Sec. 111. Rental vouchers for the homeless

Sec. 112. Land acquisition and construction

Sec. 113. Modular construction pilot program

Sec. 114. Supporting pro-housing development

Sec. 115. Permanent authorization of appropriations for McKinney-Vento Homeless Assistance Act grants

Section 408 of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11364) is amended to read as follows:

408. Authorization of appropriations

There are authorized to be appropriated to carry out this title such sums as may be necessary for each fiscal year.

Sec. 121. Rural housing reinvestment

Sec. 122. Permanent establishment of housing preservation and revitalization program

Title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.) is amended by adding at the end the following:

545. Housing preservation and revitalization program

(a) Establishment

The Secretary shall carry out a program under this section for the preservation and revitalization of multifamily rental housing projects financed under section 515 or both sections 514 and 516.

(b) Notice of maturing loans

(1) To owners

On an annual basis, the Secretary shall provide written notice to each owner of a property financed under section 515 or both sections 514 and 516 that will mature within the 4-year period beginning upon the provision of such notice, setting forth the options and financial incentives that are available to facilitate the extension of the loan term or the option to decouple a rental assistance contract pursuant to subsection (f).

(2) To tenants

(A) In general

For each property financed under section 515 or both sections 514 and 516, not later than the date that is 2 years before the date that such loan will mature, the Secretary shall provide written notice to each household residing in such property that informs them of the date of the loan maturity, the possible actions that may happen with respect to the property upon such maturity, and how to protect their right to reside in federally assisted housing after such maturity.

(B) Language

Notice under this paragraph shall be provided in plain English and shall be translated into other languages in the case of any property located in an area in which a significant number of residents speak such other languages.

(c) Loan restructuring

Under the program under this section, the Secretary may restructure such existing housing loans, as the Secretary considers appropriate, for the purpose of ensuring that such projects have sufficient resources to preserve the projects to provide safe and affordable housing for low-income residents and farm laborers, by—

(1)

reducing or eliminating interest;

(2)

deferring loan payments;

(3)

subordinating, reducing, or reamortizing loan debt; and

(4)

providing other financial assistance, including advances, payments, and incentives (including the ability of owners to obtain reasonable returns on investment) required by the Secretary.

(d) Renewal of rental assistance

When the Secretary offers to restructure a loan pursuant to subsection (c), the Secretary shall offer to renew the rental assistance contract under section 521(a)(2) for a 20-year term that is subject to annual appropriations, provided that the owner agrees to bring the property up to such standards that will ensure its maintenance as decent, safe, and sanitary housing for the full term of the rental assistance contract.

(e) Restrictive use agreements

(1) Requirement

As part of the preservation and revitalization agreement for a project, the Secretary shall obtain a restrictive use agreement that obligates the owner to operate the project in accordance with this title.

(2) Term

(A) No extension of rental assistance contract

Except when the Secretary enters into a 20-year extension of the rental assistance contract for the project, the term of the restrictive use agreement for the project shall be consistent with the term of the restructured loan for the project.

(B) Extension of rental assistance contract

If the Secretary enters into a 20-year extension of the rental assistance contract for a project, the term of the restrictive use agreement for the project shall be for 20 years.

(C) Termination

The Secretary may terminate the 20-year use restrictive use agreement for a project prior to the end of its term if the 20-year rental assistance contract for the project with the owner is terminated at any time for reasons outside the owner’s control.

(f) Decoupling of rental assistance

(1) Renewal of rental assistance contract

If the Secretary determines that a maturing loan for a project cannot reasonably be restructured in accordance with subsection (c) and the project was operating with rental assistance under section 521, the Secretary may renew the rental assistance contract, notwithstanding any provision of section 521, for a term, subject to annual appropriations, of at least 10 years but not more than 20 years.

(2) Rents

Any agreement to extend the term of the rental assistance contract under section 521 for a project shall obligate the owner to continue to maintain the project as decent, safe, and sanitary housing and to operate the development in accordance with this title, except that rents shall be based on the lesser of—

(A)

the budget-based needs of the project; or

(B)

the operating cost adjustment factor as a payment standard as provided under section 524 of the Multifamily Assisted Housing Reform and Affordability Act of 1997 (42 U.S.C. 1437 note).

(g) Multifamily housing transfer technical assistance

Under the program under this section, the Secretary may provide grants to qualified nonprofit organizations and public housing agencies to provide technical assistance, including financial and legal services, to borrowers under loans under this title for multifamily housing to facilitate the acquisition of such multifamily housing properties in areas where the Secretary determines there is a risk of loss of affordable housing.

(h) Transfer of rental assistance

After the loan or loans for a rental project originally financed under section 515 or both sections 514 and 516 have matured or have been prepaid and the owner has chosen not to restructure the loan pursuant to subsection (c), a tenant residing in such project shall have 18 months prior to loan maturation or prepayment to transfer the rental assistance assigned to the tenant’s unit to another rental project originally financed under section 515 or both sections 514 and 516, and the owner of the initial project may rent the tenant’s previous unit to a new tenant without income restrictions.

(i) Administrative expenses

Of any amounts made available for the program under this section for any fiscal year, the Secretary may use not more than $1,000,000 for administrative expenses for carrying out such program.

(j) Authorization of appropriations

There is authorized to be appropriated for the program under this section $200,000,000 for each of fiscal years 2026 through 2031.

Sec. 123. Eligibility for rural housing vouchers

Section 542 of the Housing Act of 1949 (42 U.S.C. 1490r) is amended by adding at the end the following:

(c) Eligibility of households in section 514, 515, and 516 projects

The Secretary may provide rural housing vouchers under this section for any low-income household (including those not receiving rental assistance) residing in a property financed with a loan made or insured under section 514 or 515 (42 U.S.C. 1484, 1485) which has been prepaid, has been foreclosed, or has matured after September 30, 2005, or residing in a property assisted under section 514 or 516 that is owned by a nonprofit organization or public agency.

Sec. 124. Amount of voucher assistance

Notwithstanding any other provision of law, in the case of any rural housing voucher provided pursuant to section 542 of the Housing Act of 1949 (42 U.S.C. 1490r), the amount of the monthly assistance payment for the household on whose behalf such assistance is provided shall be determined as provided in subsection (a) of such section 542.

Sec. 125. Use of available rental assistance

Section 521(d) of the Housing Act of 1949 (42 U.S.C. 1490a(d)) is amended by adding at the end the following:

(3)

In the case of any rental assistance contract authority that becomes available because of the termination of assistance on behalf of an assisted family—

(A)

at the option of the owner of the rental project, the Secretary shall provide the owner a period of 6 months before such assistance is made available pursuant to subparagraph (B) during which the owner may use such assistance authority to provide assistance on behalf of an eligible unassisted family that—

(i)

is residing in the same rental project that the assisted family resided in prior to such termination; or

(ii)

newly occupies a dwelling unit in such rental project during such period; and

(B)

except for assistance used as provided in subparagraph (A), the Secretary shall use such remaining authority to provide such assistance on behalf of eligible families residing in other rental projects originally financed under section 515 or both sections 514 and 516.

Sec. 126. Funding for multifamily technical improvements

There is authorized to be appropriated to the Secretary of Agriculture $50,000,000 for fiscal year 2026 for improving the technology of the Department of Agriculture used to process loans for multifamily housing and otherwise managing such housing. Such improvements shall be made within the 5-year period beginning upon the appropriation of such amounts and such amount shall remain available until the expiration of such 5-year period.

Sec. 127. Plan for preserving affordability of rental projects

(a) In general

Clause (ii) of section 42(h)(3)(C) of the Internal Revenue Code is amended—

(b) Per capita amount; minimum amount

Section 42(h)(3) of the Internal Revenue Code of 1986 is amended by striking subparagraphs (H) and (I) and inserting the following:

(H) Per capita amount

For purposes of subparagraph (C)(ii)(I), the per capita amount shall be determined as follows:

(i) Calendar year 2026

For calendar year, 2026, the per capita amount is $4.30.

(ii) Calendar year 2027

For calendar year 2027, the per capita amount is the product of—

(I)

1.25, and

(II)

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

(aa)

such dollar amount, multiplied by

(bb)

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

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

(iii) Calendar years after 2027

In the case of any calendar year after 2027, the per capita amount is the dollar amount determined under clause (ii) increased by an amount equal to—

(I)

such dollar amount, multiplied by

(II)

the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2026 for calendar year 2016 in subparagraph (A)(ii) thereof.

