have 3 years from the date of issuance of the certification in order to place the project in service and if such project is not placed in service by that time period, then the certification shall no longer be valid.

“(3) SELECTION CRITERIA.—Rules similar to the rules of section 48C(d)(3) shall apply.

“(4) REVIEW AND REDISTRIBUTION.—

“(A) REVIEW.—Not later than 4 years after the date of enactment of this section, the Secretary shall review the credits allocated under this section as of such date.

“(B) REDISTRIBUTION.—The Secretary may reallocate credits awarded under this section if the Secretary determines that—

“(i) there is an insufficient quantity of qualifying applications for certification pending at the time of the review, or

“(ii) any certification made pursuant to paragraph (2) has been revoked pursuant to paragraph (2)(B) because the project subject to the certification has been delayed as a result of third party opposition or litigation to the proposed project.

“(C) REALLOCATION.—If the Secretary determines that credits under this section are available for reallocation pursuant to the requirements set forth in paragraph (2), the Secretary is authorized to conduct an additional program for applications for certification.

“(5) DISCLOSURE OF ALLOCATIONS.—The Secretary shall, upon making an allocation under this subsection, publicly disclose the identity of the applicant and the amount of the credit with respect to such applicant.

“(e) Denial of double benefit.—No credit shall be allowed under this section for any qualified investment for which a credit is allowed under another provision of this title.

“(f) Regulations and guidance.—The Secretary, after consultation with the Secretary of Energy, shall issue such regulations and guidance as necessary to implement this section, including the publication of an annual list of advanced chemistries or technologies under subsection (c)(2).”.

(b) Credit eligible for elective payment.—Section 6417(b) is amended by adding at the end the following new paragraph:

“(13) The qualifying advanced battery project credit determined under section 48H.”.

(c) Credit transferable.—Section 6418(f)(1)(A), as amended by the preceding provisions of this Act, is amended by adding at the end the following new clause:

“(xv) The qualifying advanced battery project credit determined under section 48H.”.

(d) Conforming amendments.—

(1) Section 46, as amended by the preceding provisions of this Act, is amended by striking “and” at the end of paragraph (8), by striking the period at the end of paragraph (9) and inserting “, and”, and by adding at the end the following new paragraph:

“(10) the qualifying advanced battery project credit.”.

(2) Section 49(a)(1)(C), as amended by the preceding provisions of this Act, is amended by striking “and” at the end of clause (ix), by striking the period at the end of clause (x) and inserting “, and”, and by adding at the end the following new clause:

“(xi) the basis of any property which is part of a qualified advanced battery manufacturing or research facility under section 48H.”.

(3) Section 50(a)(2)(E), as amended by the preceding provisions of this Act, is amended by striking “or 48F(f)” and inserting “48F(f), or 48H(c)(5)”.

(4) The table of sections for subpart E of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after the item relating to section 48G the following new item:

“Sec. 48H..Qualifying advanced battery project credit.”.

(e) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

TITLE III—Child and dependent care

subtitle A—Child tax credit

SEC. 31001. Establishment of refundable child tax credit with monthly advance payment.

(a) In general.—Subpart A of part IV of subchapter A of chapter 1 is amended by inserting after section 24 the following new sections:

“SEC. 24A. Monthly child tax credit.

“(a) Allowance of credit.—There shall be allowed as a credit against the tax imposed by this chapter for the taxable year the sum of the monthly specified child allowances determined with respect to the taxpayer under subsection (b) for each calendar month during such taxable year.

“(b) Monthly specified child allowance.—

“(1) IN GENERAL.—For purposes of this section, the term ‘monthly specified child allowance’ means, with respect to any taxpayer for any calendar month, the sum of—

“(A) $300, with respect to each specified child of such taxpayer who will (as of the close of such month) have attained age 6, plus

“(B) 120 percent of the dollar amount in effect for such month under subparagraph (A), with respect to each specified child of such taxpayer who will not (as of the close of such month) have attained age 6.

In the case of any specified child of such taxpayer who will not (as of the close of such month) have attained the age of 1 month, subparagraph (B) shall be applied by substituting ‘800 percent’ for ‘120 percent’.

“(2) LIMITATIONS BASED ON MODIFIED ADJUSTED GROSS INCOME.—

“(A) INITIAL REDUCTION.—The monthly specified child allowance otherwise determined under paragraph (1) with respect to any taxpayer for any calendar month shall be reduced (but not below zero) by 1⁄12 of 5 percent of the excess (if any) of the taxpayer’s modified adjusted gross income for the applicable taxable year over the initial threshold amount in effect for such applicable taxable year.

“(B) LIMITATION ON INITIAL REDUCTION.—The amount of the reduction under subparagraph (A) shall not exceed the lesser of—

“(i) the excess (if any) of—

“(I) the monthly specified child allowance with respect to the taxpayer for such calendar month (determined without regard to this paragraph), over

“(II) the amount which would be determined under subclause (I) if the dollar amounts in effect under subparagraphs (A) and (B) of paragraph (1) were each equal to $166.67, or

“(ii) 1⁄12 of 5 percent of the excess of the secondary threshold amount over the initial threshold amount.

“(C) SECONDARY REDUCTION.—The monthly specified child allowance otherwise determined under paragraph (1) with respect to any taxpayer for such calendar month (determined after the application of subparagraphs (A) and (B)) shall be reduced (but not below zero) by 1⁄12 of 5 percent of the excess (if any) of the taxpayer’s modified adjusted gross income for the applicable taxable year over the secondary threshold amount.

“(D) DEFINITIONS RELATED TO LIMITATIONS BASED ON MODIFIED ADJUSTED GROSS INCOME.—For purposes of this paragraph—

“(i) INITIAL THRESHOLD AMOUNT.—The term ‘initial threshold amount’ means—

“(I) $150,000, in the case of a joint return or surviving spouse (as defined in section 2(a)),

“(II) 1⁄2 the dollar amount in effect under subclause (I), in the case of a married individual filing a separate return, and

“(III) $112,500, in any other case.

“(ii) SECONDARY THRESHOLD AMOUNT.—The term ‘secondary threshold amount’ means—

“(I) $400,000, in the case of a joint return or surviving spouse (as defined in section 2(a)),

“(II) $200,000, in the case of a married individual filing a separate return, and

“(III) $300,000, in any other case.

“(iii) APPLICABLE TAXABLE YEAR.—The term ‘applicable taxable year’ means, with respect to any taxable year for which the credit under this section is determined—

“(I) such taxable year, or

“(II) if the taxpayer elects the application of this subclause (at such time and in such form and manner as the Secretary may provide), the preceding taxable year or the second preceding taxable year (as specified in such election).

“(iv) MODIFIED ADJUSTED GROSS INCOME.—The term ‘modified adjusted gross income’ means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.

“(3) INFLATION ADJUSTMENTS.—

“(A) MONTHLY SPECIFIED CHILD ALLOWANCE.—In the case of any month beginning after December 31, 2026, the $300 amount in paragraph (1)(A) shall be increased by an amount equal to—

“(i) such dollar amount, multiplied by—

“(ii) the percentage (if any) by which—

“(I) the CPI (as defined in section 1(f)(4)) for the calendar year preceding the calendar year in which such month begins, exceeds

“(II) the CPI (as so defined) for calendar year 2025.

“(B) INITIAL THRESHOLD AMOUNT.—In the case of any taxable year beginning after December 31, 2025, the dollar amounts in subclauses (I) and (III) of paragraph (2)(D)(i) shall each be increased by an amount equal to—

“(i) such dollar amount, multiplied by

“(ii) the percentage (if any) which would be determined under subparagraph (A)(ii) if subclause (II) thereof were applied by substituting ‘2022’ for ‘2024’.

“(C) ROUNDING.—

“(i) MONTHLY SPECIFIED CHILD ALLOWANCE.—Any increase under subparagraph (A) which is not a multiple of $10 shall be rounded to the nearest multiple of $10.

“(ii) INITIAL THRESHOLD AMOUNT.—Any increase under subparagraph (B) which is not a multiple of $5,000 shall be rounded to the nearest multiple of $5,000.

“(c) Specified child.—For purposes of this section—

“(1) IN GENERAL.—The term ‘specified child’ means, with respect to any taxpayer for any calendar month, an individual—

“(A) who has the same principal place of abode as the taxpayer for more than one-half of such month,

“(B) who is younger than the taxpayer and will not, as of the close of such month, have attained age 18,

“(C) who receives care from the taxpayer during such month that is not compensated,

“(D) who is not the spouse of the taxpayer at any time during such month, and

“(E) who either—

“(i) is a citizen, national, or resident of the United States, or

“(ii) if the taxpayer is a citizen or national of the United States, such individual is a legally adopted individual of such taxpayer or is lawfully placed with such taxpayer for legal adoption by such taxpayer.

“(2) CERTAIN INDIVIDUALS INELIGIBLE.—In the case of an individual who is a specified child with respect to another taxpayer for any calendar month, such individual shall be treated for such calendar month as having no specified children.

“(3) CARE FROM THE TAXPAYER.—

“(A) IN GENERAL.—Except as otherwise provided by the Secretary, whether any individual receives care from the taxpayer (within the meaning of paragraph (1)(C)) shall be determined on the basis of facts and circumstances with respect to the following factors:

“(i) The supervision provided by the taxpayer regarding the daily activities and needs of the individual.

“(ii) The maintenance by the taxpayer of a secure environment at which the individual resides.

“(iii) The provision or arrangement by the taxpayer of, and transportation by the taxpayer to, medical care at regular intervals and as required for the individual.

“(iv) The involvement by the taxpayer in, and financial and other support by the taxpayer for, educational or similar activities of the individual.

“(v) Any other factor that the Secretary determines to be appropriate to determine whether the individual receives care from the taxpayer.

“(B) DETERMINATION OF WHETHER CARE IS COMPENSATED.—For purposes of determining if care is compensated within the meaning of paragraph (1)(C), compensation from the Federal Government, a State or local government, a Tribal government, or any possession of the United States shall not be taken into account.

“(4) APPLICATION OF TIE-BREAKER RULES.—

“(A) IN GENERAL.—Except as provided in subparagraph (D), if any individual would (but for this paragraph) be a specified child of 2 or more taxpayers for any month, such individual shall be treated as the specified child only of the taxpayer who is—

“(i) the parent of the individual (or, if such individual would (but for this paragraph) be a specified child of 2 or more parents of the individual for such month, the parent of the individual determined under subparagraph (B)),

“(ii) if the individual is not a specified child of any parent of the individual (determined without regard to this paragraph), the specified relative of the individual with the highest adjusted gross income for the taxable year which includes such month, or

“(iii) if the individual is neither a specified child of any parent of the individual nor a specified child of any specified relative of the individual (in both cases determined without regard to this paragraph), the taxpayer with the highest adjusted gross income for the taxable year which includes such month.

“(B) TIE-BREAKER AMONG PARENTS.—If any individual would (but for this paragraph) be the specified child of 2 or more parents of the individual for any month, such child shall be treated only as the specified child of—

“(i) the parent with whom the child resided for the longest period of time during such month, or

“(ii) if the child resides with both parents for the same amount of time during such month, the parent with the highest adjusted gross income for the taxable year which includes such month.

“(C) SPECIFIED RELATIVE.—For purposes of this paragraph, the term ‘specified relative’ means an individual who is—

“(i) an ancestor of a parent of the specified child,

“(ii) a brother or sister of a parent of the specified child, or

“(iii) a brother, sister, stepbrother, or stepsister of the specified child.

“(D) CERTAIN PARENTS OR SPECIFIED RELATIVES NOT TAKEN INTO ACCOUNT.—This paragraph shall be applied without regard to any parent or specified relative of an individual for any month if—

“(i) such parent or specified relative elects to have such individual not be treated as a specified child of such parent or specified relative for such month,

“(ii) in the case of a parent of such individual, the adjusted gross income of the taxpayer (with respect to whom such individual would be treated as a specified child after application of this subparagraph) for the taxable year which includes such month is higher than the highest adjusted gross income of any parent of the individual for any taxable year which includes such month (determined without regard to any parent with respect to whom such individual is not a specified child, determined without regard to subparagraphs (A) and (B) and after application of this subparagraph), and

“(iii) in the case of a specified relative of such individual, the adjusted gross income of the taxpayer (with respect to whom such individual would be treated as a specified child after application of this subparagraph) for the taxable year which includes such month is higher than the highest adjusted gross income of any parent and any specified relative of the individual for any taxable year which includes such month (determined without regard to any parent and any specified relative with respect to whom such individual is not a specified child, determined without regard to subparagraphs (A) and (B) and after application of this subparagraph).

“(E) TREATMENT OF JOINT RETURNS.—For purposes of this paragraph, with respect to any month, the adjusted gross income of each person who files a joint return for the taxable year which includes such month is the total adjusted gross income shown on the joint return for the taxable year.

“(F) PARENT.—Except as otherwise provided by the Secretary, the term ‘parent’ shall have the same meaning as when used in section 152(c)(4).

“(5) TREATMENT OF TEMPORARY ABSENCES.—Except as provided in regulations or other guidance issued by the Secretary, for purposes of this subsection—

“(A) IN GENERAL.—In the case of any individual’s temporary absence from such individual’s principal place of abode, each day composing the temporary absence shall—

“(i) be treated as a day at such individual’s principal place of abode,

“(ii) be treated as satisfying the care requirement described in paragraph (1)(C) for each day described in clause (i), and

“(iii) not be treated as a day at any other location.

“(B) TEMPORARY ABSENCE.—For purposes of subparagraph (A), an absence shall be treated as temporary if—

“(i) the individual would have resided at the place of abode but for the absence, and

“(ii) under the facts and circumstances, it is reasonable to assume that the individual will return to reside at the place of abode.

“(6) SPECIAL RULE FOR DIVORCED PARENTS, ETC.—Rules similar to the rules section 152(e) shall apply for purposes of this subsection.

