[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 8626 Introduced in House (IH)]
<DOC>
119th CONGRESS
2d Session
H. R. 8626
To amend the Internal Revenue Code of 1986 to provide a credit for
middle-income housing, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 30, 2026
Mr. Panetta (for himself, Mr. Carey, and Mr. Nunn of Iowa) introduced
the following bill; which was referred to the Committee on Ways and
Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide a credit for
middle-income housing, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Workforce Housing Tax Credit Act''.
SEC. 2. MIDDLE-INCOME HOUSING TAX CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 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 (as
defined in subsection (h)(4)) 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) Eligible basis reduced where disproportionate
standards for units.--
``(A) In general.--Except as provided in
subparagraph (B), the eligible basis of any building
shall be reduced by an amount equal to the portion of
the adjusted basis of the building which is
attributable to residential rental units in the
building which are not middle-income units and which
are above the average quality standard of the middle-
income units in the building.
``(B) Exception where taxpayer elects to exclude
excess costs.--
``(i) In general.--Subparagraph (A) shall
not apply with respect to a residential rental
unit in a building which is not a middle-income
unit if--
``(I) the excess described in
clause (ii) with respect to such unit
is not greater than 15 percent of the
cost described in clause (ii)(II), and
``(II) the taxpayer elects to
exclude from the eligible basis of such
building the excess described in clause
(ii) with respect to such unit.
``(ii) Excess.--The excess described in
this clause with respect to any unit is the
excess of--
``(I) the cost of such unit, over
``(II) the amount which would be
the cost of such unit if the average
cost per square foot of middle-income
units in the building were substituted
for the cost per square foot of such
unit.
The Secretary may by regulation provide for the
determination of the excess under this clause
on a basis other than square foot costs.
``(4) 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).
``(5) 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 qualified census tract or
difficult development area--
``(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) Qualified census tract.--The term
`qualified census tract' means, with respect to
any period any census tract which is treated as
a qualified census tract under section
42(d)(5)(B).
``(iii) Difficult development areas.--The
term `difficult development areas' means any
census tract which is treated as a difficult
development area under section 42(d)(5)(B)
(determined without regard to clause (v)
thereof).
``(iv) 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.
The preceding sentence 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.
``(6) Credit allowable for certain buildings acquired
during 10-year period.--
``(A) In general.--Paragraph (2)(B)(ii) shall not
apply to any Federally-assisted building (as defined in
section 42(d)(6)(C)(i)) or State-assisted building (as
defined in section 42(d)(6)(C)(ii)).
``(B) Buildings acquired from insured depository
institutions in default.--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.
``(7) 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)
or (4) of subsection (d).
``(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) Exception.--In the case of a building
acquired by the taxpayer from a governmental unit, at
the election of the taxpayer, subparagraph (A)(ii)(I)
shall not apply and the credit under this section for
such rehabilitation expenditures shall be determined
using the percentage under subsection (b) which is
applicable to buildings which are Federally subsidized.
``(C) 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)(5) 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,
``(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, or
``(C) who are involved in artistic or literary
activities.
``(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 $1,500,000
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.--
``(i) In general.--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.
``(ii) Buildings financed by tax-exempt
bonds.--If paragraph (9) applies to any
building the amount of credit allowed in any
taxable year may not exceed the amount
necessary to support the applicable fraction
specified in the extended low-income housing
commitment for such building. Such commitment
may be amended to increase such fraction.
``(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--
``(I) on the date the building is
acquired by foreclosure (or instrument
in lieu of foreclosure) unless the
Secretary determines that such
acquisition is part of an arrangement
with the taxpayer a purpose of which is
to terminate such period, or
``(II) on the last day of the
period specified in subparagraph (I) if
the housing credit agency is unable to
present during such period a qualified
contract for the acquisition of the
middle-income portion of the building
by any person who will continue to
operate such portion as a qualified
middle-income building.
Subclause (II) shall no apply to the extent
more stringent requirements are provided in the
agreement or in State law.
``(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) Qualified contract.--For purposes of
subparagraph (E), the term `qualified contract' means a
bona fide contract to acquire (within a reasonable
period after the contract is entered into) the
nonmiddle-income portion of the building for fair
market value and the middle-income portion of the
building for an amount not less than the applicable
fraction (specified in the extended middle-income
housing commitment) of--
``(i) the sum of--
``(I) the outstanding indebtedness
secured by, or with respect to, the
building,
``(II) the adjusted investor equity
in the building, plus
``(III) other capital contributions
not reflected in the amounts described
in subclause (I) or (II), reduced by
``(ii) cash distributions from (or
available for distribution from) the project.
The Secretary shall prescribe such regulations as may
be necessary or appropriate to carry out this
paragraph, including regulations to prevent the
manipulation of the amount determined under the
preceding sentence.
``(G) Adjusted investor equity.--
``(i) In general.--For purposes of
subparagraph (F), the term `adjusted investor
equity' means, with respect to any calendar
year, the aggregate amount of cash taxpayers
invested with respect to the project increased
by the amount equal to--
``(I) such amount, multiplied by
``(II) the cost-of-living
adjustment for such calendar year,
determined under section 1(f)(3) by
substituting the base calendar year for
`calendar year 2016' in subparagraph
(A)(ii) thereof.
An amount shall be taken into account as an
investment in the project only to the extent
there was an obligation to invest such amount
as of the beginning of the credit period and to
the extent such amount is reflected in the
adjusted basis of the project.