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

(I) Minimum amount

For purposes of subparagraph (C)(ii)(II), the minimum amount shall be determined as follows:

(i) Calendar year 2026

For calendar year, 2026, the minimum amount is $4,965,000.

(ii) Calendar year 2027

For calendar year 2027, the minimum amount is the product of—

(I)

1.25, and

(II)

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

(aa)

such dollar amount, multiplied by

(bb)

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

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

(iii) Calendar years after 2027

In the case of any calendar year after 2027, the minimum amount is the dollar amount determined under clause (ii) increased by an amount equal to—

(I)

such dollar amount, multiplied by

(II)

the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2026 for calendar year 2016 in subparagraph (A)(ii) thereof.

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

(c) Effective date

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

(a) Reserved State allocation

(b) Increase in credit

Paragraph (5) of section 42(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

(C) Increase in credit for buildings designated to serve extremely low-income households

(i) In general

In the case of any building—

(I)

which is described in subsection (h)(6)(B), and

(II)

which is designated by the housing credit agency as requiring the increase in credit under this subparagraph in order for such building to be financially feasible as part of a qualified low-income housing project,

subparagraph (B) shall not apply to the portion of such building which is comprised of residential units described in subsection (h)(6)(B) (determined in a manner similar to the unit fraction under subsection (c)(1)(C)), and the eligible basis of such portion of the building shall be 150 percent of such basis determined without regard to this subparagraph.

(ii) Allocation rules applicable to projects to which clause (i) applies

(I) State housing credit ceiling

For any calendar year, no more than 13 percent of the portion of the State housing credit ceiling described in subsection (h)(3)(C)(ii) shall be allocated to buildings to which clause (i) applies.

(II) Application to projects financed with tax-exempt bonds

In the case of any building which is financed by an obligation described in subsection (h)(4), clause (i) shall not apply unless—

(aa)

the State in which the issuing authority issuing such obligation is located designates such obligation as an obligation to which this subparagraph applies, and

(bb)

the aggregate face amount of obligations designated under item (aa) by such State in the calendar year during which such obligation is issued does not exceed 8 percent of the State ceiling of such State under section 146(d)(1) for such year.

(c) Effective date

The amendments made by this section shall apply to allocations of housing credit dollar amount after December 31, 2026, and to buildings that are described in section 42(h)(4)(B) of the Internal Revenue Code of 1986 taking into account only obligations that are part of an issue the issue date of which is after December 31, 2026.

(a) In general

Subclause (I) of section 42(d)(5)(B)(iii) of the Internal Revenue Code of 1986 is amended by inserting before the period the following: , and any Indian area.

(b) Indian area

Clause (iii) of section 42(d)(5)(B) of the Internal Revenue Code of 1986 is amended by redesignating subclause (II) as subclause (IV) and by inserting after subclause (I) the following new subclauses:

(II) Indian area

For purposes of subclause (I), the term Indian area means—

(aa)

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

(bb)

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

(III) Special rule for buildings in Indian areas

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

(c) Effective date

The amendments made by this section shall apply to buildings placed in service after December 31, 2026.

(a) In general

Subclause (I) of section 42(d)(5)(B)(iii) of the Internal Revenue Code of 1986, as amended by section 203, is further amended by inserting , any rural area after median gross income.

(b) Rural area

Clause (iii) of section 42(d)(5)(B) of the Internal Revenue Code of 1986, as amended by section 203, is further amended by redesignating subclause (IV) as subclause (V) and by inserting after subclause (III) the following new subclause:

(IV) Rural area

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

(c) Effective date

The amendments made by this section shall apply to buildings placed in service after December 31, 2026.

(a) In general

Clause (v) of section 42(d)(5)(B) of the Internal Revenue Code of 1986 is amended by striking the second sentence.

(b) Technical amendments

Clause (v) of section 42(d)(5)(B) of the Internal Revenue Code of 1986, as amended by subsection (a), is further amended—

(c) Effective date

(a) Termination of option for certain buildings

(b) Rules relating to existing projects

Subparagraph (F) of section 42(h)(7) of the Internal Revenue Code of 1986, as redesignated by section 202, is amended by striking the nonlow-income portion and all that follows and inserting the nonlow-income portion and the low-income portion of the building for fair market value (determined by the housing credit agency by taking into account the rent restrictions required for the low-income portion of the building to continue to meet the standards of paragraphs (1) and (2) of subsection (g)). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph..

(c) Conforming amendments

(d) Technical amendment

Subparagraph (I) of section 42(h)(7) of the Internal Revenue Code of 1986, as redesignated by section 202 and subsection (c), is amended by striking agreement and inserting commitment.

(e) Effective dates

(a) Modification of right of first refusal

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

(c) Other conforming amendment

Subparagraph (B) of section 42(i)(7) of the Internal Revenue Code of 1986, as amended by subsection (b), is amended by striking the sum of and all that follows through application of clause (ii). and inserting the following: the principal amount of outstanding indebtedness secured by the building (other than indebtedness incurred within the 5-year period ending on the date of the sale to the tenants)..

(d) Effective dates

(a) In general

Paragraph (1) of section 42(m) of the Internal Revenue Code of 1986 is amended—

(b) Effective date

The amendments made by this section shall apply to allocations of housing credit dollar amounts made after December 31, 2026.

(a) In general

Paragraph (5) of section 42(d) of the Internal Revenue Code of 1986, as amended by section 202, is further amended by adding at the end the following new subparagraphs:

(D) Increase in credit for providing supportive services

(i) In general

In the case of any building which includes common areas, or property used therein, dedicated to the provision of on-site qualified supportive services, except as provided in subparagraphs (E) and (F), the eligible basis of the portion of the building which is comprised of such areas or property (after the application of subparagraphs (A) and (B)) shall be increased by an amount equal to 50 percent of such basis determined without regard to this subparagraph and subparagraphs (B) and (C).

(ii) Qualified supportive services

For purposes of clause (i), the term qualified supportive services means services—

(I)

provided by the owner of a building (directly or through contracts with third-party service providers) primarily to tenants of the building,

(II)

which are intended to promote economic self-sufficiency and physical and mental health and well-being in pursuit of retaining permanent housing, including childcare or eldercare services, health services, coordination of tenant benefits, job training, financial counseling, resident engagement services, or such other similar services as may be defined by the allocating agency in the qualified allocation plan,

(III)

which are provided to tenants and other beneficiaries as may be specified by the housing credit agency, including specifications as to which services may be provided to non-tenants,

(IV)

which are provided at no cost to beneficiaries other than any fee, copay, or coinsurance customarily charged by service providers for similar services, and

(V)

usage of or participation in which is not a condition of tenancy in the building.

Such term includes reasonable and necessary measures for the provision of such services, including measures to engage tenants and other beneficiaries in and coordinate such services, and measures required to obtain the certification described in subparagraph (E)(ii)(III).

(E) Extended supportive services commitment

(i) In general

Subparagraph (D)(i) shall not apply to a building for any taxable year unless an extended supportive services commitment is in effect for such taxable year.

(ii) Extended supportive services commitment

The term extended supportive services commitment means any agreement between the owner of a building and the housing credit agency which—

(I)

provides estimates of the amounts to be spent, updated at least once every 5 years, on the provision of qualified supportive services to tenants of such building and other beneficiaries for each taxable year remaining in the credit period,

(II)

requires the designation of one or more individuals to engage tenants regarding, and coordinate delivery of, qualified supportive services,

(III)

requires the maintenance of an appropriate certification, as determined by the Secretary in consultation with the housing credit agencies, for qualified supportive services, subject to recertification at least once every 5 years,

(IV)

requires appropriate annual reporting to the housing credit agency on expenditures and outcomes, as determined by such agency, and

(V)

is binding on all successors in ownership of such building.

(iii) Exceptions if foreclosure or if no buyer willing to maintain services

The requirement of clause (ii)(V) for any building shall terminate on the date the building is acquired by foreclosure (or instrument in lieu of foreclosure) unless the housing credit agency determines that such acquisition is part of an arrangement with the taxpayer a purpose of which is to terminate such requirement.

