[Congressional Record Volume 143, Number 67 (Tuesday, May 20, 1997)]
[Senate]
[Pages S4767-S4770]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               DISTRICT OF COLUMBIA ECONOMIC RECOVERY ACT

 Mr. MACK. Mr. President, last Thursday, I, along with Senators 
Lieberman and Brownback, reintroduced the District of Columbia Economic 
Recovery Act (S. 753). I now ask that the text of this bill be printed 
in the Record.
  The text of the bill follows:

                                 S. 753

       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 ``District of Columbia 
     Economic Recovery Act''.

     SEC. 2. SPECIAL RULES FOR TAXATION OF INDIVIDUALS WHO ARE 
                   RESIDENTS OF OR INVESTORS IN THE DISTRICT OF 
                   COLUMBIA.

       (a) In General.--Subchapter A of chapter 1 of the Internal 
     Revenue Code of 1986 (relating to determination of tax 
     liability) is amended by adding at the end the following new 
     part:

    ``PART VIII--SPECIAL RULES FOR TAXATION OF INDIVIDUALS WHO ARE 
         RESIDENTS OF OR INVESTORS IN THE DISTRICT OF COLUMBIA

``Sec. 59B. Limitation on tax imposed on residents of the District of 
              Columbia.
``Sec. 59C. Taxation of capital gains sourced in the District of 
              Columbia.

     ``SEC. 59B. LIMITATION ON TAX IMPOSED ON RESIDENTS OF THE 
                   DISTRICT OF COLUMBIA.

       ``(a) General Rule.--If a taxpayer elects the application 
     of this section, the net income tax of an individual who is a 
     resident of the District of Columbia for the taxable year 
     shall not exceed the limitation determined under subsection 
     (b) for such year.
       ``(b) Limitation.--
       ``(1) In general.--The limitation determined under this 
     subsection is the sum of the following amounts:
       ``(A) 15-percent rate.--15 percent of so much of District-
     sourced income as exceeds the exemption amount.
       ``(B) Average rate.--An amount equal to the average rate of 
     the non-District-sourced adjusted gross income.
       ``(2) District-sourced capital gains.--

  ``For exclusion from tax of capital gains, see section 59C.

       ``(c) Definitions.--For purposes of this section--
       ``(1) Resident of district of columbia.--An individual is a 
     resident of the District of Columbia for the taxable year 
     if--
       ``(A) such individual used a residence in the District of 
     Columbia as a place of abode (and was physically present at 
     such place) for at least 183 days of such taxable year, and
       ``(B) such individual is subject to the District of 
     Columbia income tax for such taxable year.
       ``(2) Net income tax.--The term `net income tax' means--
       ``(A) the sum of regular tax liability and the tax imposed 
     by section 55 (determined without regard to this section), 
     reduced by
       ``(B) the aggregate credits allowable under part IV (other 
     than section 31).
       ``(3) Exemption amount.--The term `exemption amount' 
     means--
       ``(A) $30,000 in the case of a joint return or a surviving 
     spouse,
       ``(B) $15,000 in the case of--
       ``(i) an individual who is not a married individual and is 
     not a surviving spouse, and
       ``(ii) a married individual filing a separate return, and
       ``(C) $25,000 in the case of a head of a household.
       ``(4) Average rate.--The term `average rate' means the 
     percentage determined by dividing--
       ``(A) the sum (determined without regard to this section) 
     of the taxpayer's regular tax liability and the tax imposed 
     by section 55, by
       ``(B) the taxpayer's taxable income.