“(7) ELIGIBILITY DETERMINED ON BASIS OF PRESUMPTIVE ELIGIBILITY.—

“(A) IN GENERAL.—If a period of presumptive eligibility is established under section 7527A(c) with respect to any taxpayer and child—

“(i) such child shall be treated as the specified child of such taxpayer for any month in such period of presumptive eligibility, and

“(ii) such child shall not be treated as the specified child of any other taxpayer with respect to whom a period of presumptive eligibility has not been established for any such month.

“(B) ABILITY OF CREDIT CLAIMANTS TO ESTABLISH PRESUMPTIVE ELIGIBILITY.—Nothing in section 7527A(c) shall be interpreted to preclude a taxpayer from establishing a period of presumptive eligibility (including any period described in subparagraph (D) with respect to which payment could be made) with respect to any specified child for purposes of this section solely because such taxpayer affirmatively elects not to receive monthly advance child payments under section 7527A.

“(C) EXCEPTION FOR INCOME-BASED TIE-BREAKER RULES.—If a period of presumptive eligibility is established under section 7527A(c) for any individual with respect to any taxpayer and such individual is not the specified child of such taxpayer for any month in such period by reason of such taxpayer failing to be described in clause (i), (ii), or (iii) of paragraph (4)(A) for the taxable year which includes such month, subparagraph (A) shall not apply with respect to such month.

“(D) TREATMENT OF CERTAIN RETROACTIVE PAYMENTS.—If any payment is made under subparagraph (A) or (B) of section 7527A(f)(3) or paragraph (1) or (2) of section 7527A(g), with respect to any taxpayer and child for any period, such period shall be treated as a period of presumptive eligibility established under section 7527A(c) with respect to such taxpayer and child for purposes of applying subparagraph (A).

“(E) FRAUD AND INTENTIONAL DISREGARD OF RULES OR REGULATIONS.—If the Secretary determines that the taxpayer committed fraud or intentionally disregarded rules or regulations in establishing or maintaining any period of presumptive eligibility, the months with respect to which such fraud or intentional disregard relates shall not be treated as a period of presumptive eligibility for purposes of subparagraph (A).

“(d) Credit refundable.—If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode (determined as provided in section 32) in the United States or Puerto Rico for more than one-half of any calendar month during the taxable year, so much of the credit otherwise allowed under subsection (a) as is attributable to monthly specified child allowances with respect to any such calendar month shall be allowed under subpart C (and not allowed under this subpart).

“(e) Identification requirements.—

“(1) QUALIFYING CHILD IDENTIFICATION REQUIREMENT.—No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the name and taxpayer identification number of such qualifying child on the return of tax for the taxable year and such taxpayer identification number was issued on or before the due date for filing such return.

“(2) TAXPAYER IDENTIFICATION REQUIREMENT.—No credit shall be allowed under this section if the taxpayer identification number of the taxpayer was issued after the due date for filing the return for the taxable year.

“(f) Restrictions on taxpayers who improperly claimed credit or improperly received monthly advance child payment.—

“(1) TAXPAYERS MAKING PRIOR FRAUDULENT OR RECKLESS CLAIMS.—

“(A) IN GENERAL.—No credit shall be allowed under this section for any taxable year (and no payment shall be made under section 7527A for any month) in the disallowance period.

“(B) DISALLOWANCE PERIOD.—For purposes of subparagraph (A), the disallowance period is—

“(i) the period of 120 calendar months after the most recent calendar month for which there was a final determination that the taxpayer’s claim of credit under this section or section 24 (or payment received under section 7527A) was due to fraud, and

“(ii) the period of 24 calendar months after the most recent calendar month for which there was a final determination that the taxpayer’s claim of credit under this section or section 24 (or payment received under section 7527A) was due to reckless or intentional disregard of rules and regulations (but not due to fraud).

“(2) TAXPAYERS MAKING IMPROPER PRIOR CLAIMS.—In the case of a taxpayer who is denied credit under this section or section 24 for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year (and no payment shall be made under section 7527A for any subsequent month) unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit.

“(3) COORDINATION WITH POSSESSIONS OF THE UNITED STATES.—For purposes of this subsection, a taxpayer’s claim of credit under this section or section 24 (or payment received under section 7527A) includes a claim of credit under this section or section 24 of the income tax law of any jurisdiction other than the United States (or similar payment received under section 7527A of such income tax law), and a claim made or a payment received from American Samoa pursuant to a plan described in subsection (h)(3)(B) or section 24(k)(3)(B).

“(g) Reconciliation of credit and monthly advance child payments.—

“(1) IN GENERAL.—The amount otherwise determined under subsection (a) with respect to any taxpayer for any taxable year shall be reduced (but not below zero) by the aggregate amount of payments made under section 7527A to such taxpayer for one or more calendar months in such taxable year. Any failure to so reduce the credit shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1).

“(2) INCREASE IN TAX EQUAL TO EXCESS ADVANCE PAYMENTS IN CERTAIN CIRCUMSTANCES.—If the aggregate amount of payments made to the taxpayer under section 7527A for one or more calendar months in such taxable year exceeds the amount allowed as a credit under subpart C by reason of this section with respect to such taxpayer for such taxable year (without regard to paragraph (1) of this subsection), the tax imposed by this chapter for such taxable year shall be increased by so much of such excess as is attributable to one or more of the following:

“(A) Fraud, or reckless or intentional disregard of rules and regulations, by the taxpayer.

“(B) Changes in the taxpayer’s modified adjusted gross income or filing status that affect the application of the limitation imposed by subsection (b)(2).

“(C) Payments under section 7527A which were made for months which were not part of a period of presumptive eligibility.

“(D) A failure to be the taxpayer described in clause (i), (ii), or (iii) of subsection (c)(4)(A).

“(E) A failure to satisfy the requirements of subsection (d).

“(F) A failure to satisfy the requirements of paragraphs (1) or (2) of subsection (e), except that a failure to satisfy the requirements of subsection (e)(1) shall not be taken into account under this subparagraph if the taxpayer demonstrates to the satisfaction of the Secretary that it is reasonable to expect that the qualifying child will be issued a taxpayer identification number and that the delay in such issuance was due to reasonable cause and not willful neglect.

“(G) Such other circumstances as the Secretary identifies for purposes of this subparagraph to facilitate the administration and enforcement by the Secretary of section 7527A, to minimize the amount of advance payments made under section 7527A to ineligible individuals, and to prevent abuse.

“(H) Payments subject to treatment as excess advance payments after notice under section 7527A(j)(2).

“(3) JOINT RETURNS.—Except as otherwise provided by the Secretary, in the case of an advance payment made under section 7527A with respect to a joint return, half of such payment shall be treated as having been made to each individual filing such return.

“(4) COORDINATION WITH POSSESSIONS OF THE UNITED STATES.—For purposes of this subsection, payments made under section 7527A include payments made by any jurisdiction other than the United States under section 7527A of the income tax law of such jurisdiction, and advance payments made by American Samoa pursuant to a plan described in subsection (h)(3)(B). Any increase in tax imposed on a taxpayer by reason of paragraph (2) of the income tax law of a jurisdiction other than the United States shall be considered to reduce the aggregate amount of payments made to such taxpayer by such jurisdiction. In carrying out this section, the Secretary shall coordinate with each possession of the United States to prevent any application of this paragraph that is inconsistent with the purposes of this subsection.

“(h) Application of credit in possessions.—

“(1) MIRROR CODE POSSESSIONS.—

“(A) IN GENERAL.—The Secretary shall pay to each possession of the United States with a mirror code tax system amounts equal to the loss (if any) to that possession by reason of the application of this section (determined without regard to this subsection) with respect to taxable years beginning in calendar years after 2025. Such amounts shall be determined by the Secretary based on information provided by the government of the respective possession.

“(B) COORDINATION WITH CREDIT ALLOWED AGAINST UNITED STATES INCOME TAXES.—No credit shall be allowed under this section for any taxable year to any individual to whom a credit is allowable against taxes imposed by a possession of the United States with a mirror code tax system by reason of the application of this section in such possession for such taxable year.

“(C) MIRROR CODE TAX SYSTEM.—For purposes of this paragraph, the term ‘mirror code tax system’ means, with respect to any possession of the United States, the income tax system of such possession if the income tax liability of the residents of such possession under such system is determined by reference to the income tax laws of the United States as if such possession were the United States.

“(2) CROSS REFERENCES RELATED TO APPLICATION OF CREDIT TO RESIDENTS OF PUERTO RICO.—

“(A) For application of refundable credit to residents of Puerto Rico, see subsection (d).

“(B) For application of advance payment to residents of Puerto Rico, see section 7527A(b)(5).

“(3) AMERICAN SAMOA.—

“(A) IN GENERAL.—The Secretary shall pay to American Samoa amounts estimated by the Secretary as being equal to the aggregate benefits that would have been provided to residents of American Samoa by reason of the application of this section for taxable years beginning in calendar years after 2025 if the provisions of this section had been in effect in American Samoa (applied as if American Samoa were the United States and without regard to the application of this section to residents of Puerto Rico under subsection (d)).

“(B) DISTRIBUTION REQUIREMENT.—Subparagraph (A) shall not apply unless American Samoa has a plan, which has been approved by the Secretary, under which American Samoa will promptly distribute such payments to its residents.

“(C) COORDINATION WITH CREDIT ALLOWED AGAINST UNITED STATES INCOME TAXES.—

“(i) IN GENERAL.—In the case of a taxable year with respect to which a plan is approved under subparagraph (B), this section (other than this subsection) shall not apply to any individual eligible for a distribution under such plan.

“(ii) APPLICATION OF SECTION IN EVENT OF ABSENCE OF APPROVED PLAN.—In the case of a taxable year with respect to which a plan is not approved under subparagraph (B), subsection (d) shall be applied by substituting ‘, Puerto Rico, or American Samoa’ for ‘or Puerto Rico’.

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

“(i) Regulations.—The Secretary shall issue such regulations or other guidance as the Secretary determines necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—

“(1) for determining whether an individual receives care from a taxpayer for purposes of subsection (c)(1)(C), and

“(2) to coordinate or modify the application of this section, section 24, and section 7527A in the case of any taxpayer—

“(A) whose taxable year is other than a calendar year,

“(B) whose filing status for a taxable year is different from the status used for determining one or more monthly payments under section 7527A during such taxable year, or

“(C) whose principal place of abode for any month is different from the principal place of abode used for determining the monthly payment under section 7527A for such month.

“SEC. 24B. Credit for certain other dependents.

“(a) In general.—There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to $500 with respect to each specified dependent of such taxpayer for such taxable year.

“(b) Limitation based on modified adjusted gross income.—

“(1) IN GENERAL.—The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the threshold amount.

“(2) THRESHOLD AMOUNT.—For purposes of this subsection, the term ‘threshold amount’ means—

“(A) $400,000, in the case of a joint return or surviving spouse (as defined in section 2(a)),

“(B) $200,000, in the case of a married individual filing a separate return, and

“(C) $300,000, in any other case.

“(3) MODIFIED ADJUSTED GROSS INCOME.—For purposes of this subsection, 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) Specified dependent.—For purposes of this section, the term ‘specified dependent’ means, with respect to any taxpayer for any taxable year, any dependent of such taxpayer (as defined in section 152) for such taxable year unless such dependent—

“(1) is a specified child of the taxpayer, or any other taxpayer, for any month during such taxable year, or

“(2) would not be a dependent if subparagraph (A) of section 152(b)(3) were applied without regard to all that follows ‘resident of the United States’.

“(d) Special rule for taxable year child attains age 18.—If any dependent of the taxpayer attains age 18 during the taxable year—

“(1) whether such dependent is a specified dependent shall be determined without regard to paragraph (1) of subsection (c), and

“(2) with respect to such dependent, subsection (a) shall be applied by substituting an amount for ‘$500’ that bears the same ratio to $500 as—

“(A) the excess of—

“(i) 12, over

“(ii) the number of months during such taxable year with respect to which such dependent is a specified child of the taxpayer or any other taxpayer, bears to

“(B) 12.

“(e) Identification requirements.—Rules similar to the rules of section 24A(e) shall apply for purposes of this section.

“(f) Taxable year must be full taxable year.—Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.

“(g) Regulations.—The Secretary shall issue such regulations or other guidance as the Secretary determines necessary or appropriate to carry out the purposes of this section.”.

(b) Monthly payment of child tax credit.—Section 7527A is amended to read as follows:

“SEC. 7527A. Monthly payments of child tax credit.

“(a) In general.—The Secretary shall pay to each taxpayer, during each calendar month which is during a period of presumptive eligibility with respect to the taxpayer and any child, an amount equal to the monthly advance child payment determined with respect to such taxpayer for such month.

“(b) Monthly advance child payment.—The term ‘monthly advance child payment’ means, with respect to any taxpayer for any calendar month, the amount (if any) which is estimated by the Secretary as being equal to the monthly specified child allowance which would be determined under section 24A(b) with respect to such taxpayer for such calendar month if—

“(1) the only specified children of such taxpayer for such calendar month are the specified children of such taxpayer for the reference month (determined without regard to section 24A(c)(7)),

“(2) the ages of such children (and the status of such children as specified children) are determined for such calendar month by taking into account the passage of time since such reference month,

“(3) each child is only taken into account as a specified child for such calendar month if such calendar month is during a period of presumptive eligibility with respect to the taxpayer and such child,

“(4) the limitations of section 24A(b)(2) were applied with respect to the reference taxable year rather than with respect to the applicable taxable year, and

“(5) no monthly specified child allowance were determined with respect to such taxpayer for such calendar month unless the taxpayer (in the case of a joint return, either spouse) has a principal place of abode (determined as provided in section 32) in the United States or Puerto Rico for more than one-half of the reference month.