(iv) Effect of noncompliance

If, during a taxable year, there is a determination by the housing credit agency that an extended supportive services commitment was not in effect as of the beginning of such year or that there is evidence of other noncompliance as determined by the housing credit agency (including failure to provide qualified supportive services)—

(I)

such determination shall not apply to any period before such year and subparagraph (D)(i) shall apply to such taxable year without regard to such determination if the failure is corrected within 1 year from the date of the determination, and

(II)

in the case of any year to which such determination does apply, if the failure is not corrected within 1 year from the date of the determination, the credit recapture amount under subsection (j)(1) for the year in which such 1-year period expires shall be increased by the amount of any increase in the credit under this section by reason of subparagraph (D)(i) for the year to which the determination applies.

(v) Projects which consist of more than 1 building

Rules similar to the rules of subsection (h)(7)(J) shall apply.

(F) Responsibilities of housing credit agency

Subparagraph (D)(i) shall not apply to a building for any taxable year unless—

(i)

the housing credit agency sets forth criteria—

(I)

to determine appropriate, evidence-based supportive services,

(II)

for the selection of appropriate and competent service providers, and

(III)

which common areas or property described in subparagraph (D)(i) shall meet in order to qualify for the increase in credit under subparagraph (D),

(ii)

the housing credit agency provides a procedure that the agency (or an agent or other private contractor of such agency) shall follow in monitoring for noncompliance with the provisions of this subparagraph and subparagraphs (D) and (E) and in reporting such noncompliance to the Secretary, and

(iii)

appropriate books and records for expenditures with respect to the qualified supportive services are maintained on an annual basis, and are available for inspection upon request by the housing credit agency.

(b) Effective date

The amendment made by this section shall apply to buildings which receive allocations of a housing credit dollar amount or, in the case of projects financed by tax-exempt obligations as described in section 42(h)(4) of the Internal Revenue Code of 1986, which are first taken into account under section 146 of such Code, after the date of the enactment of this Act.

(a) In general

Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 36B the following new section:

36C. Renters credit

(a) Allowance of credit

(1) In general

There shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the sum of the amounts determined under paragraph (2) for all qualified buildings with a credit period which includes months occurring during the taxable year.

(2) Qualified building amount

The amount determined under this paragraph with respect to any qualified building for any taxable year shall be an amount equal to the lesser of—

(A)

the aggregate qualified rental reduction amounts for all eligible units within such building for months occurring during the taxable year which are within the credit period for such building, or

(B)

the rental reduction credit amount allocated to such building for such months.

(3) Qualified building

For purposes of this section—

(A) In general

The term qualified building means any building which is residential rental property (as defined in section 168(e)(2)(A)) of the taxpayer with respect to which—

(i)

a rental reduction credit amount has been allocated by a rental reduction credit agency of a State, and

(ii)

a qualified rental reduction agreement is in effect.

(B) Building not disqualified by other assistance

A building shall not fail to be treated as a qualified building merely because—

(i)

a credit was allowed under section 42 with respect to such building or there was any other Federal assistance in the construction or rehabilitation of such building,

(ii)

the rehabilitation credit determined under section 47 was allowed under section 38 with respect to such building, or

(iii)

Federal rental assistance was provided for such building during any period preceding the credit period.

(b) Qualified rental reduction amount

For purposes of this section—

(1) In general

The term qualified rental reduction amount means, with respect to any eligible unit for any month, an amount equal to the applicable percentage (as determined under subsection (e)(1)) of the excess of—

(A)

the applicable rent for such unit, over

(B)

the family rental payment required for such unit.

(2) Applicable rent

(A) In general

The term applicable rent means, with respect to any eligible unit for any month, the lesser of—

(i)

the amount of rent which would be charged for a substantially similar unit with the same number of bedrooms in the same building which is not an eligible unit, or

(ii)

an amount equal to the market rent standard for such unit.

(B) Market rent standard

(i) In general

The market rent standard with respect to any eligible unit is—

(I)

the small area fair market rent determined by the Secretary of Housing and Urban Development for units with the same number of bedrooms in the same ZIP Code tabulation area, or

(II)

if there is no rent described in subclause (I) for such area, the fair market rent determined by such Secretary for units with the same number of bedrooms in the same county.

(ii) State option

A State may in its rental reduction allocation plan provide that the market rent standard for all (or any part) of a ZIP Code tabulation area or county within the State shall be equal to a percentage (not less than 75 nor more than 125) of the amount determined under clause (i) (after application of clause (iii)) for such area or county.

(iii) Minimum amount

Notwithstanding clause (i), the market rent standard with respect to any eligible unit for any year in the credit period after the first year in the credit period for such unit shall not be less than the market rent standard determined for such first year.

(3) Family rental payment requirements

(A) In general

Each qualified rental reduction agreement with respect to any qualified building shall require that the family rental payment for an eligible unit within such building for any month shall be equal to the lesser of—

(i)

30 percent of the monthly family income of the residents of the unit (as determined under subsection (e)(5)), or

(ii)

the applicable rent for such unit.

(B) Utility costs

Any utility allowance (determined by the Secretary in the same manner as under section 42(g)(2)(B)(ii)) paid by residents of an eligible unit shall be taken into account as rent in determining the family rental payment for such unit for purposes of this paragraph.

(c) Rental reduction credit amount

For purposes of this section—

(1) Determination of amount

(A) In general

The term rental reduction credit amount means, with respect to any qualified building, the dollar amount which is allocated to such building (and to eligible units within such building) under this subsection. Such dollar amount shall be allocated to months in the credit period with respect to such building (and such units) on the basis of the estimates described in paragraph (2)(B).

(B) Allocation on project basis

In the case of a project which includes (or will include) more than 1 building, the rental reduction credit amount shall be the dollar amount which is allocated to such project for all buildings included in such project. Subject to the limitation under subsection (e)(3)(B), such amount shall be allocated among such buildings in the manner specified by the taxpayer unless the qualified rental reduction agreement with respect to such project provides for such allocation.

(2) State allocation

(A) In general

Except as provided in subparagraph (C), each rental reduction credit agency of a State shall each calendar year allocate its portion of the State rental reduction credit ceiling to qualified buildings (and to eligible units within each such building) in accordance with the State rental reduction allocation plan.

(B) Allocations to each building

The rental reduction credit amount allocated to any qualified building shall not exceed the aggregate qualified rental reduction amounts which such agency estimates will occur over the credit period for eligible units within such building, based on reasonable estimates of rents, family incomes, and vacancies in accordance with procedures established by the State as part of its State rental reduction allocation plan.

(C) Specific allocations

(i) Nonprofit organizations

At least 25 percent of the State rental reduction credit ceiling for any State for any calendar year shall be allocated to qualified buildings in which a qualified nonprofit organization (as defined in section 42(h)(5)(C)) owns (directly or through 1 or more partnerships) an interest and materially participates (within the meaning of section 469(h)) in the operation of the building throughout the credit period. A State may waive or lower the requirement under this clause for any calendar year if it determines that meeting such requirement is not feasible.

(ii) Rural areas

(I) In general

The State rental reduction credit ceiling for any State for any calendar year shall be allocated to buildings in rural areas (as defined in section 520 of the Housing Act of 1949) in an amount which, as determined by the Secretary of Housing and Urban Development, bears the same ratio to such ceiling as the number of extremely low-income households with severe rent burdens in such rural areas bears to the total number of such households in the State.

(II) Alternative 5-year testing period

In the case of the 5-calendar year period beginning in 2026, a State shall not be treated as failing to meet the requirements of subclause (I) for any calendar year in such period if, as determined by the Secretary, the average annual amount allocated to such rural areas during such period meets such requirements.

(3) Application of allocated credit amount

(A) Amount available to taxpayer for all months in credit period

Any rental reduction credit amount allocated to any qualified building out of the State rental reduction credit ceiling for any calendar year shall apply to such building for all months in the credit period ending during or after such calendar year.

(B) Ceiling for allocation year reduced by entire credit amount

Any rental reduction credit amount allocated to any qualified building out of an allocating agency's State rental reduction credit ceiling for any calendar year shall reduce such ceiling for such calendar year by the entire amount so allocated for all months in the credit period (as determined on the basis of the estimates under paragraph (2)(B)) and no reduction shall be made in such agency's State rental reduction credit ceiling for any subsequent calendar year by reason of such allocation.

(4) State rental reduction credit ceiling

(A) In general

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

(i)

the greater of—

(I)

the per capita dollar amount multiplied by the State population, or

(II)

the minimum ceiling amount, plus

(ii)

the amount of the State rental reduction credit ceiling returned in the calendar year.