     If the percentage determined under the preceding sentence is 
     not a whole number of percentage points, such percentage 
     shall be rounded to the nearest whole number of percentage 
     points.
       ``(5) Regular tax liability.--The term `regular tax 
     liability' has the meaning given to such term by section 
     26(b).
       ``(d) District-Sourced Income.--For purposes of this 
     section, the term `District-sourced income' means adjusted 
     gross income reduced by the sum of--
       ``(1) non-District-sourced adjusted gross income,
       ``(2) the deduction allowed by section 170, and
       ``(3) the deduction allowed by section 163 to the extent 
     attributable to qualified residence interest (as defined in 
     section 163(h)).
       ``(e) Non-District-Sourced Adjusted Gross Income.--For 
     purposes of this section, the term `non-District-sourced 
     adjusted gross income' means gross income of the taxpayer 
     from sources outside the District of Columbia reduced (but 
     not below zero) by the deductions taken into account in 
     determining adjusted gross income which are allocable to such 
     income.
       ``(f) Sources of Income.--For purposes of this section--
       ``(1) Retirement income and other income not sourced under 
     subsection.--The source of any income not specifically 
     provided for in this subsection shall be treated as from 
     sources within the District of Columbia.
       ``(2) Personal services.--
       ``(A) In general.--Compensation (other than retirement 
     income) for services performed by the taxpayer as an 
     employee, and net earnings from self-employment (as defined 
     in section 1402)), shall be sourced at the place such 
     services are performed.
       ``(B) Services performed in washington-baltimore area 
     treated as performed in the district of columbia.--Services 
     performed in the Washington-Baltimore area shall be treated 
     as performed in the District of Columbia.
       ``(C) Individuals performing 80 percent of services within 
     washington-baltimore area.--If, during any taxable year, at 
     least 80 percent of the hours of service performed by an 
     individual are performed within the Washington-Baltimore 
     area, all such service shall be treated for purposes of this 
     paragraph as performed within the District of Columbia.
       ``(D) Washington-baltimore area.--For purposes of this 
     paragraph, the term `Washington-Baltimore area' means the 
     area consisting of--
       ``(i) the Washington/Baltimore Consolidated Metropolitan 
     Statistical Area (as designated by the Office of Management 
     and Budget), and
       ``(ii) St. Mary's County, Maryland.
       ``(3) Interest.--
       ``(A) In general.--Interest received or accrued during the 
     taxable year shall be treated as from sources outside the 
     District of Columbia.
       ``(B) Exception for small amounts of non-district-sourced 
     interest.--Interest which would (but for this subparagraph) 
     be treated as from sources outside the District of Columbia 
     shall be treated as from sources in the District of Columbia 
     to the extent the amount of such interest does not exceed 
     $400.
       ``(C) Exception for interest paid by district of columbia 
     businesses and residents.--
       ``(i) Businesses.--In the case of interest paid during a 
     calendar year by a debtor which was required to file (and 
     filed) a franchise tax return with the District of Columbia 
     for the debtor's taxable year ending with or within the prior 
     calendar year, an amount equal to the D.C. percentage (as 
     shown on such return) of such interest shall be treated as 
     from sources within the District of Columbia. The preceding 
     sentence shall apply only if such percentage is furnished to 
     the taxpayer in writing on or before January 31 of the year 
     following the calendar year in which such interest is paid.
       ``(ii) Others.--Interest shall be treated as from sources 
     within the District of Columbia if the interest is paid 
     during a calendar year by a debtor--

       ``(I) which was required to file (and filed) an income tax 
     return with the District of Columbia for the debtor's taxable 
     year ending with or within the prior calendar year, and
       ``(II) which is not required to file a franchise tax return 
     with the District of Columbia for such taxable year.

       ``(D) Special rule for determination of d.c. percentage for 
     new businesses.--Interest shall be treated as from sources 
     within the District of Columbia if the interest is paid 
     during a calendar year by a debtor which was required to file 
     (and filed) a franchise tax return with the District of 
     Columbia for such debtor's taxable year ending with or within 
     such calendar year, but which was not required to file such a 
     return for such debtor's prior taxable year.
       ``(4) Dividends.--
       ``(A) In general.--Dividends received or accrued during the 
     taxable year shall be

[[Page S4768]]