“(c) Period of presumptive eligibility.—

“(1) IN GENERAL.—For purposes of this section, the term ‘period of presumptive eligibility’ means, with respect to any taxpayer and any child, the period—

“(A) beginning with the calendar month following the calendar month during which the taxpayer provides the Secretary with sufficient information for the Secretary to—

“(i) determine that such child was a specified child of the taxpayer for the reference month (determined without regard to section 24A(c)(7)), and

“(ii) estimate the monthly advance child payment for such calendar month, and

“(B) ending with the earliest of—

“(i) the month beginning immediately after the month on which the Secretary sends the taxpayer a written notice that the taxpayer’s period of presumptive eligibility with respect to such child is being terminated by reason of information known to the Secretary (including a failure to provide annual information under paragraph (2)) which casts doubt on such taxpayer’s status as being allowed the monthly specified child allowance under section 24A for such child (determined without regard to section 24A(c)(7)) with respect to one or more months following the reference month,

“(ii) any month with respect to which the taxpayer notifies the Secretary that such taxpayer is not allowed a monthly specified child allowance for such month under section 24A(b) (determined without regard to section 24A(c)(7)), and

“(iii) the month beginning immediately before the first month of a new period of presumptive eligibility with respect to such taxpayer and such child which is established on the basis of a reference month more recent than the reference month with respect to which such prior period was established (including on the basis of an annual renewal described in paragraph (2)).

“(2) ANNUAL RENEWAL.—The Secretary shall terminate a taxpayer’s period of presumptive eligibility with respect to any child under paragraph (1)(B)(i) unless such taxpayer provides information sufficient to establish a new period of presumptive eligibility with respect to such child (as described in paragraph (1)(B)(ii)) on an annual basis.

“(3) AUTOMATIC ELIGIBILITY FOR BIRTH OF CHILD.—The Secretary shall issue regulations or other guidance to establish procedures pursuant to which, to the maximum extent administratively practicable—

“(A) a parent of a child born during a calendar month shall be treated as automatically establishing a period of presumptive eligibility with respect to such child,

“(B) the month for which such period begins, and the month by which the first annual renewal described in paragraph (2) must be completed, are determined, and

“(C) if the first monthly advance child payment with respect to such child is made after the calendar month in which such child is born, such payment is increased to properly take into account the months in such period of presumptive eligibility which precede the month in which such payment is made.

“(4) PRESUMPTIVE ELIGIBILITY BASED ON CERTAIN GOVERNMENT PROGRAMS.—The Secretary shall issue regulations or other guidance to establish procedures under which—

“(A) based on information provided to the Secretary by one or more government entities, a parent or specified relative of a child is treated as automatically establishing a period of presumptive eligibility with respect to such child, and

“(B) the month for which such period begins, the month by which the first annual renewal described in paragraph (2) must be completed, and any additional circumstances under which such period will terminate, are determined.

“(5) TAXPAYER RESPONSIBILITY TO NOTIFY SECRETARY.—In the event that any taxpayer is not allowed a monthly specified child allowance under section 24A(b) (determined without regard to section 24A(c)(7)) for any month in a period of presumptive eligibility with respect to such taxpayer, such taxpayer shall notify the Secretary under paragraph (1)(B)(ii) at such time and in such manner as the Secretary may provide.

“(6) TRANSITION RULE.—With respect periods of presumptive eligibility beginning during the first 6 months to which this section applies, the Secretary shall issue regulations or other guidance to establish procedures pursuant to which—

“(A) based on information known to the Secretary including returns of tax for either of the last 2 taxable years ending before such month, a parent or specified relative of a child is treated as automatically establishing a period of presumptive eligibility with respect to such child, and

“(B) the month for which such period begins, the month by which the first annual renewal described in paragraph (2) must be completed, and any additional circumstances under which such period will terminate, are determined.

“(d) Determination of reference month and reference taxable year.—For purposes of this section—

“(1) REFERENCE MONTH.—The term ‘reference month’ means, with respect to any calendar month in a period of presumptive eligibility with respect to a taxpayer, the most recent of—

“(A) in the case of a taxpayer who filed a return of tax for the last taxable year ending before such calendar month, the last month of such taxable year,

“(B) in the case of a taxpayer who filed a return of tax for the taxable year preceding the taxable year described in subparagraph (A), the last month of such preceding taxable year, and

“(C) in the case of a taxpayer who otherwise provides the information referred to in subsection (c)(1)(A), the month with respect to which such information is provided.

“(2) REFERENCE TAXABLE YEAR.—The term ‘reference taxable year’ means, with respect to any calendar month in a period of presumptive eligibility with respect to a taxpayer—

“(A) if the reference month with respect to such calendar month is determined under subparagraph (A) or (B) of paragraph (1), the taxable year referred to in such subparagraph, respectively, and

“(B) if the reference month with respect to such calendar month is determined under subparagraph (1)(C), the last taxable year ending before such reference month.

“(e) Methods of providing information To establish a period of presumptive eligibility.—

“(1) IN GENERAL.—The Secretary shall ensure the information described in subsection (c)(1)(A) may be provided on the return of tax for the taxable year ending before the calendar year which includes the month for which such period would begin, through the on-line portal described in paragraph (2), or in such other manner as the Secretary may provide.

“(2) ON-LINE INFORMATION PORTAL.—The Secretary shall establish an on-line portal (available in multiple languages) which allows taxpayers to—

“(A) subject to such restrictions as the Secretary may provide, elect to begin or cease receiving payments under this section, and

“(B) provide the information described in subsection (c)(1)(A).

“(f) Resolution of competing claims of presumptive eligibility with respect to same child.—

“(1) IN GENERAL.—If there is a period of presumptive eligibility with respect to any taxpayer and child (hereafter referred to as the ‘original claim’), a period of presumptive eligibility would (without regard to this subsection) be established with respect another taxpayer and such child (hereafter referred to as the ‘challenge claim’), and the period of such challenge claim would overlap with the period of such original claim—

“(A) such challenge claim shall not be taken into account under this section unless the reference month with respect to which the challenge claim would be established is at least as recent as the reference month with respect to which the original claim is established,

“(B) such challenge claim shall not begin before the original claim is terminated, and

“(C) the Secretary shall establish procedures under which the Secretary expeditiously adjudicates such claims on the basis of the most recent feasible reference month.

“(2) PROVISIONS RELATED TO ADJUDICATION.—

“(A) CHALLENGE CLAIM MUST RELATE TO AT LEAST 3 MONTHS PROSPECTIVELY.—The procedures established under paragraph (1)(C) shall require that the taxpayer establishing the challenge claim express a reasonable expectation and intent that such taxpayer would be allowed a monthly specified child allowance under section 24A(b) (determined without regard to section 24A(c)(7)) for at least the first 2 months following the reference month referred to in paragraph (1)(C).

“(B) EXPEDITED PROCESS; APPEALS.—The procedures established under paragraph (1)(C) shall include—

“(i) an expedited process for taxpayers who meet such requirements as the Secretary may establish for such expedited process, and

“(ii) procedures for adjudicating an appeal of an adverse decision.

“(C) INFORMATION RECEIPT AND COORDINATION.—For purposes of obtaining information relevant to any adjudication under this paragraph, the Secretary may enter into agreements to receive information from, and otherwise coordinate with—

“(i) Federal agencies (including the Social Security Administration and the Department of Agriculture),

“(ii) any State, local government, Tribal government, or possession of the United States, and

“(iii) any other individual or entity that the Secretary determines to be appropriate for such purposes.

“(D) ADJUDICATION NOT TREATED AS ASSESSMENT.—Any adjudication under this paragraph shall not be treated as an assessment described in section 6201.

“(E) ADJUDICATION NOT TREATED AS INSPECTION OF TAXPAYER’S BOOKS OF ACCOUNT.—The inspection of a taxpayer’s books of account in connection with any adjudication under this paragraph shall not be treated as an examination or inspection of a taxpayer’s books of account for purposes of section 7605(b).

“(3) RETROACTIVE PAYMENTS RELATED TO ADJUDICATION.—

“(A) DELAY IN ESTABLISHMENT OF CHALLENGE CLAIM.—If the challenge claim is established pursuant to the procedures established under paragraph (1)(C), the Secretary shall make a one-time payment to the taxpayer with respect to such claim equal to the aggregate amount of increases in the monthly advance child payments which would have been made to such taxpayer if such challenge claim had been allowed to take effect without regard to this subsection. Any payment under this subparagraph shall be in addition to any payment made under subsection (g).

“(B) TERMINATION AND REINSTATEMENT OF ORIGINAL CLAIM.—If, pursuant to the procedures established under paragraph (1)(C), the original claim is terminated under subsection (c)(1)(B)(i) and a new period of presumptive eligibility is subsequently established pursuant to such procedures with respect the same taxpayer and child as for such original claim, the Secretary shall make a one-time payment to the taxpayer with respect to such claim equal to the aggregate amount of increases in the monthly advance child payments which would have been made to such taxpayer if such original claim had never been terminated.

“(g) Rules related to grace periods and hardships.—

“(1) AUTOMATIC GRACE PERIOD.—

“(A) IN GENERAL.—If a taxpayer establishes a period of presumptive eligibility with respect to any child, elects the application of this paragraph, and demonstrates to the satisfaction of the Secretary that such taxpayer would be allowed a monthly specified child allowance under section 24A(b) (determined without regard to section 24A(c)(7)) for one or more of the 3 months immediately preceding the first month of such period, the Secretary shall make a one-time payment to the taxpayer equal to the aggregate amount of increases in the monthly advance child payments which would have been made to such taxpayer if such months were part of such period. The preceding sentence shall not apply to the extent that the Secretary determines that the failure to establish the period of presumptive eligibility with respect to such child for any such month was due to fraud or reckless or intentional disregard of rules and regulations.

“(B) LIMITATION.—Subparagraph (A) shall not apply with respect to any taxpayer more than once during any 36-month period.

“(2) HARDSHIP.—If a taxpayer establishes a period of presumptive eligibility with respect to any child, elects the application of this paragraph (and does not elect the application of paragraph (1) with respect to the establishment of such period), demonstrates to the satisfaction of the Secretary that such taxpayer would be allowed a monthly specified child allowance under section 24A(b) (determined without regard to section 24A(c)(7)) for one or more of the 6 months immediately preceding the first month of such period, and the Secretary determines that the failure to establish the period of presumptive eligibility with respect to such child for such months was due to domestic violence, serious illness, natural disaster, or any other hardship, the Secretary shall make a one-time payment to the taxpayer equal to the aggregate amount of increases in the monthly advance child payments which would have been made to such taxpayer if such months were part of such period.

“(3) COORDINATION WITH RETROACTIVE PAYMENT FOR DELAY IN ESTABLISHMENT OF CHALLENGE CLAIM.—For purposes of applying paragraph (1) or (2) with respect to any challenge claim to which subsection (f)(3)(A) applies, the period of presumptive eligibility shall be treated as including the period for which payment is made under such subsection.

“(h) Provisions related to form, manner, and treatment of payments.—

“(1) APPLICATION OF ELECTRONIC FUNDS PAYMENT REQUIREMENT.—The payments made by the Secretary under subsection (a) shall be made by electronic funds transfer to the same extent and in the same manner as if such payments were Federal payments not made under this title.

“(2) DELIVERY OF PAYMENTS.—Notwithstanding any other provision of law, the Secretary may certify and disburse refunds payable under this section electronically to—

“(A) any account to which the payee authorized, on or after January 1, 2024, the delivery of a refund of taxes under this title or of a Federal payment (as defined in section 3332 of title 31, United States Code),

“(B) any account belonging to a payee from which that individual, on or after January 1, 2024, made a payment of taxes under this title, or

“(C) any Treasury-sponsored account (as defined in section 208.2 of title 31, Code of Federal Regulations).

“(3) WAIVER OF CERTAIN RULES.—Notwithstanding section 3325 of title 31, United States Code, or any other provision of law, with respect to any payment of a refund under this section, a disbursing official in the executive branch of the United States Government may modify payment information received from an officer or employee described in section 3325(a)(1)(B) of such title for the purpose of facilitating the accurate and efficient delivery of such payment. Except in cases of fraud or reckless neglect, no liability under sections 3325, 3527, 3528, or 3529 of title 31, United States Code, shall be imposed with respect to payments made under this paragraph.

“(4) EXCEPTION FROM REDUCTION OR OFFSET.—Any applicable payment (as defined in paragraph (5)(E)(iii)) shall not be—

“(A) subject to reduction or offset pursuant to section 3716 or 3720A of title 31, United States Code,

“(B) subject to reduction or offset pursuant to subsection (c), (d), (e), or (f) of section 6402, or

“(C) reduced or offset by other assessed Federal taxes that would otherwise be subject to levy or collection.

“(5) ASSIGNMENT OF BENEFITS.—

“(A) IN GENERAL.—The right of any person to any applicable payment shall not be transferable or assignable, at law or in equity, and no applicable payment shall be subject to, execution, levy, attachment, garnishment, or other legal process, or the operation of any bankruptcy or insolvency law.

“(B) ENCODING OF PAYMENTS.—In the case of an applicable payment described in subparagraph (E)(iii)(I) that is paid electronically by direct deposit through the Automated Clearing House (ACH) network, the Secretary of the Treasury (or the Secretary's delegate) shall—

“(i) issue the payment using a unique identifier that is reasonably sufficient to allow a financial institution to identify the payment as an applicable payment, and

“(ii) further encode the payment pursuant to the same specifications as required for a benefit payment defined in section 212.3 of title 31, Code of Federal Regulations.

“(C) GARNISHMENT.—

“(i) ENCODED PAYMENTS.—In the case of a garnishment order that applies to an account that has received an applicable payment that is encoded as provided in subparagraph (B), a financial institution shall follow the requirements and procedures set forth in part 212 of title 31, Code of Federal Regulations, except—

“(I) notwithstanding section 212.4 of title 31, Code of Federal Regulations (and except as provided in subclause (II)), a financial institution shall not fail to follow the procedures of sections 212.5 and 212.6 of such title with respect to a garnishment order merely because such order has attached, or includes, a notice of right to garnish Federal benefits issued by a State child support enforcement agency, and

“(II) a financial institution shall not, with regard to any applicable payment, be required to provide the notice referenced in sections 212.6 and 212.7 of title 31, Code of Federal Regulations.

“(ii) OTHER PAYMENTS.—In the case of a garnishment order (other than an order that has been served by the United States) that has been received by a financial institution and that applies to an account into which an applicable payment that has not been encoded as provided in subparagraph (B) has been deposited electronically on any date during the lookback period or into which an applicable payment that has been deposited by check on any date in the lookback period, the financial institution, upon the request of the account holder, shall treat the amount of the funds in the account at the time of the request, up to the amount of the applicable payment (in addition to any amounts otherwise protected under part 212 of title 31, Code of Federal Regulations), as exempt from a garnishment order without requiring the consent of the party serving the garnishment order or the judgment creditor.