(B) Return of State ceiling amounts

For purposes of subparagraph (A)(ii), except as provided in subsection (d)(2), the amount of the State rental reduction credit ceiling returned in a calendar year equals the amount of the rental reduction credit amount allocated to any building which, after the close of the calendar year for which the allocation is made—

(i)

is canceled by mutual consent of the rental reduction credit agency and the taxpayer because the estimates made under paragraph (2)(B) were substantially incorrect, or

(ii)

is canceled by the rental reduction credit agency because the taxpayer violates the qualified rental reduction agreement and, under the terms of the agreement, the rental reduction credit agency is authorized to cancel all (or any portion) of the allocation by reason of the violation.

(C) Per capita dollar amount; minimum ceiling amount

For purposes of this paragraph—

(i) Per capita dollar amount

The per capita dollar amount is—

(I)

for calendar year 2026, $12.30,

(II)

for calendar year 2027, $24.50, and

(III)

for calendar years 2028 and thereafter, $36.75.

(ii) Minimum ceiling amount

The minimum ceiling amount is—

(I)

for calendar year 2026, $14,000,000,

(II)

for calendar year 2027, $28,000,000, and

(III)

for calendar years 2028 and thereafter, $42,000,000.

(iii) Cost-of-living adjustment

In the case of a calendar year beginning after 2028, the $36.75 and $42,000,000 amounts in clauses (i)(III) and (ii)(III) 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 2027 for calendar year 2016 in subparagraph (A)(ii) thereof.

In the case of the $42,000,000 amount, any increase under this clause which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000 and in the case of the $36.75 amount, any increase under this clause which is not a multiple of 5 cents shall be rounded to the next lowest multiple of 5 cents.

(D) Population

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

(E) Unused rental reduction credit allocated among certain States

(i) In general

The unused rental reduction credit of a State for any calendar year shall be assigned to the Secretary for allocation among qualified States for the succeeding calendar year.

(ii) Unused rental reduction credit

For purposes of this subparagraph, the unused rental reduction credit of a State for any calendar year is the excess (if any) of—

(I)

the State rental reduction credit ceiling for the year preceding such year, over

(II)

the aggregate rental reduction credit amounts allocated for such year.

(iii) Formula for allocation of unused credit among qualified States

The amount allocated under this subparagraph to a qualified State for any calendar year shall be the amount determined by the Secretary to bear the same ratio to the aggregate unused rental reduction credits of all States for the preceding calendar year as such State's population for the calendar year bears to the population of all qualified States for the calendar year. For purposes of the preceding sentence, population shall be determined in accordance with section 146(j).

(iv) Qualified State

For purposes of this subparagraph, the term qualified State means, with respect to a calendar year, any State—

(I)

which allocated its entire State rental reduction credit ceiling for the preceding calendar year, and

(II)

for which a request is made (at such time and in such manner as the Secretary may prescribe) to receive an allocation under clause (iii).

(5) Other definitions

For purposes of this section—

(A) Rental reduction credit agency

The term rental reduction credit agency means any agency authorized by a State to carry out this section. Such authorization shall include the jurisdictions within the State where the agency may allocate rental reduction credit amounts.

(B) Possessions treated as States

The term State includes a possession of the United States.

(C) Family

The term family has the same meaning as when used in the United States Housing Act of 1937.

(d) Modifications To correct inaccurate amounts due to incorrect estimates

(1) Establishment of reserves

(A) In general

Each rental reduction credit agency of a State shall establish a reserve for the transfer and reallocation of amounts pursuant to this paragraph, and notwithstanding any other provision of this section, the rental reduction credit amount allocated to any building by such agency shall be zero unless such agency has in effect such a reserve at the time of the allocation of such credit amount.

(B) Transfers to reserve

(i) In general

If, for any taxable year, a taxpayer would (but for this subparagraph) not be able to use the entire rental reduction credit amount allocated to a qualified building by a rental reduction credit agency of a State for the taxable year because of a rental reduction shortfall, then the taxpayer shall for the taxable year transfer to the reserve established by such agency under subparagraph (A) an amount equal to such rental reduction shortfall.

(ii) Rental reduction shortfall

For purposes of this subparagraph, the rental reduction shortfall for any qualified building for any taxable year is the amount by which the aggregate amount of the excesses determined under subsection (b)(1) for all eligible units within such building are less than such aggregate amount estimated under subsection (c)(2)(B) for the taxable year.

(iii) Treatment of transferred amount

For purposes of subsection (a)(2)(A), the aggregate qualified rental reduction amounts for all eligible units within a qualified building with respect to which clause (i) applies for any taxable year shall be increased by an amount equal to the applicable percentage (determined under subsection (e)(1) for the building) of the amount of the transfer to the reserve under clause (i) with respect to such building for such taxable year.

(C) Reallocation of amounts transferred

(i) In general

If, for any taxable year—

(I)

the aggregate qualified rental reduction amounts for all eligible units within a qualified building for the taxable year, exceed

(II)

the rental reduction credit amount allocated to such building by a rental reduction credit agency of a State for the taxable year (determined after any increase under paragraph (2)),

the rental reduction credit agency shall, upon application of the taxpayer, pay to the taxpayer from the reserve established by such agency under subparagraph (A) the amount which, when multiplied by the applicable percentage (determined under subsection (e)(1) for the building), equals such excess. If the amount in the reserve is less than the amounts requested by all taxpayers for taxable years ending within the same calendar year, the agency shall ratably reduce the amount of each payment otherwise required to be made.

(ii) Excess reserve amounts

If a rental reduction credit agency of a State determines that the balance in its reserve is in excess of the amounts reasonably needed over the following 5 calendar years to make payments under clause (i), the agency may withdraw such excess but only to—

(I)

reduce the rental payments of eligible tenants in a qualified building in units other than eligible units, or of eligible tenants in units in a building other than a qualified building, to amounts no higher than the sum of rental payments required for eligible tenants in qualified buildings under subsection (b)(3) and any rental charges to such tenants in excess of the market rent standard; or

(II)

address maintenance and repair needs in qualified buildings that cannot reasonably be met using other resources available to the owners of such buildings.

(D) Administration

Each rental reduction credit agency of a State shall establish procedures for the timing and manner of transfers and payments made under this paragraph.

(E) Special rule for projects

In the case of a rental reduction credit allocated to a project consisting of more than 1 qualified building, a taxpayer may elect to have this paragraph apply as if all such buildings were 1 qualified building if the applicable percentage for each such building is the same.

(F) Alternative methods of transfer and reallocation

Upon request to, and approval by, the Secretary, a State may establish an alternative method for the transfer and reallocation of amounts otherwise required to be transferred to, and allocated from, a reserve under this paragraph. Any State adopting an alternative method under this subparagraph shall, at such time and in such manner as the Secretary prescribes, provide to the Secretary and the Secretary of Housing and Urban Development detailed reports on the operation of such method, including providing such information as such Secretaries may require.

(2) Allocation of returned State ceiling amounts

In the case of any rental reduction credit amount allocated to a qualified building which is canceled as provided in subsection (c)(4)(B)(i), the rental reduction credit agency may, in lieu of treating such allocation as a returned credit amount under subsection (c)(4)(A)(ii), elect to allocate, upon the request of the taxpayer, such amount to any other qualified building for which the credit amount allocated in any preceding calendar year was too small because the estimates made under subsection (c)(2)(B) were substantially incorrect.

(3) Renting to noneligible tenants

If, after the application of paragraphs (1)(C) (or any similar reallocation under paragraph (1)(F)) and (2), a rental reduction credit agency of a State determines that, because of the incorrect estimates under subsection (c)(2)(B), the aggregate qualified rental reduction amounts for all eligible units within a qualified building will (on an ongoing basis) exceed the rental reduction credit amount allocated to such building, a taxpayer may elect, subject to subsection (g)(2) and only to the extent necessary to eliminate such excess, rent vacant eligible units without regard to the requirements that such units be rented only to eligible tenants and at the rental rate determined under subsection (b)(3).

(e) Terms relating to rental reduction credit and requirements

For purposes of this section—

(1) Applicable percentage

(A) In general

The term applicable percentage means, with respect to any qualified building, the percentage (not greater than 110 percent) set by the rental reduction credit agency at the time it allocates the rental reduction dollar amount to such building.

(B) Higher percentage for high-opportunity areas

The rental reduction credit agency may set a percentage under subparagraph (A) up to 120 percent for any qualified building which—

(i)

targets its eligible units for rental to families with children, and

(ii)

is located in a neighborhood which has a poverty rate of no more than 10 percent.