     treated as from sources outside the District of Columbia.
       ``(B) Exception for small amounts of non-district-sourced 
     dividends.--Dividends which would (but for this subparagraph) 
     be treated as from sources outside the District of Columbia 
     shall be treated as from sources in the District of Columbia 
     to the extent the amount of such dividends do not exceed 
     $400.
       ``(C) Exception for dividends paid by corporation engaged 
     in business in the district of columbia.--In the case of 
     dividends paid during a calendar year by a corporation which 
     was required to file (and filed) a franchise tax return with 
     the District of Columbia for the corporation's taxable year 
     ending with or within the prior calendar year, an amount 
     equal to the D.C. percentage (as shown on such return) of 
     such dividends shall be treated as from sources within the 
     District of Columbia. The preceding sentence shall apply only 
     if such percentage is furnished to the taxpayer in writing on 
     or before January 31 of the year following the calendar year 
     in which such dividends are paid.
       ``(D) Special rule for determination of d.c. percentage for 
     new businesses.--Dividends shall be treated as from sources 
     within the District of Columbia if the dividends are paid 
     during a calendar year by a corporation which was required to 
     file (and filed) a franchise tax return with the District of 
     Columbia for such corporation's taxable year ending with or 
     within such calendar year, but which was not required to file 
     such a return for such corporation's prior taxable year.
       ``(5) Disposition of tangible property.--Income, gain, or 
     loss from the disposition of tangible property shall be 
     sourced to the place such property is located at the time of 
     the disposition.
       ``(6) Disposition of intangible property.--
       ``(A) In general.--Income, gain, or loss from the 
     disposition of intangible property shall be treated as from 
     sources outside the District of Columbia.
       ``(B) Exception.-- If any portion of the most recent income 
     received or accrued by the taxpayer before such disposition 
     which was attributable to such property was from sources 
     within the District of Columbia, a like portion of the 
     income, gain, or loss from such disposition shall be treated 
     as from sources within the District of Columbia.
       ``(7) Rentals.--Rents from property shall be sourced at the 
     place where such property is located.
       ``(8) Royalties.--Royalties shall be treated as from 
     sources outside the District of Columbia.
       ``(9) Income from proprietorship.--
       ``(A) In general.--In the case of a trade or business 
     carried on by the taxpayer as a proprietorship, income from 
     such trade or business (other than income which is included 
     in net earnings from self-employment by the taxpayer) shall 
     be treated as from sources outside the District of Columbia.
       ``(B) Exception for district of columbia businesses.--If 
     the taxpayer is required to file (and files) a franchise tax 
     return with the District of Columbia for the taxable year, 
     subparagraph (A) shall not apply to an amount equal to the 
     D.C. percentage of such income.
       ``(10) Income from partnership.--
       ``(A) In general.--In the case of a taxpayer who is a 
     partner in a partnership, income from such partnership (other 
     than income which is included in net earnings from self-
     employment by any partner) shall be treated as from sources 
     outside the District of Columbia.
       ``(B) Exceptions.--Subparagraph (A) shall not apply to a 
     partnership--
       ``(i) which was required to file (and filed) a franchise 
     tax return with the District of Columbia for the 
     partnership's taxable year ending with or within the 
     taxpayer's taxable year to the extent of the D.C. percentage 
     of the taxpayer's distributive share of the partnership 
     income, or
       ``(ii) which was not required to file a franchise tax 
     return with the District of Columbia for the partnership's 
     taxable year ending with or within the taxpayer's taxable 
     year to the extent of the taxpayer's distributive share of 
     partnership income which is not (as determined under this 
     subsection) from sources outside the District of Columbia.
       ``(11) Income in respect of a decedent; income from an 
     estate.--Income in respect of a decedent, and income from an 
     estate, shall be sourced at the place where the decedent was 
     domiciled at the time of his death.
       ``(12) Income from a trust.--Income (other than retirement 
     income) from a trust shall be treated as from the same 
     sources as the income of the trust to which it is 
     attributable.
       ``(g) Definitions Relating to Subsection (f).--For purposes 
     of subsection (f)--
       ``(1) Retirement income.--The term `retirement income' has 
     the meaning given such term by section 114(b)(1) of title 4, 
     United States Code (determined without regard to subparagraph 
     (I) thereof).
       ``(2) D.C. percentage.--The term `D.C. percentage' means 
     the percentage determined by dividing--
       ``(A) the net income taxable in the District of Columbia 
     (as shown on the original return for the taxable year), by
       ``(B) total net income from all sources (as shown on such 
     return).

     The preceding sentence shall be applied based on amounts 
     shown on the original applicable District of Columbia 
     franchise or income tax return.
       ``(h) Section Not To Apply to Estates and Trusts.--This 
     section shall not apply to an estate or trust.
       ``(i) Election.--The election provided in subsection (a) 
     shall be made at such time and in such manner as the 
     Secretary may by regulations prescribe. Any such election 
     shall apply to the first taxable year for which such election 
     was made and for each taxable year thereafter until such 
     election is revoked by the taxpayer.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.