“(iii) LIABILITY.—A financial institution that acts in good faith in reliance on clauses (i) or (ii) shall not be subject to liability or regulatory action under any Federal or State law, regulation, court or other order, or regulatory interpretation for actions concerning any applicable payments.

“(D) NO RECLAMATION RIGHTS.—This paragraph shall not alter the status of applicable payments as tax refunds or other nonbenefit payments for purpose of any reclamation rights of the Department of the Treasury or the Internal Revenue Service as per part 210 of title 31, Code of Federal Regulations.

“(E) DEFINITIONS.—For purposes of this paragraph—

“(i) ACCOUNT HOLDER.—The term ‘account holder’ means a natural person whose name appears in a financial institution’s records as the direct or beneficial owner of an account.

“(ii) ACCOUNT REVIEW.—The term ‘account review’ means the process of examining deposits in an account to determine if an applicable payment has been deposited into the account during the lookback period. The financial institution shall perform the account review following the procedures outlined in section 212.5 of title 31, Code of Federal Regulations and in accordance with the requirements of section 212.6 of title 31, Code of Federal Regulations.

“(iii) APPLICABLE PAYMENT.—The term ‘applicable payment’ means—

“(I) any payment made to an individual under this section (other than any payment made pursuant to paragraph (6)),

“(II) any advance payment made by a possession of the United States with a mirror code tax system (as defined in section 24(h)) pursuant to an election under paragraph (6)(B) which corresponds to a payment described in subclause (I), and

“(III) any advance payment made by American Samoa pursuant to a program for making such payments which is described in paragraph (6)(C)(ii).

“(iv) GARNISHMENT.—The term ‘garnishment’ means execution, levy, attachment, garnishment, or other legal process.

“(v) GARNISHMENT ORDER.—The term ‘garnishment order’ means a writ, order, notice, summons, judgment, levy, or similar written instruction issued by a court, a State or State agency, a municipality or municipal corporation, or a State child support enforcement agency, including a lien arising by operation of law for overdue child support or an order to freeze the assets in an account, to effect a garnishment against a debtor.

“(vi) LOOKBACK PERIOD.—The term ‘lookback period’ means the two-month period that begins on the date preceding the date of account review and ends on the corresponding date of the month two months earlier, or on the last date of the month two months earlier if the corresponding date does not exist.

“(6) APPLICATION OF ADVANCE PAYMENTS IN THE POSSESSIONS OF THE UNITED STATES.—

“(A) PUERTO RICO.—

“(i) For application of child tax credit to residents of Puerto Rico, see section 24A(d).

“(ii) For application of monthly advance child payments to residents of Puerto Rico, see subsection (b)(4).

“(B) MIRROR CODE POSSESSIONS.—In the case of any possession of the United States with a mirror code tax system (as defined in section 24A(h)(1)(C)), this section shall not be treated as part of the income tax laws of the United States for purposes of determining the income tax law of such possession unless such possession elects to have this section be so treated.

“(C) ADMINISTRATIVE EXPENSES OF ADVANCE PAYMENTS.—

“(i) MIRROR CODE POSSESSIONS.—In the case of any possession described in subparagraph (B) which makes the election described in such subparagraph, the amount otherwise paid by the Secretary to such possession under section 24A(h)(1)(A) with respect to taxable years beginning in 2025, 2026, and 2027 shall each be increased by $300,000 if such possession has a plan, which has been approved by the Secretary, for making monthly advance child payments consistent with such election.

“(ii) AMERICAN SAMOA.—The amount otherwise paid by the Secretary to American Samoa under subparagraph (A) of section 24A(h)(3) with respect to taxable years beginning in 2024, 2025, and 2026 shall each be increased by $300,000 if the plan described in subparagraph (B) of such section includes a program, which has been approved by the Secretary, for making monthly advance child payments under rules similar to the rules of this section.

“(iii) TIMING OF PAYMENT.—The Secretary may pay, upon the request of the possession of the United States to which the payment is to be made, the amount of the increase determined under clause (i) or (ii), respectively, immediately upon approval of the plan with respect to which such payment relates.

“(i) Application of certain definitions and rules applicable to child tax credit.—

“(1) DEFINITIONS.—Except as otherwise provided in this section, terms used in this section which are also used in section 24A shall have the same respective meanings as when used in section 24A.

“(2) TREATMENT OF CERTAIN DEATHS.—A child shall not be taken into account in determining the monthly advance child payment for any calendar month if the death of such child before the end of such month is known to the Secretary as of date on which the Secretary estimates such payment.

“(3) IDENTIFICATION REQUIREMENTS.—Rules similar to the rules which apply under section 24A(e) shall apply for purposes of this section except that such rules shall apply with respect to the return of tax for the reference taxable year or, in the case of information provided through the on-line portal or otherwise, with respect to the information so provided.

“(4) RESTRICTIONS ON TAXPAYERS WHO IMPROPERLY CLAIMED CREDIT OR RECEIVED MONTHLY ADVANCE CHILD PAYMENTS.—For restrictions on taxpayers who improperly claimed credit or received monthly advance child payments, see section 24A(f).

“(j) Notice of payments.—

“(1) IN GENERAL.—Not later than January 31 of the calendar year following any calendar year during which the Secretary makes one or more payments to any taxpayer under this section, the Secretary shall provide such taxpayer with a written notice which includes—

“(A) the taxpayer’s taxpayer identity (as defined in section 6103(b)(6)),

“(B) the aggregate amount of such payments made to such taxpayer during such calendar year, and

“(C) such other information as the Secretary determines appropriate.

“(2) CERTAIN PAYMENTS SUBJECT TO TREATMENT AS EXCESS ADVANCE PAYMENTS.—In the case of any payments made to a taxpayer which the Secretary has determined are subject to treatment as excess advance payments, the notice provided under paragraph (1) to such taxpayer shall include the amount of such payments.

“(k) Notification of certain events.—With respect to any taxpayer receiving monthly advance child payments under this section with respect to any specified child, the Secretary shall, to the maximum extent practicable, provide reasonable advance notice of each of the following:

“(1) Any month with respect to which such monthly advance child payment will increase (relative to the preceding month) by reason of an inflation adjustment under section 24A(b)(3)(A).

“(2) Any month with respect to which such monthly advance child payment will be reduced (relative to the preceding month) by reason of such child ceasing to be a specified child by reason of attaining age 18.

“(3) In the case of a taxpayer with a specified child described in section 24A(b)(1)(A), any month with respect to which such monthly advance child payment will be reduced by reason of such child attaining age 6.

“(4) Such other events as the Secretary determines appropriate.

“(l) Regulations.—The Secretary shall issue such regulations or other guidance as the Secretary determines necessary or appropriate to carry out the purposes of this section.”.

(c) Termination of annual child tax credit.—Section 24 is amended by adding at the end the following new subsection:

“(l) Termination.—This section shall not apply to (and no payment shall be made under subsection (k) with respect to) any taxable year beginning after December 31, 2025.”.

(d) Disclosure of information relating to advance payment of child tax credit.—Section 6103(e) is amended by adding at the end the following new paragraph:

“(12) DISCLOSURE OF INFORMATION RELATING TO ADVANCE PAYMENT OF CHILD TAX CREDIT.—

“(A) JOINT FILERS.—In the case of any individual who is eligible for monthly advance child payments under section 7527A, if the reference taxable year (as defined in section 7527A(d)(2)) that the Secretary uses to calculate such payments is a year for which the individual filed an income tax return jointly with another individual, the Secretary may disclose to such individual any information which is relevant in determining the monthly advance child payment under section 7527A, and the individual’s eligibility for such payment, including information regarding any of the following:

“(i) The number of specified children, including by reason of the birth of a child.

“(ii) The name and TIN of specified children.

“(iii) Marital status.

“(iv) Modified adjusted gross income.

“(v) Principal place of abode.

“(vi) Such other information as the Secretary may provide.

“(B) COMPETING CLAIMANTS.—In the case of any adjudication under section 7527A(f), the Secretary may disclose return information provided by the individual with the original claim to the individual with the challenge claim, return information provided by the individual with the challenge claim to the individual with the original claim, and any other information considered by the Secretary in such adjudication to either or both such individuals. Such information shall be limited to the items specified in subparagraph (A) and the following:

“(i) Information received under any agreements or coordination the Secretary entered into with—

“(I) any State, local government, Tribal government, or possession of the United States, or

“(II) any other individual or entity that the Secretary determines to be appropriate for purposes of adjudicating claims under section 7527A(f).

“(ii) Information considered by the Secretary about where and with whom the specified child resided.

“(iii) Information considered by the Secretary about expenditures made by the claimants to the extent such payments relate to the original or challenge claim.”.

(e) Conforming amendments.—

(1) Section 26(b)(2) is amended by striking “and” at the end of subparagraph (Y), by striking the period at the end of subparagraph (Z) and inserting “, and”, and by adding at the end the following new subparagraph:

“(AA) section 24A(g)(2) (relating to increase in tax equal to excess advance payments in certain circumstances).”.

(2) Section 152(f)(6)(B)(ii) is amended to read as follows:

“(ii) the credits under sections 24, 24A, and 24B and the payments under sections 7527A,”.

(3) Section 3402(f)(1)(C) is amended by inserting “or section 24A (determined after application of subsection (g) thereof)” after “section 24 (determined after application of subsection (j) thereof)”.

(4) Section 6103(l)(13)(A)(v) is amended by inserting “or section 24A, as the case may be” after “section 24”.

(5) Section 6211(b)(4)(A) is amended by inserting “24A by reason of subsection (d) thereof,” after “24 by reason of subsections (d) and (i)(1) thereof,”.

(6) Section 6213(g)(2)(I) is amended by inserting “or section 24A(e) (relating to monthly child tax credit)” after “section 24(e) (relating to child tax credit)”.

(7) Section 6213(g)(2)(L) is amended by inserting “24A,” after “24,”.

(8) Section 6213(g)(2)(P) is amended—

(A) by inserting “or 24A(f)(2)” after “section 24(g)(2)”,

(B) by inserting “or 24A” after “under section 24”, and

(C) by striking “subsection (g)(1) thereof” and inserting “section 24(g)(1) or section 24A(f)(1), respectively”.

(9) Section 6695(g)(2) is amended by inserting “24A,” after “24,”.

(10) Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting “24A,” after “24,”.

(11) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 24 the following new items:

“Sec. 24A. Monthly child tax credit.
“Sec. 24B. Credit for certain other dependents.”.

(12) The table of sections for chapter 77 is amended by striking the item relating to section 7527A and inserting the following new item:

“Sec. 7527A. Monthly payments of child tax credit.”.

(f) Effective dates.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2025.

(2) MONTHLY ADVANCE CHILD PAYMENTS.—The amendments made by subsection (b) shall apply to—

(A) calendar months beginning after the date of the enactment of this Act, and

(B) in the case of section 7527A(g) of the Internal Revenue Code of 1986 (relating to grace periods and hardships), calendar months beginning after December 31, 2025.

(3) INFORMATION DISCLOSURE.—The amendment made by subsection (d) shall take effect on the date of the enactment of this Act.

subtitle B—Child and dependent care

SEC. 32001. Enhancement of Child and Dependent Care Tax Credit.

(a) In general.—Paragraph (2) of section 21(a) is amended to read as follows:

“(2) APPLICABLE PERCENTAGE.—

“(A) IN GENERAL.—For purposes of paragraph (1), the term ‘applicable percentage’ means 50 percent reduced (but not below the phaseout percentage) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year exceeds $125,000.

“(B) PHASEOUT PERCENTAGE.—For purposes of subparagraph (A), the term ‘phaseout percentage’ means 20 percent reduced (but not below zero) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $400,000.”.

(b) Increase in dollar limit on amount creditable.—Subsection (c) of section 21 is amended—

(1) in paragraph (1), by striking “$3,000” and inserting “$8,000”; and

(2) in paragraph (2), by striking “$6,000” and inserting “$16,000”.

(c) Special rule for married couples filing separate returns.—Paragraph (2) of section 21(e) is amended to read as follows:

“(2) MARRIED COUPLES FILING SEPARATE RETURNS.—

“(A) IN GENERAL.—In the case of married individuals who do not file a joint return for the taxable year—

“(i) the applicable percentage under subsection (a)(2) and the number of qualifying individuals and aggregate amount excludable under section 129 for purposes of subsection (c) shall be determined with respect to each such individual as if the individual had filed a joint return with the individual's spouse, and

“(ii) the aggregate amount of the credits allowed under this section for such taxable year with respect to both spouses shall not exceed the amount which would have been allowed under this section if the individuals had filed a joint return.

“(B) REGULATIONS.—The Secretary shall prescribe such regulations or other guidance as is necessary to carry out the purposes of this subsection.”.

(d) Adjustment for inflation.—Section 21 is amended by adding at the end the following new subsection:

“(i) Inflation adjustment.—

“(1) IN GENERAL.—In the case of a calendar year beginning after 2026, the $125,000 amount in paragraph (2) of subsection (a) and the dollar amounts in subsection (c) shall each 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.

“(2) ROUNDING.—If any dollar amount, after being increased under paragraph (1), is not a multiple of $100, such dollar amount shall be rounded to the next lowest multiple of $100.”.

(e) Credit made refundable.—Section 21(g) is amended to read as follows:

“(g) Credit made refundable for certain individuals.—If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart C (and not allowed under this subpart).”.

(f) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 32002. Increased maximum contribution to dependent care assistance programs.

(a) In general.—Section 129(a)(2)(A) is amended by striking “$5,000 ($2,500” and inserting “$10,000 ($5,000”.

(b) Cost-of-Living adjustment.—Section 129 is amended by adding at the end the following new subsection:

“(f) Inflation adjustment.—

“(1) IN GENERAL.—Each dollar amount in this section 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 such taxable year begins, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.

“(2) ROUNDING.—If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.”.

(c) Removing deadwood.—Section 129(a)(2) is amended by striking subparagraph (D).