(2) Credit period

(A) In general

The term credit period means, with respect to any qualified building, the 15-year period beginning with the first month for which the qualified rental reduction agreement is in effect with respect to such building.

(B) State option to reduce period

A rental reduction credit agency may provide a credit period for any qualified building which is less than 15 years.

(3) Eligible unit

(A) In general

The term eligible unit means, with respect to any qualified building, a unit—

(i)

which is occupied by an eligible tenant,

(ii)

the rent of which for any month equals 30 percent of the monthly family income of the residents of such unit (as determined under paragraph (5)),

(iii)

with respect to which the tenant is not concurrently receiving rental assistance under any other Federal program, and

(iv)

which is certified to the rental reduction credit agency as an eligible unit for purposes of this section and the qualified rental reduction agreement.

Notwithstanding clause (iii), a State may provide in its State rental reduction allocation plan that an eligible unit shall also not include a unit with respect to which any resident is receiving rental assistance under a State or local program.

(B) Limitation on number of units

(i) In general

The number of units which may be certified as eligible units with respect to any qualified building under subparagraph (A)(iv) at any time shall not exceed the greater of—

(I)

40 percent of the total units in such building, or

(II)

25 units.

In the case of an allocation to a project under subsection (c)(1)(B), the limitation under the preceding sentence shall be applied on a project basis and the certification of such eligible units shall be allocated to each building in the project, except that if buildings in such project are on noncontiguous tracts of land, buildings on each such tract shall be treated as a separate project for purposes of applying this sentence.

(ii) Buildings receiving previous Federal rental assistance

If, at any time prior to the entering into of a qualified rental reduction agreement with respect to a qualified building, tenants in units within such building had been receiving project-based rental assistance under any other Federal program, then, notwithstanding clause (i), the maximum number of units which may be certified as eligible units with respect to the building under subparagraph (A)(iv) shall not be less than the sum of—

(I)

the maximum number of units in the building previously receiving such assistance at any time before the agreement takes effect, plus

(II)

the amount determined under clause (i) without taking into account the units described in subclause (I).

(4) Eligible tenant

(A) In general

The term eligible tenant means any individual if the individual's family income does not exceed the greater of—

(i)

30 percent of the area median gross income (as determined under section 42(g)(1)), or

(ii)

the applicable poverty line for a family of the size involved.

(B) Treatment of individuals whose incomes rise above limit

(i) In general

Notwithstanding an increase in the family income of residents of a unit above the income limitation applicable under subparagraph (A), such residents shall continue to be treated as eligible tenants if the family income of such residents initially met such income limitation and such unit continues to be certified as an eligible unit under this section.

(ii) No rental reduction for at least 2 years

A qualified rental reduction agreement with respect to a qualified building shall provide that if, by reason of an increase in family income described in clause (i), there is no qualified rental reduction amount with respect to the dwelling unit for 2 consecutive years, the taxpayer shall rent the next available unit to an eligible tenant (without regard to whether such unit is an eligible unit under this section).

(C) Applicable poverty line

The term applicable poverty line means the most recently published poverty line (within the meaning of section 2110(c)(5) of the Social Security Act (42 U.S.C. 1397jj(c)(5))) as of the time of the determination as to whether an individual is an eligible tenant.

(5) Family income

(A) In general

Family income shall be determined in the same manner as under section 8 of the United States Housing Act of 1937.

(B) Time for determining income

(i) In general

Except as provided in this subparagraph, family income shall be determined at least annually on the basis of income for the preceding calendar year.

(ii) Families on fixed income

If at least 90 percent of the family income of the residents of a unit at the time of any determination under clause (i) is derived from payments under title II or XVI of the Social Security Act (or any similar fixed income amounts specified by the Secretary), the taxpayer may elect to treat such payments (or amounts) as the family income of such residents for the year of the determination and the 2 succeeding years, except that the taxpayer shall, in such manner as the Secretary may prescribe, adjust such amount for increases in the cost of living.

(iii) Initial income

The Secretary may allow a State to provide that the family income of residents at the time such residents first rent a unit in a qualified building may be determined on the basis of current or anticipated income.

(iv) Special rules where family income is reduced

If residents of a unit establish (in such manner as the rental reduction credit agency provides) that their family income has been reduced by at least 10 percent below such income for the determination year—

(I)

such residents may elect, at such time and in such manner as such agency may prescribe, to have their family income redetermined, and

(II)

clause (ii) shall not apply to any of the 2 succeeding years described in such clause which are specified in the election.

(f) State rental reduction allocation plan

(1) Adoption of plan required

(A) In general

For purposes of this section—

(i)

each State shall, before the allocation of its State rental reduction credit ceiling, establish and have in effect a State rental reduction allocation plan, and

(ii)

notwithstanding any other provision of this section, the rental reduction credit amount allocated to any building shall be zero unless such amount was allocated pursuant to a State rental reduction allocation plan.

Such plan shall only be adopted after such plan is made public and at least 60 days has been allowed for public comment.

(B) State rental reduction allocation plan

For purposes of this section, the term State rental reduction allocation plan means, with respect to any State, any plan of the State meeting the requirements of paragraphs (2) and (3).

(2) General plan requirements

A plan shall meet the requirements of this paragraph only if—

(A)

the plan sets forth the criteria and priorities which a rental reduction credit agency of the State shall use in allocating the State rental reduction credit ceiling to eligible units within a building,

(B)

the plan provides that no credit allocation shall be made which is not in accordance with the criteria and priorities set forth under subparagraph (A) unless such agency provides a written explanation to the general public for any credit allocation which is not so made and the reasons why such allocation is necessary, and

(C)

the plan provides that such agency is required to prioritize the renewal of existing credit allocations at the time of the expiration of the qualified rental reduction agreement with respect to the allocation, including, where appropriate, a commitment within a qualified rental reduction agreement that the credit allocation will be renewed if the terms of the agreement have been met and sufficient new credit authority is available.

(3) Specific requirements

A plan shall meet the requirements of this paragraph only if—

(A)

the plan provides methods for determining—

(i)

the amount of rent which would be charged for a substantially similar unit in the same building which is not an eligible unit for purposes of subsection (b)(2)(A)(i), including whether such determination may be made by self-certification or by undertaking rent reasonableness assessments similar to assessments required under section 8(o)(10) of the United States Housing Act of 1937 (42 U.S.C. 1437f(o)(10)),

(ii)

the qualified rental reduction amounts under subsection (c)(2)(B), and

(iii)

the applicable percentage under subsection (e)(1),

(B)

the plan provides a procedure that the rental reduction credit agency (or an agent or other private contractor of such agency) will follow in monitoring for—

(i)

noncompliance with the provisions of this section and the qualified rental reduction agreement and in notifying the Internal Revenue Service of any such noncompliance of which such agency becomes aware, and

(ii)

noncompliance with habitability standards through regular site visits,

(C)

the plan requires a person receiving a credit allocation to report to the rental reduction credit agency such information as is necessary to ensure compliance with the provisions of this section and the qualified rental reduction agreement, and

(D)

the plan provides methods by which any excess reserve amounts which become available under subsection (d)(1)(C)(ii) will be used to reduce rental payments of eligible tenants or to address maintenance and repair needs in qualified buildings, including how such assistance will be allocated among eligible tenants and qualified buildings.

(g) Qualified rental reduction agreement

For purposes of this section—

(1) In general

The term qualified rental reduction agreement means, with respect to any building which is residential rental property (as defined in section 168(e)(2)(A)), a written, binding agreement between a rental reduction credit agency and the taxpayer which specifies—

(A)

the number of eligible units within such building for which a rental reduction credit amount is being allocated,

(B)

the credit period for such building,

(C)

the rental reduction credit amount allocated to such building (and dwelling units within such building) and the portion of such amount allocated to each month within the credit period under subsection (c)(2)(B),

(D)

the applicable percentage to be used in computing the qualified rental reduction amounts with respect to the building,

(E)

the method for determining the amount of rent which may be charged for eligible units within the building, and

(F)

whether—

(i)

the agency commits to entering into a new agreement with the taxpayer if the terms of the agreement have been met and sufficient new credit authority is available for such new agreement, and

(ii)

the taxpayer is required to accept such new agreement.