     ``SEC. 59C. EXCLUSION OF CAPITAL GAINS SOURCED IN THE 
                   DISTRICT OF COLUMBIA.

       ``(a) Exclusion.--
       ``(1) General rule.--Except as provided in paragraph (2), 
     in the case of a taxpayer who is an individual, gross income 
     shall not include any qualified capital gain recognized on 
     the sale or exchange of a District asset held for more than 3 
     years.
       ``(2) Exception for certain gain of nonresidents.--In the 
     case of a taxpayer who is not a resident of the District of 
     Columbia for any taxable year, gross income shall not include 
     50 percent of the qualified capital gain recognized on the 
     sale or exchange of residential rental property (within the 
     meaning of section 168(e)(2)(A)) which is a District asset 
     held for more than 3 years and which is not taken into 
     account under section 1202.
       ``(b) District Asset.--For purposes of this section--
       ``(1) In general.--The term `District asset' means--
       ``(A) any District stock,
       ``(B) any District business property,
       ``(C) any District partnership interest, and
       ``(D) any principal residence (within the meaning of 
     section 1034).
       ``(2) District stock.--
       ``(A) In general.--The term `District stock' means any 
     stock in a domestic corporation if--
       ``(i) such stock is acquired by the taxpayer on original 
     issue from the corporation solely in exchange for cash,
       ``(ii) as of the time such stock was issued, such 
     corporation was a District business (or, in the case of a new 
     corporation, such corporation was being organized for 
     purposes of being a District business), and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such stock, such corporation qualified as a 
     District business.
       ``(B) Redemptions.--The term `District stock' shall not 
     include any stock acquired from a corporation which made a 
     substantial stock redemption or distribution (without a bona 
     fide business purpose therefor) in an attempt to avoid the 
     purposes of this section.
       ``(3) District business property.--
       ``(A) In general.--The term `District business property' 
     means tangible property if--
       ``(i) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)),
       ``(ii) the original use of such property in the District of 
     Columbia commences with the taxpayer, and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such property, substantially all of the use of 
     such property was in a District business of the taxpayer.
       ``(B) Special rule for substantial improvements.--
       ``(i) In general.--The requirements of clauses (i) and (ii) 
     of subparagraph (A) shall be treated as satisfied with 
     respect to--

       ``(I) property which is substantially improved by the 
     taxpayer, and

       ``(II) any land on which such property is located.

       ``(ii) Substantial improvement.--For purposes of clause 
     (i), property shall be treated as substantially improved by 
     the taxpayer if, during any 24-month period beginning after 
     the date of the enactment of this section, additions to basis 
     with respect to such property in the hands of the taxpayer 
     exceed the greater of--

       ``(I) an amount equal to the adjusted basis at the 
     beginning of such 24-month period in the hands of the 
     taxpayer, or
       ``(II) $5,000.

       ``(C) Limitation on land.--The term `District business 
     property' shall not include land which is not an integral 
     part of a District business.
       ``(4) District partnership interest.--The term `District 
     partnership interest' means any interest in a partnership 
     if--
       ``(A) such interest is acquired by the taxpayer from the 
     partnership solely in exchange for cash,
       ``(B) as of the time such interest was acquired, such 
     partnership was a District business (or, in the case of a new 
     partnership, such partnership was being organized for 
     purposes of being a District business), and
       ``(C) during substantially all of the taxpayer's holding 
     period for such interest, such partnership qualified as a 
     District business.

     A rule similar to the rule of paragraph (2)(B) shall apply 
     for purposes of this paragraph.
       ``(5) Treatment of subsequent purchasers.--The term 
     `District asset' includes any property which would be a 
     District asset but for paragraph (2)(A)(i), (3)(A)(ii), or 
     (4)(A) in the hands of the taxpayer if such property was a 
     District asset in the hands of all prior holders.
       ``(6) 10-year safe harbor.--If any property ceases to be a 
     District asset by reason of paragraph (2)(A)(iii), 
     (3)(A)(iii), or (4)(C) after the 10-year period beginning on 
     the date the taxpayer acquired such property, such property 
     shall continue to be treated as meeting