(d) Effective date.—The amendments made by this section shall apply to calendar years beginning after December 31, 2025.

SEC. 32003. Credit for working family caregivers.

(a) In general.—Subpart A of part IV of subchapter A of chapter 1 is amended by inserting after section 25E the following new section:

“SEC. 25F. Working family caregivers.

“(a) Allowance of credit.—In the case of an eligible caregiver, 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 qualified expenses paid by the taxpayer during the taxable year to the extent that such expenses exceed $2,000.

“(b) Limitation.—

“(1) IN GENERAL.—The amount allowed as a credit under subsection (a) for the taxable year shall not exceed $5,000.

“(2) ADJUSTMENT FOR INFLATION.—In the case of any taxable year beginning after 2026, the dollar amount contained in paragraph (1) shall be increased by an amount equal to the product of—

“(A) such dollar amount, and

“(B) the medical care cost adjustment determined under section 213(d)(10)(B)(ii) for the calendar year in which the taxable year begins, determined by substituting ‘2025’ for ‘1996’ in subclause (II) thereof.

If any increase determined under the preceding sentence is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.

“(c) Eligible caregiver.—For purposes of this section, the term ‘eligible caregiver’ means an individual who—

“(1) during the taxable year pays or incurs qualified expenses in connection with providing care for a qualified care recipient, and

“(2) has earned income (as defined in section 32(c)(2)) for the taxable year in excess of $7,500.

“(d) Qualified care recipient.—For purposes of this section—

“(1) IN GENERAL.—The term ‘qualified care recipient’ means, with respect to any taxable year, any individual who—

“(A) is the spouse of the eligible caregiver, or any other person who bears a relationship to the eligible caregiver described in any of subparagraphs (A) through (H) of section 152(d)(2), and

“(B) has been certified, before the due date for filing the return of tax for the taxable year, by a licensed health care practitioner (as defined in section 7702B(c)(4)) as being an individual with long-term care needs described in paragraph (3) for a period—

“(i) which is at least 180 consecutive days, and

“(ii) a portion of which occurs within the taxable year.

“(2) PERIOD FOR MAKING CERTIFICATION.—Notwithstanding paragraph (1)(B), a certification shall not be treated as valid unless it is made within the 391⁄2 -month period ending on such due date (or such other period as the Secretary prescribes).

“(3) INDIVIDUALS WITH LONG-TERM CARE NEEDS.—An individual is described in this paragraph if the individual meets any of the following requirements:

“(A) The individual is at least 6 years of age and—

“(i) is unable to perform (without substantial assistance from another individual) at least 2 activities of daily living (as defined in section 7702B(c)(2)(B)) due to a loss of functional capacity, or

“(ii) requires substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment and is unable to perform, without reminding or cuing assistance, at least 1 activity of daily living (as so defined) or to the extent provided in regulations prescribed by the Secretary (in consultation with the Secretary of Health and Human Services), is unable to engage in age appropriate activities.

“(B) The individual is at least 2 but not 6 years of age and is unable due to a loss of functional capacity to perform (without substantial assistance from another individual) at least 2 of the following activities: eating, transferring, or mobility.

“(C) The individual is under 2 years of age and requires specific durable medical equipment by reason of a severe health condition or requires a skilled practitioner trained to address the individual’s condition to be available if the individual’s parents or guardians are absent.

“(e) Qualified expenses.—For purposes of this section—

“(1) IN GENERAL.—Subject to paragraph (4), the term ‘qualified expenses’ means expenditures for goods, services, and supports that—

“(A) assist a qualified care recipient with accomplishing activities of daily living (as defined in section 7702B(c)(2)(B)) and instrumental activities of daily living (as defined in section 1915(k)(6)(F) of the Social Security Act (42 U.S.C. 1396n(k)(6)(F))), and

“(B) are provided solely for use by such qualified care recipient.

“(2) ADJUSTMENT FOR OTHER TAX BENEFITS.—The amount of qualified expenses otherwise taken into account under paragraph (1) with respect to an individual shall be reduced by the sum of any amounts paid for the benefit of such individual for the taxable year which are—

“(A) taken into account under section 21 or 213, or

“(B) excluded from gross income under section 129, 223(f), or 529A(c)(1)(B).

“(3) GOODS, SERVICES, AND SUPPORTS.—For purposes of paragraph (1), goods, services, and supports (as defined by the Secretary) shall include—

“(A) human assistance, supervision, cuing and standby assistance,

“(B) assistive technologies and devices (including remote health monitoring),

“(C) environmental modifications (including home modifications),

“(D) health maintenance tasks (such as medication management),

“(E) information,

“(F) transportation of the qualified care recipient,

“(G) non-health items (such as incontinence supplies), and

“(H) coordination of and services for people who live in their own home, a residential setting, or a nursing facility, as well as the cost of care in these or other locations.

“(4) QUALIFIED EXPENSES FOR ELIGIBLE CAREGIVERS.—For purposes of paragraph (1), the following shall be treated as qualified expenses if paid or incurred by an eligible caregiver:

“(A) Expenditures for respite care for a qualified care recipient.

“(B) Expenditures for counseling, support groups, or training relating to caring for a qualified care recipient.

“(C) Lost wages for unpaid time off due to caring for a qualified care recipient as verified by an employer.

“(D) Travel costs of the eligible caregiver related to caring for a qualified care recipient.

“(E) Expenditures for technologies, as determined by the Secretary, that assist an eligible caregiver in providing care for a qualified care recipient.

“(5) HUMAN ASSISTANCE.—The term ‘human assistance’ includes the costs of a direct care worker.

“(6) DOCUMENTATION.—An expense shall not be taken into account under this section unless the eligible caregiver substantiates such expense under such regulations or guidance as the Secretary shall provide.

“(7) MILEAGE RATE.—For purposes of this section, the mileage rate for the use of a passenger automobile shall be the standard mileage rate used to calculate the deductible costs of operating an automobile for medical purposes. Such rate may be used in lieu of actual automobile-related travel expenses.

“(8) COORDINATION WITH ABLE ACCOUNTS.—Qualified expenses for a taxable year shall not include contributions to an ABLE account (as defined in section 529A).

“(f) Phase Out Based on Adjusted Gross Income.—For purposes of this section—

“(1) IN GENERAL.—The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $100 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the threshold amount.

“(2) MODIFIED ADJUSTED GROSS INCOME.—The term ‘modified adjusted gross income’ means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.

“(3) THRESHOLD AMOUNT.—The term ‘threshold amount’ means—

“(A) $150,000 in the case of a joint return, and

“(B) $75,000 in any other case.

“(4) INDEXING.—In the case of any taxable year beginning in a calendar year after 2026, each dollar amount contained in paragraph (3) shall be increased by an amount equal to the product of—

“(A) such dollar amount, and

“(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.

“(5) ROUNDING RULE.—If any increase determined under paragraph (4) is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.

“(g) Identification requirements.—No credit shall be allowed under this section to a taxpayer with respect to any qualified care recipient unless the taxpayer includes the name and taxpayer identification number of such individual, and the identification number of the licensed health care practitioner certifying such individual, on the return of tax for the taxable year.”.

(b) Clerical amendment.—The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 25E the following new item:

“Sec. 25F. Working family caregivers.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 32004. Licensed family child care credit.

(a) In general.—Subpart C of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after section 36D the following new section:

“SEC. 36E. Licensed family child care credit.

“(a) In general.—In the case of a qualified taxpayer, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to so much of the qualified child care startup expenses of the taxpayer for such taxable year or for the preceding taxable year as do not exceed $5,000.

“(b) Qualified taxpayer.—For purposes of this section, the term ‘qualified taxpayer’ means, with respect to a taxable year, a taxpayer that operates a qualified family child care provider.

“(c) Qualified family child care provider.—For purposes of this section, the term ‘qualified family child care provider’ means a family child care provider that, with respect to a taxable year—

“(1) provides child care services for compensation that, as of the last day of such taxable year, is licensed or registered under State law and satisfies State and local requirements applicable to the child care services it provides,

“(2) primarily provides child care at the taxpayer’s primary residence, and

“(3) provided child care services to not less than 2 children (excluding children of such taxpayer) for a significant portion of such taxable year.

“(d) Qualified child care startup expenses.—For purposes of this section, the term ‘qualified child care startup expenses’ means amounts paid or incurred for any of the following in order to establish and operate a qualified family child care provider:

“(1) Child care licensing fees.

“(2) Child care supplies including diapers, food, toys, and learning materials.

“(3) Liability insurance.

“(4) Fencing and installation of such fencing.

“(5) Outdoor playground equipment and installation of such equipment.

“(6) Furniture necessary to provide child care.

“(7) Salary of an employee other than the taxpayer.

“(8) Printer and computers.

“(9) Professional training required as a condition of State licensure or registration.

“(10) Remediation or renovation of the taxpayer’s primary residence required as a condition of State licensure or registration.

“(e) Limitations.—No credit shall be allowed under subsection (a) to any taxpayer to whom a credit was allowed under such subsection in any other taxable year.

“(f) Denial of double benefit.—No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowed under any other provision of this chapter.

“(g) 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 relating to such information reporting and coordination with state and local licensing or registration entities as the Secretary determines appropriate.

“(h) Sunset.—No credit shall be allowed under subsection (a) for any taxable year beginning after the date that is 7 years after the date of the enactment of this section.”.

(b) Conforming amendments.—

(1) Section 6211(b)(4)(A), as amended by the preceding provisions of this Act, is amended by inserting “36E,” after “36D,”.

(2) Section 1324(b)(2) of title 31, United States Code, as amended by the preceding provisions of this Act, is amended by inserting “36E,” after “36D,”.

(c) Clerical amendment.—The table of sections for subpart C of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after the item relating to section 36B the following new item:

“Sec. 36E. Licensed family child care credit.”.

(d) Effective date.—The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.

subtitle C—Ensuring affordable adoptions

SEC. 33001. Refundable adoption tax credit.

(a) Credit made refundable.—

(1) CREDIT MOVED TO SUBPART RELATING TO REFUNDABLE CREDITS.—The Internal Revenue Code of 1986, as amended by the preceding provisions of this Act, is amended—

(A) by redesignating section 23 as section 36F, and

(B) by moving section 36F (as so redesignated) from subpart A of part IV of subchapter A of chapter 1 to the location immediately before section 37 in subpart C of part IV of subchapter A of chapter 1.

(2) CONFORMING AMENDMENTS.—

(A) Section 25(e)(1)(C) is amended by striking “sections 23 and 25D” and inserting “section 25D”.

(B) Section 36E, as so redesignated, is amended—

(i) in subsection (b)(2)(A), by striking “(determined without regard to subsection (c))”,

(ii) by striking subsection (c), and

(iii) by redesignating subsections (d) through (i) as subsections (c) through (h), respectively.

(C) Section 137 is amended—

(i) in subsection (d), by striking “section 23(d)” and inserting “section 36F(c)”, and

(ii) in subsection (e), by striking “subsections (e), (f), and (g) of section 23” and inserting “subsections (d), (e), and (f) of section 36F”.

(D) Section 1016(a)(26) is amended by striking “23(g)” and inserting “36F(f)”.

(E) Section 6211(b)(4)(A), as amended by the preceding provisions of this Act, is amended by inserting “36F,” after “36E,”.

(F) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 23.

(G) Paragraph (2) of section 1324(b) of title 31, United States Code, as amended by the preceding provisions of this Act, is amended by inserting “36F,” after “36E,”.

(H) Paragraph (33) of section 471(a) of the Social Security Act (42 U.S.C. 671(a)) is amended by striking “section 23” and inserting “section 36F”.

(I) The table of sections for subpart C of part IV of subchapter A of chapter 1, as amended by the preceding provisions of this Act, is amended by inserting after the item relating to section 36E the following new item:

“Sec. 36F. Adoption expenses.”.

(b) Third-Party affidavits.—Section 36F(h), as redesignated and moved by subsection (a), is amended—

(1) by striking “such regulations” and inserting “such regulations and guidance”,

(2) by striking “including regulations which treat” and inserting “including regulations and guidance which—

“(1) treat”,

(3) by striking the period at the end and inserting “, and”, and

(4) by adding at the end the following:

“(2) provide for a standardized third-party affidavit for purposes of verifying a legal adoption—

“(A) of a type with respect to which qualified adoption expenses may be paid or incurred, or

“(B) involving a child with special needs for purposes of subsection (a)(3).”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

(d) Transitional rule To treat carryforward as refundable credit.—In the case of any excess described in section 23(c) of the Internal Revenue Code of 1986 with respect to any taxpayer for the taxable year which precedes the first taxable year to which the amendments made by this section apply, such excess shall be added to the credit allowable under section 36F(a) of such Code with respect to such taxpayer for such first taxable year.

TITLE IV—Education and workforce training

subtitle A—Ensuring affordable higher education

SEC. 41001. American opportunity credit expanded to 6 years, made temporarily fully refundable.

(a) In general.—Section 25A(i) is amended—

(1) in subsection (b)(2)—

(A) in subparagraph (A)—

(i) in the heading, by striking “4 taxable years” and inserting “6 taxable years”, and

(ii) by striking “4 prior taxable years” and inserting “6 taxable years”, and

(B) in subparagraph (C)—

(i) in the heading, by striking “first 4 years” and inserting “first 6 years”, and

(ii) by striking “the first 4 years” and inserting “the first 6 years”, and

(2) by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following:

“(j) American Opportunity Tax Credit made fully refundable for 2026.—In the case of a taxable year beginning after December 31, 2025, and before January 1, 2027, subsection (i) shall be applied by substituting ‘100 percent’ for ‘forty percent’.”.

(b) Effective date.—The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2025.

(c) Outreach campaign.—

(1) IN GENERAL.—The Secretary of the Treasury (or the Secretary’s delegate) shall conduct an outreach campaign to—

(A) provide information to the public regarding the expansion of the American Opportunity Credit under section 25A of the Internal Revenue Code of 1986, as amended by this Act, and

(B) assist individuals with claiming such credit.