(2) Tenant protections

A qualified rental reduction agreement shall provide the following:

(A) Non-displacement of non-eligible tenants

A taxpayer receiving a rental reduction credit amount may not refuse to renew the lease of or evict (other than for good cause) a tenant of a unit who is not an eligible tenant at any time during the credit period and such unit shall not be treated as an eligible unit while such tenant resides there.

(B) Only good cause evictions of eligible tenants

A taxpayer receiving a rental reduction credit amount may not refuse to renew the lease of or evict (other than for good cause) an eligible tenant of an eligible unit.

(C) Mobility

A taxpayer receiving a rental reduction credit amount shall—

(i)

give priority to rent any available unit of suitable size to tenants who are eligible tenants who are moving from another qualified building where such tenants had lived at least 1 year and were in good standing, and

(ii)

inform eligible tenants within the building of their right to move after 1 year and provide a list maintained by the State of qualified buildings where such tenants might move.

(D) Fair housing and civil rights

If a taxpayer receives a rental reduction credit amount—

(i)

such taxpayer shall comply with the Fair Housing Act with respect to the building, and

(ii)

the receipt of such amount shall be treated as the receipt of Federal financial assistance for purposes of applying any Federal civil rights laws.

(E) Admissions preferences

A taxpayer receiving a rental reduction credit amount shall comply with any admissions preferences established by the State for tenants within particular demographic groups eligible for health or social services.

(3) Compliance requirements

A qualified rental reduction agreement shall provide that a taxpayer receiving a rental reduction credit amount shall comply with all reporting and other procedures established by the State to ensure compliance with this section and such agreement.

(4) Projects

In the case of a rental reduction credit allocated to a project consisting of more than 1 building, the rental reduction credit agency may provide for a single qualified rental reduction agreement which applies to all buildings which are part of such project.

(h) 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 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 information described in subsection (g)(1) required to be contained in the qualified rental reduction agreement with respect to the building, and

(B)

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

(B)

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 rental reduction credit agency

(A) Reports

Each rental reduction credit agency which allocates any rental reduction credit amount to 1 or more buildings 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—

(i)

the amount of rental reduction credit amounts allocated to each such building for such year,

(ii)

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

(iii)

information as to the demographic and income characteristics of eligible tenants of all such buildings to which such amounts were allocated, and

(iv)

such other information as the Secretary may require.

(B) Penalty

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

(C) Information made public

The Secretary shall, in consultation with Secretary of Housing and Urban Development, make information reported under this paragraph for each qualified building available to the public annually to the greatest degree possible without disclosing personal information about individual tenants.

(i) Special rule for payments to partnerships and S corporations

For purposes of this subtitle, in the case of any qualified building directly held by any partnership or S corporation, the payment under section 6436 shall be made in lieu of the credit determined under this section with respect to such building.

(j) Regulations and guidance

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

(1)

providing necessary forms and instructions, and

(2)

providing for proper treatment of projects for which a credit is allowed both under this section and section 42.

(b) Payment to partnerships and S corporations in lieu of credit

(c) Credit includible in gross income

(d) Administrative fees

No provision of, or amendment made by, this Act shall be construed to prevent a rental reduction credit agency of a State from imposing fees to cover its costs or from levying any such fee on a taxpayer applying for or receiving a rental reduction credit amount.

(e) Other conforming amendments

(f) Effective date

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

(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:

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 nonmetropolitan 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 nonmetropolitan median income. The preceding sentence shall not apply with respect to any building if paragraph (1) of subsection (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 recordkeeping 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—

(d) Treatment under base erosion minimum tax

Section 59A(b)(3) of the Internal Revenue Code of 1986 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—

(f) Conforming amendments

(g) Effective date

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

(a) Findings and sense of Congress

(b) Allowance of credit

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986, as amended by section 212, is amended by inserting after section 42A the following new section:

42B. Neighborhood homes credit

(a) Allowance of credit

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

(1)

an amount equal to—

(A)

the excess (if any) of—

(i)

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

(ii)

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

(B)

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

(2)

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

(3)

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

(b) Development costs

For purposes of this section—

(1) Reasonable development costs

(A) In general

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

(B) Considerations in making determination

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

(i)

the sources and uses of funds and the total financing,

(ii)

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

(iii)

the reasonableness of the developmental costs and fees.

(2) Eligible development costs

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

(3) Substantial rehabilitation

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

(A)

$25,000, or

(B)

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

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

(A) In general

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

(B) Land and building acquisition costs

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

(c) Qualified residence

For purposes of this section—

(1) In general

The term qualified residence means a residence that—

(A)

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

(B)

is—

(i)

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

(ii)

a condominium unit, or

(iii)

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

(C)

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

(D)

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

(2) Qualified census tract

(A) In general

The term qualified census tract means a census tract—

(i)

which—

(I)

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

(II)

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

(III)

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

(ii)

which—

(I)

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

(II)

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

(III)

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

(iii)

which—

(I)

is located in a nonmetropolitan county,

(II)

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

(III)

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

(iv)

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

(v)

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

(B) Applicable area

The term applicable area means—

(i)

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

(ii)

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

(d) Affordable sale

For purposes of this section—

(1) In general

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

(A)

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

(B)

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

(C)

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

(D)

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

(2) Qualified homeowner

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

(A)

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

(B)

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

(e) Credit ceiling and allocations

(1) Credit limited based on allocations to qualified projects

(A) In general

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

(i)

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

(ii)

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

(B) Deadline for completion

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

(2) Limitations on allocations to qualified projects

(A) Allocations limited by State neighborhood homes credit ceiling

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

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

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

(3) Determination of State neighborhood homes credit ceiling

(A) In general

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

(i)

the greater of—

(I)

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

(II)

$12,000,000, and

(ii)

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

(B) 3-year carryforward of unused limitation

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

(f) Responsibilities of neighborhood homes credit agencies

(1) In general

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

(A)

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

(B)

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

(i)

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

(ii)

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

(C)

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

(D)

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

(E)

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

(F)

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

(G)

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

(i)

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

(ii)

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

(I)

the census tract in which such qualified residence is located,

(II)

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

(III)

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

(IV)

the eligible development costs of such qualified residence,

(V)

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

(VI)

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

(VII)

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

(iii)

such other information as the Secretary may require,

(H)

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

(I)

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

(2) Alternative for certain States

(A) In general

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

(B) Applicable State

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

(3) Qualified allocation plan

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

(A)

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

(i)

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

(ii)

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

(iii)

the capability and prior performance of the project sponsor, and

(iv)

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

(B)

has been made available for public comment,

(C)

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

(D)

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

(i)

identifying noncompliance with any provisions of this section, and

(ii)

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

(g) Repayment

(1) In general

(A) Sold during 5-year period

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

(B) Use of repayments

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

(2) Repayment amount

For purposes of paragraph (1)(A)—

(A) In general

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

(B) Applicable percentage

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

(3) Lien for repayment amount

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

(4) Waiver

(A) In general

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

(B) Hardship

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

(i)

divorce,

(ii)

disability,

(iii)

illness, or

(iv)

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

(h) Other definitions and special rules

For purposes of this section—

(1) Neighborhood homes credit agency

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

(2) Qualified project

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

(3) Determinations of family income

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

(4) Possessions treated as states

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

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

(A) Determination of development costs

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

(i)

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

(ii)

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

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

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

(6) Related party sales not treated as affordable sales

(A) In general

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

(B) Related persons

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

(7) Inflation adjustment

(A) In general

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

(i)

such dollar amount, multiplied by

(ii)

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

(B) Rounding

(i)

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

(ii)

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

(iii)

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

(8) Report

(A) In general

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

(B) De-identification

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

(9) List of qualified census tracts

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

(A)

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

(B)

clause (iii) of such subsection, and

(C)

subsection (i)(5)(A).

(10) Denial of deductions if converted to rental housing

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

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

(1) In general

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

(2) Alternative credit determination

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

(A)

the excess (if any) of—

(i)

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

(ii)

any amounts paid to such taxpayer for such rehabilitation,

(B)

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

(C)

$50,000.