[[Page S4769]]

     the requirements of such paragraph; except that the amount of 
     gain to which subsection (a) applies on any sale or exchange 
     of such property shall not exceed the amount which would be 
     qualified capital gain had such property been sold on the 
     date of such cessation.
       ``(c) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Qualified capital gain.--Except as otherwise provided 
     in this subsection, the term `qualified capital gain' means 
     any long-term capital gain recognized on the sale or exchange 
     of a District asset held for more than 3 years.
       ``(2) Certain gain on real property not qualified.--The 
     term `qualified capital gain' shall not include any gain 
     which would be treated as ordinary income under section 1250 
     if section 1250 applied to all depreciation rather than the 
     additional depreciation.
       ``(3) District business.--The term `District business' 
     means, with respect to any taxable year, any individual, 
     partnership, or corporation if for such year either--
       ``(A)(i) at least 50 percent of the total gross income of 
     such individual, partnership, or corporation is derived from 
     the active conduct of a trade or business in the District of 
     Columbia,
       ``(ii) substantially all of the use of the tangible 
     property of such individual, partnership, or corporation 
     (whether owned or leased) is within the District of Columbia, 
     and
       ``(iii) at least 35 percent of the employees of such 
     individual, partnership, or corporation are located in the 
     District of Columbia, or
       ``(B) at least 50 percent of the employees of such 
     individual, partnership, or corporation are located in the 
     District of Columbia.
       ``(d) Treatment of Pass-Thru Entities.--
       ``(1) Sales and exchanges.--Gain on the sale or exchange of 
     an interest in a pass-thru entity held by the taxpayer (other 
     than an interest in an entity which was a District business 
     during substantially all of the period the taxpayer held such 
     interest) for more than 3 years shall be treated as gain 
     described in subsection (a) to the extent such gain is 
     attributable to amounts which would be qualified capital gain 
     on District assets (determined as if such assets had been 
     sold on the date of the sale or exchange) held by such entity 
     for more than 3 years and throughout the period the taxpayer 
     held such interest. A rule similar to the rule of paragraph 
     (2)(B) shall apply for purposes of the preceding sentence.
       ``(2) Income inclusions.--
       ``(A) In general.--Any amount included in income by reason 
     of holding an interest in a pass-thru entity (other than an 
     entity which was a District business during substantially all 
     of the period the taxpayer held the interest to which such 
     inclusion relates) shall be treated as gain described in 
     subsection (a) if such amount meets the requirements of 
     subparagraph (B).
       ``(B) Requirements.--An amount meets the requirements of 
     this subparagraph if--
       ``(i) such amount is attributable to qualified capital gain 
     recognized on the sale or exchange by the pass-thru entity of 
     property which is a District asset in the hands of such 
     entity and which was held by such entity for the period 
     required under subsection (a), and
       ``(ii) such amount is includible in the gross income of the 
     taxpayer by reason of the holding of an interest in such 
     entity which was held by the taxpayer on the date on which 
     such pass-thru entity acquired such asset and at all times 
     thereafter before the disposition of such asset by such pass-
     thru entity.
       ``(C) Limitation based on interest originally held by 
     taxpayer.--Subparagraph (A) shall not apply to any amount to 
     the extent such amount exceeds the amount to which 
     subparagraph (A) would have applied if such amount were 
     determined by reference to the interest the taxpayer held in 
     the pass-thru entity on the date the District asset was 
     acquired.
       ``(3) Pass-thru entity.--For purposes of this subsection, 
     the term `pass-thru entity' means--
       ``(A) any partnership,
       ``(B) any S corporation,
       ``(C) any regulated investment company, and
       ``(D) any common trust fund.
       ``(e) Sales and Exchanges of Interests in Partnerships and 
     S Corporations Which Are District Businesses.--In the case of 
     the sale or exchange of an interest in a partnership, or of 
     stock in an S corporation, which was a District business 
     during substantially all of the period the taxpayer held such 
     interest or stock, the amount of qualified capital gain shall 
     be determined without regard to any intangible, and any land, 
     which is not an integral part of the District business.
       ``(f) Certain Tax-Free and Other Transfers.--For purposes 
     of this section--
       ``(1) In general.--In the case of a transfer of a District 
     asset to which this subsection applies, the transferee shall 
     be treated as--
       ``(A) having acquired such asset in the same manner as the 
     transferor, and
       ``(B) having held such asset during any continuous period 
     immediately preceding the transfer during which it was held 
     (or treated as held under this subsection) by the transferor.
       ``(2) Transfers to which subsection applies.--This 
     subsection shall apply to any transfer--
       ``(A) by gift,
       ``(B) at death, or
       ``(C) from a partnership to a partner thereof of a District 
     asset with respect to which the requirements of subsection 
     (d)(2) are met at the time of the transfer (without regard to 
     the 3-year holding requirement).
       ``(3) Certain rules made applicable.--Rules similar to the 
     rules of section 1244(d)(2) shall apply for purposes of this 
     section.''
       (b) Conforming Amendments.--
       (1) Section 55(c)(1) of the Internal Revenue Code of 1986 
     is amended by adding at the end the following: ``Such regular 
     tax shall be determined without regard to section 59B.''
       (2) The table of parts for subchapter A of chapter 1 of 
     such Code is amended by adding at the end the following new 
     item:

``Part VIII. Special rules for taxation of individuals who are 
              residents of or investors in the District of Columbia.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 3. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS WITHIN 
                   THE DISTRICT OF COLUMBIA.

       (a) In General.--Part VI of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to itemized 
     deductions for individuals and corporations) is amended by 
     adding at the end the following new section:

     ``SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS 
                   WITHIN THE DISTRICT OF COLUMBIA.

       ``(a) In General.--A taxpayer may elect to treat any 
     qualified environmental remediation expenditure which is paid 
     or incurred by the taxpayer as an expense which is not 
     chargeable to capital account. Any expenditure which is so 
     treated shall be allowed as a deduction for the taxable year 
     in which it is paid or incurred.
       ``(b) Qualified Environmental Remediation Expenditure.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified environmental 
     remediation expenditure' means any expenditure--
       ``(A) which is otherwise chargeable to capital account, and
       ``(B) which is paid or incurred in connection with the 
     abatement or control of hazardous substances at a qualified 
     contaminated site.
       ``(2) Special rule for expenditures for depreciable 
     property.--Such term shall not include any expenditure for 
     the acquisition of property of a character subject to the 
     allowance for depreciation which is used in connection with 
     the abatement or control of hazardous substances at a 
     qualified contaminated site; except that the portion of the 
     allowance under section 167 for such property which is 
     otherwise allocated to such site shall be treated as a 
     qualified environmental remediation expenditure.
       ``(c) Qualified Contaminated Site.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified contaminated site' 
     means any area within the District of Columbia--
       ``(A) which is held by the taxpayer for use in a trade or 
     business or for the production of income, or which is 
     property described in section 1221(1) in the hands of the 
     taxpayer, and
       ``(B) which contains (or potentially contains) any 
     hazardous substance.
       ``(2) Taxpayer must receive statement from environmental 
     agency.--An area shall be treated as a qualified contaminated 
     site with respect to expenditures paid or incurred during any 
     taxable year only if the taxpayer receives a statement from 
     the appropriate agency of the District of Columbia in which 
     such area is located that such area meets the requirements of 
     paragraph (1)(B).
       ``(3) Appropriate agency.-- For purposes of paragraph (2), 
     the appropriate agency of the District of Columbia is the 
     agency designated by the Administrator of the Environmental 
     Protection Agency for purposes of this section. If no agency 
     is designated under the preceding sentence, the appropriate 
     agency shall be the Environmental Protection Agency.
       ``(d) Hazardous substance.--For purposes of this section--
       ``(1) In general.--The term `hazardous substance' means--
       ``(A) any substance which is a hazardous substance as 
     defined in section 101(14) of the Comprehensive Environmental 
     Response, Compensation, and Liability Act of 1980, and
       ``(B) any substance which is designated as a hazardous 
     substance under section 102 of such Act.
       ``(2) Exception.--Such term shall not include any substance 
     with respect to which a removal or remedial action is not 
     permitted under section 104 of such Act by reason of 
     subsection (a)(3) thereof.
       ``(e) Deduction Recaptured as Ordinary Income on Sale, 
     Etc.--Solely for purposes of section 1245, in the case of 
     property to which a qualified environmental remediation 
     expenditure would have been capitalized but for this 
     section--
       ``(1) the deduction allowed by this section for such 
     expenditure shall be treated as a deduction for depreciation, 
     and
       ``(2) such property (if not otherwise section 1245 
     property) shall be treated as section 1245 property solely 
     for purposes of applying section 1245 to such deduction.
       ``(f) Coordination With Other Provisions.--Sections 280B 
     and 468 shall not apply to amounts which are treated as 
     expenses under this section.