(2) METHODS.—With respect to the outreach campaign described in paragraph (a), the Secretary shall—

(A) provide relevant information on the public website of the Internal Revenue Service, and

(B) send communications via direct mailing and electronic mail to individuals who have been identified as eligible for such credit for the taxable year.

SEC. 41002. Expansion of Pell Grant exclusion from gross income.

(a) In general.—Section 117(b)(1) is amended by striking “received by an individual” and all that follows and inserting “received by an individual—

“(A) as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses, or

“(B) as a Federal Pell Grant under section 401 of the Higher Education Act of 1965 (as in effect on the date of the enactment of this subparagraph).”.

(b) No adjustment under American Opportunity and Lifetime Learning Credits.—Section 25A(g)(2)(A) is amended by striking “a qualified scholarship which” and inserting “a qualified scholarship which is described in section 117(b)(1)(A) and which”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 41003. Expansion of American Opportunity and Lifetime Learning Credits.

(a) In general.—Section 25A is amended—

(1) in subsection (f)(1)—

(A) in subparagraph (A), by striking “tuition and fees” and inserting “tuition, fees, computer or peripheral equipment, child and dependent care expenses, and course materials”,

(B) by striking subparagraph (D), and

(C) by adding at the end the following new subparagraphs:

“(D) CHILD AND DEPENDENT CARE EXPENSES.—For purposes of this paragraph—

“(i) IN GENERAL.—The term ‘child and dependent care expenses’ means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be enrolled in an eligible educational institution for any period for which there are 1 or more qualifying individuals with respect to the taxpayer:

“(I) expenses for household services, and

“(II) expenses for the care of a qualifying individual.

Such term shall not include any amount paid for services outside the taxpayer’s household at a camp where the qualifying individual stays overnight.

“(ii) QUALIFYING INDIVIDUAL.—The term ‘qualifying individual’ has the meaning given such term in section 21(b)(1).

“(iii) EXCEPTION, DEPENDENT CARE CENTERS.—Rules similar to the rules of subparagraphs (B), (C), and (D) of section 21(b)(2) shall apply, except the term ‘child and dependent care expenses’ shall be substituted for the term ‘employment-related expenses’ each place it appears in such subparagraphs.

“(E) CHILD AND DEPENDENT CARE EXPENSES ONLY QUALIFIED EXPENSES WHEN CLAIMED BY ELIGIBLE STUDENT.—Amounts paid for an expense described in subparagraph (E) may not be taken into account under this paragraph for a taxable year unless required for the enrollment or attendance of an individual described in subparagraph (A)(i) or subparagraph (A)(ii).

“(F) COMPUTER OR PERIPHERAL EQUIPMENT.—

“(i) DEFINED.—For purposes of this paragraph, the term ‘computer or peripheral equipment’ means expenses for the purchase of computer or peripheral equipment (as defined in section 168(i)(2)(B), computer software (as defined in section 197(e)(3)(B))), or internet access and related services, if such equipment, software, or services are to be used primarily by the individual during any of the years the individual is enrolled at an eligible educational institution.

“(ii) DOLLAR LIMIT ON AMOUNT CREDITABLE.—The aggregate of the amounts paid or expenses incurred for computer or peripheral equipment which may be taken into account under this paragraph for a taxable year by the taxpayer shall not exceed $1,000.”, and

(2) in subsection (g)(5)—

(A) in the heading, by adding “or credit” at the end, and

(B) by inserting “or credit” after “a deduction”.

(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 41004. Elimination of denial of American Opportunity Tax Credit for students convicted of a felony drug offense.

(a) In general.—Section 25A(b)(2) is amended by striking subparagraph (D).

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 41005. Modification of treatment of student loan forgiveness.

(a) In general.—Section 108(f) is amended—

(1) by amending paragraph (1) to read as follows:

“(1) IN GENERAL.—In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income by reasons of the discharge (in whole or in part) of—

“(A) any loan provided expressly for postsecondary educational expenses, regardless of whether provided through the educational institution or directly to the borrower, if such loan was made, insured, or guaranteed by—

“(i) the United States, or an instrumentality or agency thereof,

“(ii) a State, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof, or

“(iii) any institution of higher education,

“(B) any private education loan (as defined in section 140(a)(7) of the Truth in Lending Act),

“(C) any loan made by any educational organization described in section 170(b)(1)(A)(ii) if such loan is made—

“(i) pursuant to an agreement with any entity described in subparagraph (A) or any private education lender (as defined in section 140(a) of the Truth in Lending Act) under which the funds from which the loan was made were provided to such educational organization, or

“(ii) pursuant to a program of such educational organization which is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or an organization described in section 501(c)(3) and exempt from tax under section 501(a), or

“(D) any loan made by an educational organization described in section 170(b)(1)(A)(ii) or by an organization exempt from tax under section 501(a) to refinance a loan to an individual to assist the individual in attending any such educational organization but only if the refinancing loan is pursuant to a program of the refinancing organization which is designed as described in subparagraph (C)(ii).”,

(2) by striking paragraphs (2) and (5),

(3) by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, and

(4) in paragraph (2), as so redesignated, by—

(A) striking “made by an organization described in paragraph (2)(D)” and inserting “made by an organization described in paragraph (1)(C) or made by a private education lender (as defined in section 140(a)(7) of the Truth in Lending Act)”, and

(B) inserting “or for such private education lender” after “either such organization”.

(b) Effective Date.—The amendments made by this section shall apply to discharges of loans after December 31, 2025.

SEC. 41006. Student loan interest deduction limitation applied separately to each spouse.

(a) In general.—Section 221(b)(1) is amended to read as follows:

“(1) IN GENERAL.—The interest taken into account with respect to a taxpayer for a taxable year under subsection (a) for indebtedness incurred by an individual shall not exceed $2,500.”.

(b) Conforming amendments.—Section 221 is amended—

(1) in subsection (b), by striking the heading and inserting “Dollar limitations”, and

(2) by amending subsection (e) to read as follows:

“(e) Denial of double benefit.—No deduction shall be allowed under this section for any amount for which a deduction is allowable under any other provision of this chapter.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

subtitle B—Supporting our workforce

SEC. 42001. Educator expense deduction to include early childhood educators.

(a) In general.—Section 62 is amended—

(1) in subsection (a)(2)(D), by striking the heading and inserting “C ertain expenses of early childhood, elementary, and secondary school teachers.”;

(2) in subsection (d)(1)(A), by striking “kindergarten through grade 12 teacher” and inserting, “early childhood educator, kindergarten through grade 12 teacher”; and

(3) in subsection (d)(1)(B), by striking “elementary education or secondary education (kindergarten through grade 12)” and inserting, “early childhood education, elementary education, or secondary education (pre-kindergarten through grade 12)”.

(b) Effective date.—The amendments made by this section shall apply to expenses incurred in taxable years beginning after December 31, 2025.

SEC. 42002. Allowance of deduction for certain expenses of the trade or business of being an employee.

(a) Above-the-Line deduction for union dues and expenses.—Section 62(a)(1) is amended by adding at the end the following new sentence: “The limitation under the preceding sentence shall not apply to deductions which are attributable to a trade or business consisting of the performance of services by the taxpayer as an employee if such deductions are for union dues and expenses.”.

(b) Allowance of miscellaneous itemized deduction for other expenses of the trade or business of being an employee.—Section 67(g) is amended—

(1) by striking “2025.—Notwithstanding subsection (a),” and inserting “2025.—

“(1) IN GENERAL.—Notwithstanding subsection (a), except as provided in paragraph (2),”; and

(2) by adding at the end the following:

“(2) EXCEPTION FOR EXPENSES OF THE TRADE OR BUSINESS OF BEING AN EMPLOYEE.—

“(A) IN GENERAL.—Paragraph (1) shall not apply to miscellaneous itemized deductions for any taxable year which are itemized deductions attributable to a trade or business carried on by the taxpayer which consists of the performance of services by the taxpayer as an employee.

“(B) APPLICATION OF 2-PERCENT TEST.—In applying subsection (a) for any taxable year to which this paragraph applies, only the itemized deductions described in subparagraph (A) shall be taken into account as miscellaneous itemized deductions.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 42003. Modification of deduction for cash tips.

(a) Made permanent.—Section 224 is amended by striking subsection (h).

(b) Application of limitation on individual basis.—Section 224(b)(1) is amended by inserting “to an individual” after “amount allowed as a deduction under this section”.

(c) Treatment of automatic gratuities.—Section 224(d) is amended by adding at the end the following new paragraph:

“(4) TREATMENT OF CERTAIN AUTOMATIC GRATUITIES.—

“(A) IN GENERAL.—In the case of an individual engaged in an occupation in hospitality, food and beverage service, or cosmetology, the term ‘qualified tips’ shall include automatic gratuities.

“(B) AUTOMATIC GRATUITY.—For purposes of this paragraph, the term ‘automatic gratuity’ means, with respect to an individual, any amount which—

“(i) would be a qualified tip with respect to the individual but for paragraph (2)(A), and

“(ii) is a mandatory or suggested amount paid pursuant to a uniform policy of the employer, under which such entire amount is received by the individual or, under State or local law, is pooled and received only by employees of the employer under a tip-sharing arrangement.”.

(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 42004. Deduction for certain overtime compensation.

(a) In general.—Section 225(c)(1) is amended to read as follows:

“(1) IN GENERAL.—For purposes of this section, the term ‘qualified overtime compensation’ means—

“(A) any overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed, or

“(B) any compensation paid to an individual that is in excess of the regular rate at which such individual is employed if—

“(i) such compensation is paid for work for a single employer pursuant to an agreement between the employee (or labor organization representing such employee) and employer entered into before the performance of the work, and

“(ii) either—

“(I) such work is in excess of a standard number of hours of such work for a specified period of time, and such agreement specifies that such standard number of hours for a specified period of time is not less than 40 hours for a 7-day work period, or

“(II) if the employee (including any crewmember or flight crewmember, or rail operating craft employee) and employer referred to in clause (i) are both covered by the Railway Labor Act, such work is beyond scheduled or anticipated hours on duty or for hours on duty that exceed a maximum number of hours with respect to a specified period of time (as determined pursuant to such agreement).”.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 42005. Above-the-line deduction of expenses of performing artists.

(a) In general.—Section 62(a)(2)(B) is amended—

(1) by striking “performing artists.—The deductions” and inserting the following: “performing artists.—

“(i) IN GENERAL.—The deductions”, and

(2) by adding at the end the following new clauses:

“(ii) PHASEOUT.—The amount of expenses taken into account under clause (i) shall be reduced (but not below zero) by 10 percentage points for each $2,000 ($4,000 in the case of a joint return), or fraction thereof, by which the taxpayer’s gross income for the taxable year exceeds $100,000 (200 percent of such amount in the case of a joint return).

“(iii) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable year beginning in a calendar year after 2026, the $100,000 amount under clause (ii) shall 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 the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2025’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.

If any amount after adjustment under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.”.

(b) Clarification regarding commission paid to performing artist’s manager or agent.—Section 62(a)(2)(B)(i), as amended by subsection (a), is amended by inserting before the period at the end the following: “, including any commission paid to the performing artist’s manager or agent”.

(c) Increase in threshold for determining nominal employers.—Section 62(b)(2) is amended—

(1) by striking “An individual” and inserting the following:

“(A) IN GENERAL.—An individual”,

(2) by striking “$200” and inserting “$500”, and

(3) by adding at the end the following new subparagraph:

“(B) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable year beginning in a calendar year after 2026, the $500 amount under subparagraph (A) shall 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 the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2025’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.

If any amount after adjustment under the preceding sentence is not a multiple of $50, such amount shall be rounded to the nearest multiple of $50.”.

(d) Conforming amendments.—

(1) Section 62(a)(2)(B)(i), as amended by the preceding provisions of this Act, is amended by striking “by him” and inserting “by the performing artist”.

(2) Section 62(b)(1) is amended by inserting “and” at the end of subparagraph (A), by striking “, and” at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).

(e) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 42006. Permanent extension of earned income credit rules for individuals without qualifying children.

(a) Decrease in minimum age for credit.—

(1) IN GENERAL.—Subclause (II) of section 32(c)(1)(A)(ii) is amended by striking “age 25” and inserting “the applicable minimum age”.

(2) APPLICABLE MINIMUM AGE.—Paragraph (1) of section 32(c) is amended by adding at the end the following new subparagraph:

“(F) APPLICABLE MINIMUM AGE.—For purposes of this paragraph—

“(i) IN GENERAL.—The term ‘applicable minimum age’ means—

“(I) except as otherwise provided in this clause, age 19,

“(II) in the case of a student (as defined in section 152(f)(2)), other than a qualified former foster youth or a qualified homeless youth, age 24, and

“(III) in the case of a qualified former foster youth or a qualified homeless youth, age 18.

“(ii) QUALIFIED FORMER FOSTER YOUTH.—For purposes of this subparagraph, the term ‘qualified former foster youth’ means an individual who—

“(I) on or after the date that such individual attained age 14, was in foster care provided under the supervision or administration of an entity administering (or eligible to administer) a plan under part B or part E of title IV of the Social Security Act (without regard to whether Federal assistance was provided with respect to such child under such part E), and

“(II) provides (in such manner as the Secretary may provide) consent for entities which administer a plan under part B or part E of title IV of the Social Security Act to disclose to the Secretary information related to the status of such individual as a qualified former foster youth.

“(iii) QUALIFIED HOMELESS YOUTH.—For purposes of this subparagraph, the term ‘qualified homeless youth’ means, with respect to any taxable year, an individual who certifies, in a manner as provided by the Secretary, that such individual is either an unaccompanied youth who is a homeless child or youth, or is unaccompanied, at risk of homelessness, and self-supporting.”.

(b) Elimination of maximum age for credit.—Subclause (II) of section 32(c)(1)(A)(ii) is amended by striking “but not attained age 65”.

(c) Increase in credit and phaseout percentages.—The table contained in paragraph (1) of section 32(b) is amended by striking “7.65” each place it appears and inserting “15.3”.

(d) Increase in earned income and phaseout amounts.—The table contained in subparagraph (A) of section 32(b)(2) is amended—

(1) by striking “$4,220” and inserting “$9,820”, and

(2) by striking “$5,280” and inserting “$11,610”.