(3) Qualified rehabilitation

(A) In general

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

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

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

(4) Specified homeowner

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

(A)

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

(B)

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

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

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

(A)

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

(B)

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

(6) Modification of repayment requirement

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

(7) Related parties

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

(8) Pyrrhotite remediation

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

(j) Regulations

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

(c) Credit allowed as part of general business credit

Section 38(b) of the Internal Revenue Code of 1986, as amended by section 212, is amended by striking plus at the end of paragraph (41), by striking the period at the end of paragraph (42) and inserting , plus, and by adding at the end the following new paragraph:

(43)

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

(d) Credit allowed against alternative minimum tax

Section 38(c)(4)(B) of the Internal Revenue Code of 1986 is amended by redesignating clauses (iv) through (xii) as clauses (v) through (xiii), respectively, and by inserting after clause (iii) the following new clause:

(iv)

the credit determined under section 42B,

(e) Exclusion from gross income

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting before section 140 the following new section:

139M. State energy subsidies for qualified residences

(a) Exclusion from gross income

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

(f) Conforming amendments

(g) Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2026.

(a) In general

Section 36 of the Internal Revenue Code of 1986 is amended to read as follows:

36. First-time homebuyer refundable credit

(a) Allowance of credit

In the case of an individual who is a first-time homebuyer of a principal residence in the United States during a taxable year, there shall be allowed as a credit against the tax imposed by this subtitle for such taxable year an amount equal to 20 percent of the purchase price of the residence.

(b) Limitations; special rules based on marital and filing status

(1) Dollar limitation

The credit allowed under subsection (a) shall not exceed $15,000.

(2) Limitation based on purchase price

The amount allowable as a credit under subsection (a) (determined without regard to this paragraph and paragraph (3), and after the application of paragraph (1)) for the taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so allowable as—

(A)

the excess (if any) of—

(i)

the purchase price of the residence, over

(ii)

an amount equal to 60 percent of the conforming loan limit applicable to the residence, bears to

(B)

$100,000.

For purposes of the preceding sentence, the term conforming loan limit with respect to any residence means the applicable limitation governing the maximum original principal obligation for a mortgage secured by a residence of the same type, as determined and adjusted annually under section 302(b)(2) of the Federal National Mortgage Association Charter Act and section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act.

(3) Limitation based on modified adjusted gross income

(A) In general

The amount allowable as a credit under subsection (a) (determined without regard to this paragraph and after the application of paragraphs (1) and (2)) for the taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so allowable as—

(i)

the excess (if any) of—

(I)

the taxpayer's modified adjusted gross income for the applicable taxable year, over

(II)

the applicable threshold, bears to

(ii)

$50,000.

(B) Modified adjusted gross income

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

(C) Applicable threshold

For purposes of subparagraph (A), the applicable threshold is—

(i)

except as provided in clause (ii), $100,000, and

(ii)

an amount equal to 200 percent of the amount in effect under clause (i), in the case of a head of household (as defined in section 2(b)) or a joint return.

(D) Applicable taxable year

For purposes of subparagraph (A), the term applicable taxable year means—

(i)

the taxable year with respect to which the credit allowable under subsection (a) is being claimed, or

(ii)

for purposes of the application of subsection (g)(3), the most recent taxable year for which a return of tax has been filed by the taxpayer, provided that such taxable year is either—

(I)

the taxable year preceding the taxable year described in clause (i), or

(II)

the taxable year preceding the taxable year described in subclause (I).

(4) Additional limitations

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

(A)

if the taxpayer is a nonresident alien, or

(B)

if—

(i)

the taxpayer has not attained age 18 as of the date of such purchase, or

(ii)

a deduction under section 151 with respect to the taxpayer is allowable to another taxpayer for the taxable year.

In the case of a taxpayer who is married, the taxpayer shall be treated as meeting the age requirement of subparagraph (B)(i) if the taxpayer or the taxpayer's spouse meets such age requirement.

(5) Multiple purchasers

If 2 or more individuals who are not married purchase a principal residence—

(A)

the amount of the credit under subsection (a) shall be allocated among such individuals in such manner as the Secretary may prescribe by taking into account the requirements of paragraphs (2) and (3),

(B)

for purposes of subparagraph (A), with respect to the requirements of paragraph (3)—

(i)

such paragraph shall be applied by aggregating the modified adjusted gross income of all such individuals, and

(ii)

the applicable threshold shall be the amount described in subparagraph (C)(ii) of such paragraph,

(C)

the total amount of the credits allowed to all such individuals shall not exceed the limitation under paragraph (1) (as modified by paragraph (7)), and

(D)

with respect to each such individual, no credit shall be allowed under subsection (a) unless such individual includes the taxpayer identification numbers for all such individuals on their return of tax for the taxable year.

(6) Married couples must file joint return

If an individual is married at the close of the taxable year, the credit shall be allowed under subsection (a) only if the individual and the individual's spouse file a joint return for the taxable year.

(7) Adjustment for inflation

In the case of any taxable year beginning after December 31, 2027, each of the dollar amounts in paragraphs (1) and (3)(C)(i) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2026 for calendar year 2016 in subparagraph (A)(ii) thereof.

Any increase determined under the preceding sentence shall be rounded to the next lowest multiple of $50.

(c) Definitions

For purposes of this section—

(1) First-time homebuyer

(A) In general

The term first-time homebuyer means any individual who acquires a principal residence located in the United States by purchase if such individual (and, if married, such individual's spouse)—

(i)

has not claimed any credit or deduction under this title for any previous taxable year with respect to the purchase or ownership of any residence or residential real estate (including for any expenditures relating to the placing in service of any property on, in connection with, or for use in such a residence or real estate), and

(ii)

attests under penalty of perjury that—

(I)

the individual (and, if married, the individual's spouse) has not owned a principal residence at any time prior to the purchase of the principal residence to which this section applies, and

(II)

the principal residence to which this section applies was not acquired from a person related to such individual or spouse.

(B) Waiver in case of certain changes in status

The Secretary may, in such manner as the Secretary may prescribe, waive the requirements of subparagraph (A) for a taxable year in the case of an individual who is not eligible to file a joint return for the taxable year, and who was married at the time the individual or the individual's former spouse purchased a previous residence.

(C) Multiple purchasers

If 2 or more individuals who are not married purchase a principal residence, no credit shall be allowed under subsection (a) unless each individual satisfies the requirements under subparagraph (A).

(2) Principal residence

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

(3) Purchase

(A) In general

The term purchase means any acquisition, but only if—

(i)

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

(ii)

the basis of the property in the hands of the person acquiring such property is not determined—

(I)

in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or

(II)

under section 1014(a).

(B) Construction

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

(4) Purchase price

The term purchase price means the adjusted basis (without regard to any reduction under section 1016(a)(39)) of the principal residence on the date such residence is purchased.

(5) Related persons

A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b) (but, in applying subsections (b) and (c) of section 267 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 the individual's spouse, ancestors, lineal descendants, and spouse's ancestors and lineal descendants).

(6) Marital status

An individual's marital status shall be determined in accordance with section 7703.

(d) Denial and recapture rules in case of disposal of residence within 6 taxable years

(1) Denial of credit in case of disposal within taxable year

(A) In general

No credit under subsection (a) shall be allowed to any taxpayer for any taxable year with respect to the purchase of a residence if the taxpayer disposes of their interest in such residence (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer's spouse)) before the close of such taxable year.

(B) Recapture in cases of credit transfer

In the case of a taxpayer which—

(i)

has made an election under subsection (g)(1), and

(ii)

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

the tax imposed by this chapter for the taxable year in which such disposal (or cessation) occurs shall be increased by an amount equal to 100 percent of the amount of the credit allowed under subsection (a).

(2) Phased-out recapture

(A) In general

Except as provided in subparagraph (D), if the taxpayer disposes of their interest in a residence with respect to which a credit was allowed under subsection (a) (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer's spouse)) during the 5-taxable-year period beginning with the taxable year immediately following the credit year, the tax imposed by this chapter for the taxable year in which such disposal (or cessation) occurs shall be increased by an amount equal to the recapture percentage of the amount of the credit so allowed.

(B) Credit year

For purposes of subparagraph (A), the term credit year means the taxable year in which the credit under subsection (a) was allowed.

(C) Recapture percentage

For purposes of subparagraph (A), the recapture percentage with respect to any disposal or cessation described in such subparagraph shall be determined in accordance with the following table:

If the disposal or	The recapture
cessation occurs in:	percentage is:
The 1st taxable year beginning after the credit year	100 percent
The 2nd taxable year beginning after the credit year	80 percent
The 3rd taxable year beginning after the credit year	60 percent
The 4th taxable year beginning after the credit year	40 percent
The 5th taxable year beginning after the credit year	20 percent.