[[Page S4770]]

       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''
       (b) Conforming Amendment.--The table of sections for part 
     VI of subchapter B of chapter 1 of the Internal Revenue Code 
     of 1986 is amended by adding at the end the following new 
     item:

``Sec. 198. Expensing of environmental remediation costs within the 
              District of Columbia.''

       (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. 4. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     nonrefundable personal credits) is amended by inserting after 
     section 23 the following new section:

     ``SEC. 24. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF 
                   COLUMBIA.

       ``(a) Allowance of Credit.--In the case of an individual 
     who is a first-time homebuyer of a principal residence in the 
     District of Columbia during any taxable year, there shall be 
     allowed as a credit against the tax imposed by this chapter 
     for the taxable year an amount equal to so much of the 
     purchase price of the residence as does not exceed $5,000.
       ``(b) First-Time Homebuyer.--For purposes of this section--
       ``(1) In general.--The term `first-time homebuyer' means 
     any individual if--
       ``(A) such individual (and if married, such individual's 
     spouse) had no present ownership interest in a principal 
     residence in the District of Columbia during the 1-year 
     period ending on the date of acquisition of the principal 
     residence to which this section applies, and
       ``(B) subsection (h) or (k) of section 1034 did not, on the 
     day before the close of such 1-year period, suspend the 
     running of any period of time specified in section 1034 for 
     such individual with respect to gain on a principal residence 
     in the District of Columbia.
       ``(2) One-time only.--If an individual is treated as a 
     first-time homebuyer with respect to any principal residence, 
     such individual may not be treated as a first-time homebuyer 
     with respect to any other principal residence.
       ``(3) Principal residence.--The term `principal residence' 
     has the meaning given such term by section 1034.
       ``(4) Date of acquisition.--The term `date of acquisition' 
     means the date--
       ``(A) on which a binding contract to acquire the principal 
     residence to which this section applies to is entered into, 
     or
       ``(B) on which construction or reconstruction of such 
     principal residence is commenced.
       ``(c) Carryover of Credit.--If the credit allowable under 
     subsection (a) exceeds the limitation imposed by section 
     26(a) for such taxable year reduced by the sum of the credits 
     allowable under this subpart (other than this section and 
     section 25), such excess shall be carried to the succeeding 
     taxable year and added to the credit allowable under 
     subsection (a) for such taxable year.
       ``(d) Special Rules.--For purposes of this section--
       ``(1) Allocation of dollar limitation.--
       ``(A) Married individuals filing jointly.--In the case of a 
     husband and wife who file a joint return under section 6013, 
     the $5,000 limitation under subsection (a) shall apply to the 
     joint return.
       ``(B) Married individuals filing separately.--In the case 
     of a married individual filing a separate return, subsection 
     (a) shall be applied by substituting `$2,500' for `$5,000'.
       ``(C) Other taxpayers.--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 $5,000.
       ``(2) Purchase.--The term `purchase' means any acquisition, 
     but only if--
       ``(A) the property is not acquired from a person whose 
     relationship to the person acquiring it would result in the 
     disallowance of losses under section 267 or 707(b) (but, in 
     applying section 267 (b) and (c) for purposes of this 
     section, paragraph (4) of section 267(c) shall be treated as 
     providing that the family of an individual shall include only 
     his spouse, ancestors, and lineal descendants), and
       ``(B) the basis of the property in the hands of the person 
     acquiring it 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).
       ``(3) Purchase price.--The term `purchase price' means the 
     adjusted basis of the principal residence on the date of 
     acquisition.''
       (b) Conforming Amendment.--The table of sections for 
     subpart A of part IV of subchapter A of chapter 1 of the 
     Internal Revenue Code of 1986 is amended by inserting after 
     the item relating to section 23 the following new item:

``Sec. 24. First-time homebuyer credit for District of Columbia.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to purchases after the date of the enactment of 
     this Act, in taxable years ending after such date.

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