(e) Inflation adjustments.—

(1) IN GENERAL.—Paragraph (1) of section 32(j) is amended to read as follows:

“(1) IN GENERAL.—In the case of any taxable year beginning after—

“(A) 2021, in the case of the dollar amount in subsection (i)(1),

“(B) 2026, in the case of the dollar amounts in the third row of the table in subsection (b)(2)(A), and

“(C) 2015, in any other case,

each of the dollar amounts in subsections (b)(2) and (i)(1) shall be increased by an amount equal to the inflation amount.”.

(2) INFLATION AMOUNT.—Subsection (j) of section 32 is amended by adding at the end the following new paragraph:

“(3) INFLATION AMOUNT.—For purposes of paragraph (1), the inflation amount with respect to any dollar amount for any taxable year is the amount equal to—

“(A) such dollar amount, multiplied by

“(B) the percentage (if any) by which—

“(i) the CPI (as defined in section 1(f)(4)) for the calendar year preceding the year in which the taxable year begins, exceeds

“(ii) the CPI (as so defined) for—

“(I) in the case of amounts in the third row of the table in subsection (b)(2)(A), 2025,

“(II) in the case of any other amount in subsection (b)(2)(A), 1995,

“(III) in the case of the $5,000 amount in subsection (b)(2)(B), 2008, and

“(IV) in the case of the $10,000 amount in subsection (i)(1), 2020.”.

(f) Conforming amendment.—Section 32 is amended by striking subsection (n).

(g) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 42007. Application of earned income credit to possessions of the United States.

(a) Puerto Rico.—Subparagraph (B) of section 7530(a)(1) is amended by striking “in the case of calendar years 2021 through 2025,”.

(b) Possessions with mirror code tax systems.—Subparagraph (B) of section 7530(b)(1) is amended by striking “in the case of calendar years 2021 through 2025,”.

(c) American Samoa.—Subparagraph (B) of section 7530(c)(1) is amended by striking “in the case of calendar years 2021 through 2025,”.

SEC. 42008. Election to use prior year earned income for earned income tax credit.

(a) In general.—Paragraph (2) of section 32(c) is amended by adding at the end the following new subparagraph:

“(C) ELECTION TO USE PRIOR YEAR EARNED INCOME.—

“(i) IN GENERAL.—If the earned income of the taxpayer for any taxable year is less than the earned income of the taxpayer for the preceding taxable year, the credit allowed under subsection (a) may, at the election of the taxpayer, be determined by substituting—

“(I) such earned income for such preceding taxable year, for

“(II) such earned income for the taxable year for which such credit is being determined.

“(ii) APPLICATION TO JOINT RETURNS.—For purposes of clause (i), in the case of a joint return, the earned income of the taxpayer for the preceding taxable year shall be the sum of the earned income of each spouse for such taxable year.

“(iii) SPECIAL RULES.—

“(I) ERRORS TREATED AS MATHEMATICAL ERRORS.—For purposes of section 6213, an incorrect use on a return of earned income pursuant to clause (i) shall be treated as a mathematical or clerical error.

“(II) NO EFFECT ON DETERMINATION OF GROSS INCOME, ETC.—Except as otherwise provided in this subparagraph, this title shall be applied without regard to any substitution under clause (i).”.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.

TITLE V—Healthcare

SEC. 50001. Increase in eligibility for health insurance premium assistance tax credit.

(a) In general.—Subparagraph (A) of section 36B(c)(1) is amended by striking “but does not exceed 400 percent”.

(b) Applicable percentages.—

(1) IN GENERAL.—Subparagraph (A) of section 36B(b)(3) is amended to read as follows:

“(A) APPLICABLE PERCENTAGE.—The applicable percentage for any taxable year shall be the percentage such that the applicable percentage for any taxpayer whose household income is within an income tier specified in the following table shall increase, on a sliding scale in a linear manner, from the initial premium percentage to the final premium percentage specified in such table for such income tier:

“In the case of household income (expressed as a percent of poverty line) within the following income tier: | The initial premium percentage is— | The final premium percentage is—
Up to 150 percent | 0 | 0
150 percent up to 200 percent | 0 | 2.0
200 percent up to 250 percent | 2.0 | 4.0
250 percent up to 300 percent | 4.0 | 6.0
300 percent up to 400 percent | 6.0 | 8.5
400 percent and higher | 8.5 | 8.5.”.

(2) CONFORMING AMENDMENTS RELATING TO AFFORDABILITY OF COVERAGE.—

(A) Paragraph (1) of section 36B(c) is amended by striking subparagraph (E).

(B) Subparagraph (C) of section 36B(c)(2) is amended by striking clause (iv).

(C) Paragraph (4) of section 36B(c) is amended by striking subparagraph (F).

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.

SEC. 50002. Filling the coverage gap.

(a) Ensuring affordability of coverage for certain low-Income populations.—Section 1402 of the Patient Protection and Affordable Care Act (42 U.S.C. 18071) is amended—

(1) in subsection (b)—

(A) in paragraph (2), by inserting “(or, with respect to plan years 2026, 2027, and 2028, whose household income does not exceed 400 percent of the poverty line for a family of the size involved)” before the period; and

(B) in the matter following paragraph (2), by adding at the end the following new sentence: “In the case of an individual who is determined at any point to have a household income for 2025 that does not exceed 138 percent of the poverty line for a family of the size involved, such individual shall, for each month during such year, be treated as having a household income equal to 100 percent for purposes of applying this section.”; and

(2) in subsection (c)—

(A) in paragraph (1)(A), in the matter preceding clause (i), by inserting “, with respect to eligible insureds (other than, with respect to plan years 2026, 2027, and 2028, specified enrollees (as defined in paragraph (6)(C))),” after “first be achieved”;

(B) in paragraph (2), in the matter preceding subparagraph (A), by inserting “with respect to eligible insureds (other than, with respect to plan years 2026, 2027, and 2028, specified enrollees)” after “under the plan”;

(C) in paragraph (3)—

(i) in subparagraph (A), by striking “this subsection” and inserting “paragraph (1) or (2)”; and

(ii) in subparagraph (B), by striking “this section” and inserting “paragraphs (1) and (2)”; and

(D) by adding at the end the following new paragraph:

“(6) SPECIAL RULE FOR SPECIFIED ENROLLEES.—

“(A) IN GENERAL.—The Secretary shall establish procedures under which the issuer of a qualified health plan to which this section applies shall reduce cost-sharing under the plan with respect to months occurring during plan years 2026, 2027, and 2028 for enrollees who are specified enrollees (as defined in subparagraph (C)) in a manner sufficient to increase the plan’s share of the total allowed costs of benefits provided under the plan to 99 percent of such costs.

“(B) METHODS FOR REDUCING COST SHARING.—

“(i) IN GENERAL.—An issuer of a qualified health plan making reductions under this paragraph shall notify the Secretary of such reductions and the Secretary shall, out of funds made available under clause (ii), make periodic and timely payments to the issuer equal to 12 percent of the total allowed costs of benefits provided under each such plan to specified enrollees during plan years 2026, 2027, and 2028.

“(ii) APPROPRIATION.—In addition to amounts otherwise available, there are appropriated, out of any money in the Treasury not otherwise appropriated, such sums as may be necessary to the Secretary to make payments under clause (i).

“(C) SPECIFIED ENROLLEE DEFINED.—For purposes of this section, the term ‘specified enrollee’ means, with respect to a plan year, an eligible insured who is determined at any point to have a household income for such plan year that does not exceed 138 percent of the poverty line for a family of the size involved. Such insured shall be deemed to be a specified enrollee for each month in such plan year.”.

(b) Open enrollments applicable to certain lower-Income populations.—Section 1311(c) of the Patient Protection and Affordable Care Act (42 U.S.C. 18031(c)) is amended—

(1) in paragraph (6)—

(A) in subparagraph (C), by striking at the end “and”;

(B) in subparagraph (D), by striking the period at the end and inserting “; and”; and

(C) by adding at the end the following new subparagraph:

“(E) with respect to a qualified health plan with respect to which section 1402 applies, for months occurring during the period beginning on January 1, 2026, and ending on December 31, 2028, enrollment periods described in subparagraph (A) of paragraph (8) for individuals described in subparagraph (B) of such paragraph.”; and

(2) by adding at the end the following new paragraph:

“(8) SPECIAL ENROLLMENT PERIOD FOR CERTAIN LOW-INCOME POPULATIONS.—

“(A) IN GENERAL.—The enrollment period described in this paragraph is, in the case of an individual described in subparagraph (B), the continuous period beginning on the first day that such individual is so described.

“(B) INDIVIDUAL DESCRIBED.—For purposes of subparagraph (A), an individual described in this subparagraph is an individual—

“(i) with a household income that does not exceed 138 percent of the poverty line for a family of the size involved; and

“(ii) who is not eligible for minimum essential coverage (as defined in section 5000A(f) of the Internal Revenue Code of 1986), other than for coverage described in any of subparagraphs (B) through (E) of paragraph (1) of such section.”.

(c) Additional benefits for certain low-Income individuals for plan years 2026 and 2027.—Section 1301(a) of the Patient Protection and Affordable Care Act (42 U.S.C. 18021(a)) is amended—

(1) in paragraph (1)—

(A) in subparagraph (B), by striking “and” at the end;

(B) in subparagraph (C)(iv), by striking the period and inserting “; and”; and

(C) by adding at the end the following new subparagraph:

“(D) provides, with respect to a plan offered in the silver level of coverage to which section 1402 applies during plan year 2026 and 2027, for benefits described in paragraph (5) in the case of an individual who has a household income that does not exceed 138 percent of the poverty line for a family of the size involved, and who is eligible to receive cost-sharing reductions under section 1402.”; and

(2) by adding at the end the following new paragraph:

“(5) ADDITIONAL BENEFITS FOR CERTAIN LOW-INCOME INDIVIDUALS FOR PLAN YEAR 2026 AND 2027.—

“(A) IN GENERAL.—

“(i) BENEFITS.—For purposes of paragraph (1)(D), the benefits described in this paragraph to be provided by a qualified health plan are benefits consisting of—

“(I) non-emergency medical transportation services (as described in section 1902(a)(4) of the Social Security Act) for which Federal payments would have been available under title XIX of the Social Security Act had such services been furnished to an individual enrolled under a State plan (or waiver of such plan) under such title; and

“(II) services described in subsection (a)(4)(C) of section 1905 of such Act for which Federal payments would have been so available;

which are not otherwise provided under such plan as part of the essential health benefits package described in section 1302(a).

“(ii) CONDITION ON PROVISION OF BENEFITS.—Benefits described in this paragraph shall be provided—

“(I) without any restriction on the choice of a qualified provider from whom an individual may receive such benefits; and

“(II) without any imposition of cost sharing.

“(B) PAYMENTS FOR ADDITIONAL BENEFITS.—

“(i) IN GENERAL.—An issuer of a qualified health plan making payments for services described in subparagraph (A) furnished to individuals described in paragraph (1)(D) during plan year 2026 or 2027 shall notify the Secretary of such payments and the Secretary shall, out of funds made available under clause (ii), make periodic and timely payments to the issuer equal to payments for such services so furnished.

“(ii) APPROPRIATION.—In addition to amounts otherwise available, there is appropriated, out of any money in the Treasury not otherwise appropriated, such sums as may be necessary to the Secretary to make payments under clause (i).”.

(d) Education and outreach activities.—

(1) IN GENERAL.—Section 1321(c) of the Patient Protection and Affordable Care Act (42 U.S.C. 18041(c)) is amended by adding at the end the following new paragraph:

“(3) OUTREACH AND EDUCATIONAL ACTIVITIES.—

“(A) IN GENERAL.—In the case of an Exchange established or operated by the Secretary within a State pursuant to this subsection, the Secretary shall carry out outreach and educational activities for purposes of informing individuals described in section 1902(a)(10)(A)(i)(VIII) of the Social Security Act who reside in States that have not expended amounts under a State plan (or waiver of such plan) under title XIX of such Act for all such individuals about qualified health plans offered through the Exchange, including by informing such individuals of the availability of coverage under such plans and financial assistance for coverage under such plans. Such outreach and educational activities shall be provided in a manner that is culturally and linguistically appropriate to the needs of the populations being served by the Exchange (including hard-to-reach populations, such as racial and sexual minorities, limited English proficient populations, individuals residing in areas where the unemployment rates exceeds the national average unemployment rate, individuals in rural areas, veterans, and young adults).

“(B) LIMITATION ON USE OF FUNDS.—Funds appropriated under this paragraph shall not be used to promote any health insurance coverage other than qualified health plans.

“(C) FUNDING.—In addition to amounts otherwise available, there is appropriated, out of any money in the Treasury not otherwise appropriated, to remain available until expended, $105,000,000 for fiscal year 2026 to carry out this paragraph, of which—

“(i) $15,000,000 shall be used to carry out this paragraph in fiscal year 2026; and

“(ii) $30,000,000 shall be used to carry out this paragraph for each of fiscal years 2027 through 2028.”.

(2) NAVIGATOR PROGRAM.—Section 1311(i) of the Patient Protection and Affordable Care Act (42 U.S.C. 18031(i)) is amended—

(A) in paragraph (1)—

(i) by striking “An Exchange” and inserting the following:

“(A) IN GENERAL.—An Exchange”; and

(ii) by adding at the end the following:

“(B) GRANTS FOR ELIGIBLE ENTITIES WITH RESPECT TO CERTAIN STATES.—The Secretary shall establish a program to award grants to entities described in paragraph (2) to carry out the duties described in paragraph (3) in one or more States that do not provide under the State plan under title XIX of the Social Security Act (or a waiver of such plan) benchmark coverage described in section 1937(b)(1) of such Act or benchmark equivalent coverage described in section 1937(b)(2) of such Act to all individuals described in section 1902(a)(10)(A)(i)(VIII) of such Act.”; and

(B) in paragraph (6)—

(i) by striking “Grants under” and inserting the following:

“(A) STATE EXCHANGES.—Grants under”; and

(ii) by adding at the end the following new subparagraph:

“(B) FEDERAL EXCHANGES; GRANTS TO ELIGIBLE ENTITIES WITH RESPECT TO CERTAIN STATES.—For purposes of carrying out this subsection, with respect to an Exchange established and operated by the Secretary within a State pursuant to section 1321(c) and with respect to grants under paragraph (1)(B), the Secretary shall obligate not less than $10,000,000 out of amounts collected through the user fees on participating health insurance issuers pursuant to section 156.50 of title 45, Code of Federal Regulations (or any successor regulations) for fiscal year 2026, and not less than $20,000,000 for each of fiscal years 2027 and 2028. Such amount so obligated for a fiscal year shall remain available until expended.”.