``(ii) Cost-of-living increases in excess
of 5 percent not taken into account.--Under
regulations prescribed by the Secretary, if the
C-CPI-U for any calendar year (as defined in
section 1(f)(6)) exceeds the C-CPI-U for the
preceding calendar year by more than 5 percent,
the C-CPI-U for the base calendar year shall be
increased such that such excess shall never be
taken into account under clause (i). In the
case of a base calendar year before 2017, the
C-CPI-U for such year shall be determined by
multiplying the CPI for such year by the amount
determined under section 1(f)(3)(B).
``(iii) Base calendar year.--For purposes
of this subparagraph, the term `base calendar
year' means the calendar year with or within
which the 1st taxable year of the credit period
ends.
``(H) Middle-income portion.--For purposes of this
paragraph, the middle-income portion of a building is
the portion of such building equal to the applicable
fraction specified in the extended middle-income
housing commitment for the building.
``(I) Period for finding buyer.--The period
referred to in this subparagraph is the 1-year period
beginning on the date (after the 14th year of the
credit period) the taxpayer submits a written request
to the housing credit agency to find a person to
acquire the taxpayer's interest in the low-income
portion of the building.
``(J) 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.
``(K) 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) Transitional housing for
homeless.--For purposes of subclause
(I), a unit shall be considered to be
used other than on a transient basis if
the unit contains sleeping
accommodations and kitchen and bathroom
facilities and is located in a
building--
``(aa) which is used
exclusively to facilitate the
transition of homeless
individuals (within the meaning
of section 103 of the Stewart
B. McKinney Homeless Assistance
Act (42 U.S.C. 11302), as in
effect on the date of the
enactment of this clause) to
independent living within 24
months, and
``(bb) in which a
governmental entity or
qualified nonprofit
organization (as defined in
subsection (h)(4)) provides
such individuals with temporary
housing and supportive services
designed to assist such
individuals in locating and
retaining permanent housing.
``(III) 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.
``(IV) 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) Certain students not to disqualify unit.--A
unit shall not fail to be treated as a middle-income
unit merely because it is occupied--
``(i) by an individual who is--
``(I) a student and receiving
assistance under title IV of the Social
Security Act,
``(II) a student who was previously
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
``(III) enrolled in a job training
program receiving assistance under the
Job Training Partnership Act or under
other similar Federal, State, or local
laws, or
``(ii) entirely by full-time students if
such students are--
``(I) single parents and their
children and such parents are not
dependents (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
dependents (as so defined) of another
individual other than a parent of such
children, or
``(II) married and file a joint
return.
``(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 right of 1st refusal 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 a right of 1st refusal held by the tenants
(in cooperative form or otherwise) or resident
management corporation of such building or by a
qualified nonprofit organization (as defined in
subsection (h)(4)(C)) or government agency to purchase
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 sum of--
``(i) 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), and
``(ii) all Federal, State, and local taxes
attributable to such sale.
Except in the case of Federal income taxes, there shall
not be taken into account under clause (ii) any
additional tax attributable to the application of
clause (ii).
``(6) Impact of purchase 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 a purchase option held by the tenants (in
cooperative form or otherwise) or resident management
corporation of such building or by a qualified
nonprofit organization (as defined in subsection
(h)(4)(C)) 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)--
``(i) In general.--Except as provided in
clause (ii), the minimum purchase price is the
amount determined under paragraph (5)(B).
``(ii) Partnership interests.--In the case
of a purchase of all of the partnership
interests relating to a property, 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
paragraph (5)(B) without regard to this
sentence.
``(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.
``(D) Application to S corporations and other pass-
through entities.--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.
``(7) 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. The preceding sentence
shall not apply with respect to any building if paragraph (1)
of section 42(h) does not apply by reason of paragraph (9)
thereof to any portion of the credit determined under this
section with respect to such building.
``(8) 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) Election to reduce eligible basis by proceeds
of obligations.--A tax-exempt obligation shall not be
taken into account under subparagraph (A) if the
taxpayer elects to exclude from the eligible basis of
the building for purposes of subsection (d) the
proceeds of such obligation.
``(C) 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.
``(9) 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 (as defined in subsection (h)(4)), 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)(i)
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 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) of
the Internal Revenue Code of 1986 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 middle-income housing credit determined under
section 42A(a).''.
(c) Reduction in Basis.--Section 1016(a) of the Internal Revenue
Code of 1986 is amended--
(1) by striking ``and'' at the end of paragraph (37),
(2) by redesignating paragraph (38) as paragraph (39), and
(3) by inserting after paragraph (37) the following new
paragraph:
``(38) to the extent provided in section 42A(i)(9), and''.
(d) Treatment Under Base Erosion Minimum Tax .--Section 59A(b)(3)
of the Internal Revenue Code of 1986, as amended by Public Law 119-21,
is amended by redesignating subparagraphs (B) and (C) as subparagraphs
(C) and (D), respectively, and by inserting after subparagraph (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) of the Internal Revenue Code of 1986 is
amended--
(1) by striking ``including regulations--'' in the matter
preceding paragraph (1) and inserting ``including--'',
(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 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) of the Internal Revenue Code of 1986 is
amended by inserting ``or 42A'' after ``42''.
(2) Section 50(c)(3)(C) of such Code is amended by
inserting ``or 42A'' after ``42''.
(3) Section 55(c)(1) of such Code 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 of such Code 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 of such Code 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.
<all>