(D) Exceptions

This paragraph shall not apply in the case of a disposal or cessation described in subparagraph (A) which occurs after or incident to any of the following:

(i)

Death of the taxpayer or the taxpayer's spouse.

(ii)

Divorce or separation of the taxpayer.

(iii)

Involuntary conversion of the residence (within the meaning of section 121(d)(5)(A)).

(iv)

Relocation of duty station or qualified official extended duty (as defined in section 121(d)(9)(C)) of the taxpayer or the taxpayer's spouse who is a member of the uniformed services (as defined in section 121(d)(9)(C)(ii)), a member of the Foreign Service of the United States (as defined in section 121(d)(9)(C)(iii)), or an employee of the intelligence community (as defined in section 121(d)(9)(C)(iv)).

(v)

Change of employment of the taxpayer or the taxpayer's spouse which meets the conditions of section 217(c).

(vi)

Change in the number of people residing in the residence of the taxpayer, including the addition of a child.

(vii)

Loss of employment, health conditions, caregiving needs, or such other unforeseen circumstances as may be specified by the Secretary.

(e) Adjustment to basis

For purposes of this subtitle, if a credit is allowed under this section with respect to any property, the taxpayer's basis in such property shall be reduced by the amount of the credit so allowed.

(f) Reporting

(1) In general

A credit shall be allowed under this section only if the following are included on the return of tax:

(A)

The individual's social security number issued by the Social Security Administration.

(B)

The street address (not including a post office box) of the principal residence purchased.

(C)

The purchase price of the principal residence.

(D)

The date of purchase of the principal residence.

(E)

The closing disclosure relating to the purchase (in the case of a purchase financed by a mortgage).

(2) Reporting of real estate transactions

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

(g) Transfer of credit

(1) In general

Subject to such regulations or other guidance as the Secretary determines necessary, if the taxpayer who acquires a principal residence by purchase using a qualified residential mortgage loan elects the application of this subsection with respect to such residence, 100 percent of the credit which would (but for this subsection) be allowed to such taxpayer with respect to such residence shall, at the time of purchase of such residence, be allowed to the eligible entity specified in such election (and not to such taxpayer) in the manner described in paragraph (2)(A)(ii)(III).

(2) Definitions

In this subsection—

(A) Eligible entity

(i) In general

The term eligible entity means, with respect to the residence for which the credit is allowed under subsection (a), the entity which originated the qualified residential mortgage loan used to purchase such residence and—

(I)

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

(II)

employs registered loan originators or state-licensed loan originators,

(III)

prior to the election described in paragraph (1) and not later than the closing date for such purchase, disclosed to the taxpayer purchasing such residence—

(aa)

the amount of the credit that would otherwise be allowable to the taxpayer under subsection (a),

(bb)

pursuant to the election under paragraph (1), the amount of the credit allowed to such entity,

(cc)

the terms of the qualified residential mortgage loan, which shall take into account the payment made by such entity pursuant to subclause (V),

(IV)

prior to the closing date for such purchase and in such manner as the Secretary may prescribe, verified—

(aa)

the eligibility of the taxpayer for the credit under subsection (a), and

(bb)

the amount of such credit to which the election under paragraph (1) is applicable,

(V)

on the closing date for the purchase of the residence, reduces the down payment otherwise required to be made by the taxpayer by making payment to the person selling such residence to the taxpayer in an amount equal to the amount of the credit allowable to the taxpayer under subsection (a) to which the election under paragraph (1) applies, and

(VI)

has not provided any terms or conditions (such as higher fees, closing costs, interest rates, or other incentives) with respect to the qualified residential mortgage loan to which an election under paragraph (1) applies which are less favorable than the terms and conditions for residential mortgage loans that would otherwise be provided to the taxpayer if an election described in such paragraph was not made by the taxpayer.

(ii) Special rules

(I) Timing; revocation

Rules similar to the rules under paragraphs (3) and (4) of section 30D(g) shall apply for purposes of this subparagraph.

(II) Tax treatment of payments

With respect to any payment described in clause (i)(V), such payment—

(aa)

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

(bb)

with respect to the eligible entity, shall not be deductible under this title.

(III) Advance payment to eligible entities

(aa) In general

The Secretary shall establish a program to make advance payments to any eligible entity in an amount equal to the cumulative amount of the credits allowed to such entity pursuant to an election under paragraph (1).

(bb) Excessive payments; treatment of advance payments

Rules similar to the rules under subparagraphs (B) and (C) of section 30D(g)(7) shall apply for purposes of this subclause.

(IV) Recapture

In the case of any taxpayer who has made an election described in paragraph (1) with respect to the purchase of a principal residence and for which a payment described in clause (i)(V) was made by an eligible entity, if the credit under subsection (a) is subsequently determined to not be allowable to such taxpayer with respect to such purchase, the tax imposed on such taxpayer under this chapter for the taxable year in which such residence was purchased shall be increased by the amount of the payment described in clause (i)(V).

(B) Qualified residential mortgage loan

The term qualified residential mortgage loan means a residential mortgage loan (as defined in section 1503 of the S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5102)) which—

(i)

does not exceed the conforming loan limit (as defined in subsection (b)(2)),

(ii)

was originated by a registered loan originator or State-licensed loan originator (as defined in section 1503 of the S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5102)) who is not, with respect to the taxpayer—

(I)

a person specified in section 267(b), or

(II)

a partnership described in section 707(b), and

(iii)

does not require a down payment in an amount which is greater than the amount equal to—

(I)

20 percent of the purchase price of the residence, minus

(II)

the amount of the credit allowable to the taxpayer under subsection (a) to which the election under paragraph (1) applies.

(3) Application of limitation based on modified adjusted gross income

(A) In general

(i) Prior taxable year

For purposes of this subsection, any reduction in the amount allowable as a credit under subsection (a) pursuant to subsection (b)(3) shall be determined based on the modified adjusted gross income of the taxpayer for the taxable year described in subparagraph (D)(ii) of such subsection.

(ii) Individuals who were not married in prior taxable year

For purposes of clause (i), in the case of two individuals who are married during the taxable year in which the residence is purchased but were not married with respect to the taxable year described in such clause, rules similar to the rules under subsection (b)(5)(B) shall apply.

(B) Lower income in taxable year in which residence is purchased

(i) In general

If—

(I)

the taxpayer has made an election under paragraph (1),

(II)

a reduction described in subparagraph (A) is applicable with respect to the amount allowable as a credit under subsection (a), and

(III)

the modified adjusted gross income of the taxpayer for the taxable year described in clause (i) of subsection (b)(3)(D) is less than the modified adjusted gross income of the taxpayer for the taxable year described in clause (ii) of such section,

notwithstanding the application of paragraph (1), there shall be a credit allowed to the taxpayer against the tax imposed by this subtitle for the taxable year described in clause (i) of such subsection equal to the amount described in clause (ii).

(ii) Difference in credit amounts

The amount described in this clause is equal to—

(I)

the amount allowable as a credit under subsection (a), as reduced pursuant to subsection (b)(3) based on the modified adjusted gross income of the taxpayer for the taxable year described in clause (i) of subsection (b)(3)(D), minus

(II)

the amount of the payment made by the eligible entity pursuant to paragraph (2)(A)(i)(V).

(4) Reporting

(A) In general

In the case of a taxpayer that has made an election under paragraph (1), not later than 3 days after the closing date for the purchase of the residence, the eligible entity shall report to the Secretary (in such manner as the Secretary may prescribe) the following:

(i)

The name and taxpayer identification number of the taxpayer.

(ii)

The amount of the credit allowed under subsection (a) to which the election under paragraph (1) applied.

(B) Information provided to taxpayer

At such time, and in such form and manner, as the Secretary may prescribe, the eligible entity shall provide the information described in subparagraph (A) to the taxpayer.

(5) Online portal

The Secretary shall establish an online portal which permits—

(A)

a taxpayer to—

(i)

determine the amount of the credit allowable under subsection (a) and the amount of such credit to which paragraph (1) may apply, and

(ii)

elect the application of this subsection with respect to the purchase of a residence, and

(B)

an eligible entity to—

(i)

verify the amount of the credit allowable under subsection (a) with respect to the taxpayer and the amount of such credit to which paragraph (1) may apply, and

(ii)

comply with the requirements under paragraph (4).

(h) Regulations and guidance

The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including rules for the application of subsection (d) in the case of a residence purchased by 2 or more individuals who are not married.