(e) Funding.—In addition to amounts otherwise available, there is appropriated to the Secretary of Health and Human Services for fiscal year 2026, out of any money in the Treasury not otherwise appropriated, $65,000,000, to remain available until expended, for purposes of carrying out the provisions of, and the amendments made by, this section (other than subsections (f) and (g)).

(f) Temporary expansion of health insurance premium tax credits for certain low-Income populations.—

(1) IN GENERAL.—Section 36B is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:

“(h) Certain temporary rules beginning in 2026.—With respect to any taxable year beginning after December 31, 2025, and before January 1, 2029—

“(1) ELIGIBILITY FOR CREDIT NOT LIMITED BASED ON INCOME.—Subsection (c)(1)(A) shall be applied without regard to ‘equals or exceeds 100 percent but’.

“(2) CREDIT ALLOWED TO CERTAIN LOW-INCOME EMPLOYEES OFFERED EMPLOYER-PROVIDED COVERAGE.—In the case of an individual whose household income does not exceed 138 percent of the poverty line for a family of the size involved, clause (i) of subsection (c)(2)(C) shall be applied (including in the case of any individual described in the last sentence of such clause) without regard to subclause (II) thereof.

“(3) CREDIT ALLOWED TO CERTAIN LOW-INCOME EMPLOYEES OFFERED QUALIFIED SMALL EMPLOYER HEALTH REIMBURSEMENT ARRANGEMENTS.—A qualified small employer health reimbursement arrangement shall not be treated as constituting affordable coverage for an employee (or any spouse or dependent of such employee) for any months of a taxable year if the employee’s household income for such taxable year does not exceed 138 percent of the poverty line for a family of the size involved.

“(4) LIMITATIONS ON RECAPTURE.—

“(A) IN GENERAL.—In the case of a taxpayer whose household income is less than 200 percent of the poverty line for the size of the family involved for the taxable year, the amount of the increase under subsection (f)(2)(A) shall in no event exceed $300 (one-half of such amount in the case of a taxpayer whose tax is determined under section 1(c) for the taxable year).

“(B) LIMITATION ON INCREASE FOR CERTAIN NON-FILERS.—In the case of any taxpayer who would not be required to file a return of tax for the taxable year but for any requirement to reconcile advance credit payments under subsection (f), if an Exchange established under title I of the Patient Protection and Affordable Care Act has determined that—

“(i) such taxpayer is eligible for advance payments under section 1412 of such Act for any portion of such taxable year, and

“(ii) such taxpayer’s household income for such taxable year is projected not to exceed 138 percent of the poverty line for a family of the size involved,

subsection (f)(2)(A) shall not apply to such taxpayer for such taxable year and such taxpayer shall not be required to file such return of tax.

“(C) INFORMATION PROVIDED BY EXCHANGE.—The information required to be provided by an Exchange to the Secretary and to the taxpayer under subsection (f)(3) shall include such information as is necessary to determine whether such Exchange has made the determinations described in clauses (i) and (ii) of subparagraph (B) with respect to such taxpayer.”.

(2) EMPLOYER SHARED RESPONSIBILITY PROVISION NOT APPLICABLE WITH RESPECT TO CERTAIN LOW-INCOME TAXPAYERS RECEIVING PREMIUM ASSISTANCE.—Section 4980H(c)(3) is amended to read as follows:

“(3) APPLICABLE PREMIUM TAX CREDIT AND COST-SHARING REDUCTION.—

“(A) IN GENERAL.—The term ‘applicable premium tax credit and cost-sharing reduction’ means—

“(i) any premium tax credit allowed under section 36B,

“(ii) any cost-sharing reduction under section 1402 of the Patient Protection and Affordable Care Act, and

“(iii) any advance payment of such credit or reduction under section 1412 of such Act.

“(B) EXCEPTION WITH RESPECT TO CERTAIN LOW-INCOME TAXPAYERS.—Such term shall not include any premium tax credit, cost-sharing reduction, or advance payment otherwise described in subparagraph (A) if such credit, reduction, or payment is allowed or paid for a taxable year of an employee (beginning after December 31, 2025, and before January 1, 2029) with respect to which—

“(i) an Exchange established under title I of the Patient Protection and Affordable Care Act has determined that such employee’s household income for such taxable year is projected to not exceed 138 percent of the poverty line for a family of the size involved, or

“(ii) such employee’s household income for such taxable year does not exceed 138 percent of the poverty line for a family of the size involved.”.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to taxable years beginning after December 31, 2025.

(g) Further increase in FMAP for Medical Assistance for Newly Eligible Mandatory Individuals.—Section 1905(y)(1) of the Social Security Act (42 U.S.C. 1396d(y)(1)) is amended—

(1) in subparagraph (D), by striking at the end “and”;

(2) in subparagraph (E), by striking “2020 and each year thereafter.” and inserting “2020, 2021, 2022, 2023, 2024, and 2025;”; and

(3) by adding at the end the following new subparagraphs:

“(F) 93 percent for calendar quarters in 2026, 2027, and 2028; and

“(G) 90 percent for calendar quarters in 2029 and each year thereafter.”.

SEC. 50003. Freeze of premium adjustment percentage increase.

Section 1302(c)(4) of the Patient Protection and Affordable Care Act is amended—

(1) by striking “For purposes of” and inserting the following:

“(A) IN GENERAL.—For purposes of”; and

(2) by adding at the end the following new subparagraph:

“(B) FREEZE IN PREMIUM ADJUSTMENT PERCENTAGE INCREASE.—For plan years beginning on or after January 1, 2027, the maximum annual limitation on cost sharing (as described in section 156.130(a)(2) of title 45, Code of Federal Regulations) is equal to the greater of—

“(i) the maximum annual limitation on cost sharing for plan year 2025, as described in the final rule published on April 15, 2024 (89 Fed. Reg. 26218 et seq.); and

“(ii) 90 percent of the amount described in clause (i), increased by the percentage by which the average per capita premium for health insurance coverage in the United States for the preceding calendar year (as estimated by the Secretary not later than October 1 of such preceding calendar year) exceeds such average per capita premium for 2024.”.

SEC. 50004. Requiring coverage of certain immunizations recommended by the Advisory Committee on Immunization Practices.

(a) Group health plans and health insurance coverage.—

(1) PHSA.—

(A) IN GENERAL.—Part D of title XXVII of the Public Health Service Act (42 U.S.C. 300gg–111 et seq.) is amended by adding at the end the following new section:

“SEC. 2799A–11. Coverage of certain immunizations recommended by the Advisory Committee on Immunization Practices.

“(a) In general.—With respect to plan years occurring during the date of the enactment of this section, or beginning on or after the date of the enactment of this section and before January 1, 2030, a group health plan and a health insurance issuer offering group or individual health insurance coverage shall provide coverage for and shall not impose any cost sharing requirements for immunizations that had in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved as of October 25, 2024, including such an immunization as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration.

“(b) Special rule.—Subsection (a) shall not apply in the case of an immunization administered during the minimum interval established under section 2713(b) with respect to such immunization.”.

(B) CONFORMING AMENDMENT.—Section 1302(e)(1)(B)(i) of the Patient Protection and Affordable Care Act (42 U.S.C. 18022(e)(1)(B)(i)) is amended by striking “section 2713” and inserting “sections 2713 and 2799A–11 of the Public Health Service Act”.

(2) ERISA.—

(A) IN GENERAL.—Subpart B of part 7 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1185 et seq.) is amended by adding at the end the following new section:

“SEC. 726. Coverage of certain immunizations recommended by the Advisory Committee on Immunization Practices.

“(a) In general.—With respect to plan years occurring during the date of the enactment of this section, or beginning on or after the date of the enactment of this section and before January 1, 2030, a group health plan and a health insurance issuer offering group health insurance coverage shall provide coverage for and shall not impose any cost sharing requirements for immunizations that had in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved as of October 25, 2024, including such an immunization as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration.

“(b) Special rule.—Subsection (a) shall not apply in the case of an immunization administered during the minimum interval established under section 2713(b) of the Public Health Service Act with respect to such immunization.”.

(B) CLERICAL AMENDMENT.—The table of contents in section 1 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 note) is amended by inserting after the item relating to section 725 the following new item:

“Sec. 726. Coverage of certain immunizations recommended by the Advisory Committee on Immunization Practices.”.

(3) IRC.—

(A) IN GENERAL.—Subchapter B of chapter 100 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“SEC. 9826. Coverage of certain immunizations recommended by the Advisory Committee on Immunization Practices.

“(a) In general.—With respect to plan years occurring during the date of the enactment of this section, or beginning on or after the date of the enactment of this section and before January 1, 2030, a group health plan shall provide coverage for and shall not impose any cost sharing requirements for immunizations that had in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved as of October 25, 2024, including such an immunization as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration.

“(b) Special rule.—Subsection (a) shall not apply in the case of an immunization administered during the minimum interval established under section 2713(b) of the Public Health Service Act with respect to such immunization.”.

(B) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 100 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

“Sec. 9826. Coverage of certain immunizations recommended by the Advisory Committee on Immunization Practices.”.

(b) Medicare.—Section 1860D–2(b)(8)(B) of the Social Security Act (42 U.S.C. 1395w–102(b)(8)(B)) is amended—

(1) by striking “with recommendations” and inserting “with—

“(i) recommendations”;

(2) by striking the period at the end and inserting “; or”; and

(3) by adding at the end the following new clause:

“(ii) for plan years occurring during the date of the enactment of this clause, or beginning on or after the date of the enactment of this clause and before January 1, 2030, in the case of a vaccine with respect to which such a recommendation is revoked with respect to the individual involved on or after October 25, 2024, including such a vaccine as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration, the most recent recommendation that was in effect with respect to such vaccine and such individual prior to such revocation.”.

(c) Medicaid.—

(1) IN GENERAL.—Section 1905 of the Social Security Act (42 U.S.C. 1396d) is amended—

(A) in subsection (a)(13)(B)—

(i) by striking “individual, approved” and inserting “individual—

“(i) approved”; and

(ii) by adding at the end the following new clause:

“(ii) for the period beginning on the date of the enactment of this clause and ending on December 31, 2029, approved vaccines, and the administration of such vaccines, that were recommended by such advisory committee with respect to the individual involved as of October 25, 2024, including such a vaccine as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration.”; and

(B) in subsection (r)(1)(B)(iii), by—

(i) striking “section 1928(c)(2)(B)(i)” and inserting “clause (i) of section 1928(c)(2)(B)”; and

(ii) inserting “, subject to the limitation described in clause (iii) of such section” after “pediatric vaccines”.

(2) COVERAGE FOR PREGNANT INDIVIDUALS.—Section 1902(a)(10) of the Social Security Act (42 U.S.C. 1396a(a)(10)) is amended in the matter following subparagraph (G) by inserting “medical assistance for vaccines described in section 1905(a)(13)(B) and the administration of such vaccines,” after “complicate pregnancy,”.

(3) PROGRAM FOR DISTRIBUTION OF PEDIATRIC VACCINES.—Section 1928 of the Social Security Act (42 U.S.C. 1396s) is amended—

(A) in subsection (c)(2)(B)—

(i) in clause (i), by striking “clause (ii)” and inserting “clauses (ii) and (iii)”; and

(ii) by adding at the end the following new clause:

“(iii) For the period beginning on the date of the enactment of this clause and ending on December 31, 2029, the provider will not take into account any change in the schedule described in clause (i) that removes the recommendation to administer a pediatric vaccine with respect to the vaccine-eligible child involved if such pediatric vaccine was recommended with respect to such child under such schedule as of October 25, 2024, including with respect to such pediatric vaccine as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration.”; and

(B) in subsection (e), by inserting “For purposes of the preceding sentence, during the period beginning on the date of the enactment of this sentence and ending on December 31, 2029, the Secretary may not take into account any revision of such list that occurs on or after October 25, 2024, that removes a pediatric vaccine from such list if such vaccine was included in such list as of such date, including with respect to such vaccine as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration.” after the period at the end.

(4) STATE FLEXIBILITY IN BENEFIT PACKAGES.—Section 1937(b) of the Social Security Act (42 U.S.C. 1396u–7(b)) is amended by adding at the end the following new paragraph:

“(9) COVERAGE OF ADULT VACCINES.—Notwithstanding the previous provisions of this section, a State may not provide for medical assistance through enrollment of an individual with benchmark coverage or benchmark-equivalent coverage under this section unless such coverage includes (and does not impose any deduction, cost sharing, or similar charge for) the medical assistance described in section 1905(a)(13)(B).”.

(d) CHIP.—Section 2103 of the Social Security Act (42 U.S.C. 1397cc) is amended—

(1) in subsection (c), by adding at the end the following new paragraph:

“(13) REQUIRED COVERAGE OF CERTAIN VACCINES RECOMMENDED BY THE ADVISORY COMMITTEE ON IMMUNIZATION PRACTICES.—Regardless of the type of coverage elected by a State under subsection (a), the child health assistance provided for a targeted low-income child shall include coverage, during the period beginning on the date of the enactment of this paragraph and ending on December 31, 2029, of vaccines, and the administration of such vaccines, that had in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the child involved as of October 25, 2024, including such a vaccine as updated or changed after that date under a supplement to a biologics license application approved by the Food and Drug Administration.”; and

(2) in subsection (e)(2), by inserting “vaccines described in subsection (c)(13) administered during the period beginning on the date of the enactment of such subsection and ending on December 31, 2029 (and the administration of such vaccines),” before “services described in section 1916(a)(2)(G)”.