H.R. 8626

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 8626 Introduced in House (IH)]

<DOC>

119th CONGRESS
2d Session
H. R. 8626

To amend the Internal Revenue Code of 1986 to provide a credit for 
middle-income housing, and for other purposes.

_______________________________________________________________________

IN THE HOUSE OF REPRESENTATIVES

April 30, 2026

Mr. Panetta (for himself, Mr. Carey, and Mr. Nunn of Iowa) introduced 
the following bill; which was referred to the Committee on Ways and 
Means

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to provide a credit for 
middle-income housing, and for other purposes.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Workforce Housing Tax Credit Act''.

SEC. 2. MIDDLE-INCOME HOUSING TAX CREDIT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 42 the following new section:

``SEC. 42A. MIDDLE-INCOME HOUSING CREDIT.

``(a) In General.--For purposes of section 38, the amount of the 
middle-income housing credit determined under this section for any 
taxable year in the credit period shall be an amount equal to--
``(1) the applicable percentage, of
``(2) the qualified basis of each qualified middle-income 
building.
``(b) Applicable Percentage.--
``(1) Determination of applicable percentage.--For purposes 
of this section--
``(A) In general.--The term `applicable percentage' 
means, with respect to any building, the appropriate 
percentage prescribed by the Secretary for the earlier 
of--
``(i) the month in which such building is 
placed in service, or
``(ii) at the election of the taxpayer, the 
month in which the taxpayer and the housing 
credit agency enter into an agreement with 
respect to such building (which is binding on 
such agency, the taxpayer, and all successors 
in interest) as to the housing credit dollar 
amount to be allocated to such building.
A month may be elected under clause (ii) only if the 
election is made not later than the 5th day after the 
close of such month. Such an election, once made, shall 
be irrevocable.
``(B) Method of prescribing percentages.--The 
percentages prescribed by the Secretary for any month 
shall be percentages which will yield over a 15-year 
period amounts of credit under subsection (a) which 
have a present value equal to--
``(i) 50 percent of the qualified basis of 
a new building which is not Federally 
subsidized for the taxable year, and
``(ii) 20 percent of the qualified basis of 
a building not described in clause (i).
``(C) Method of discounting.--The present value 
under subparagraph (B) shall be determined--
``(i) as of the last day of the 1st year of 
the 15-year period referred to in subparagraph 
(B),
``(ii) by using a discount rate equal to 72 
percent of the average of the annual Federal 
mid-term rate and the annual Federal long-term 
rate applicable under section 1274(d)(1) to the 
month applicable under clause (i) or (ii) of 
subparagraph (A) and compounded annually, and
``(iii) by assuming that the credit 
allowable under this section for any year is 
received on the last day of such year.
``(2) Minimum credit rate.--
``(A) In general.--The applicable percentage for 
any building which is not Federally subsidized for the 
taxable year shall not be less than 5 percent.
``(B) Minimum credit rate for federally subsidized 
buildings.--In the case of any building to which 
subparagraph (A) does not apply, except as provided in 
paragraph (3), the applicable percentage shall not be 
less than 2 percent.
``(3) Exception for certain federally subsidized 
buildings.--In the case of any building to which paragraph 
(2)(A) does not apply, the applicable percentage is zero 
unless--
``(A) a credit is allowed under section 42 with 
respect to such building for the taxable year, and
``(B) such building is financed by tax-exempt bonds 
as described in section 42(h)(4).
``(4) Cross references.--
``(A) For treatment of certain rehabilitation 
expenditures as separate new buildings, see subsection 
(e).
``(B) For determination of applicable percentage 
for increases in qualified basis after the 1st year of 
the credit period, see subsection (f)(3).
``(C) For authority of housing credit agency to 
limit applicable percentage and qualified basis which 
may be taken into account under this section with 
respect to any building, see subsection (h)(6).
``(c) Qualified Basis; Qualified Middle-Income Building.--For 
purposes of this section--
``(1) Qualified basis.--
``(A) Determination.--The qualified basis of any 
qualified middle-income building for any taxable year 
is an amount equal to--
``(i) the applicable fraction (determined 
as of the close of such taxable year), of
``(ii) the eligible basis of such building 
(determined under subsection (d)).
``(B) Applicable fraction.--For purposes of 
subparagraph (A), the term `applicable fraction' means 
the smaller of the unit fraction or the floor space 
fraction.
``(C) Unit fraction.--For purposes of subparagraph 
(B), the term `unit fraction' means the fraction--
``(i) the numerator of which is the number 
of middle-income units in the building, and
``(ii) the denominator of which is the 
number of residential rental units (whether or 
not occupied) in such building.
``(D) Floor space fraction.--For purposes of 
subparagraph (B), the term `floor space fraction' means 
the fraction--
``(i) the numerator of which is the total 
floor space of the middle-income units in such 
building, and
``(ii) the denominator of which is the 
total floor space of the residential rental 
units (whether or not occupied) in such 
building.
``(2) Qualified middle-income building.--The term 
`qualified middle-income building' means any building which is 
part of a qualified middle-income housing project at all times 
during the period--
``(A) beginning on the 1st day in the credit period 
on which such building is part of such a project, and
``(B) ending on the last day of the credit period 
with respect to such building.
``(d) Eligible Basis.--For purposes of this section--
``(1) New buildings.--The eligible basis of a new building 
is its adjusted basis as of the close of the 1st taxable year 
of the credit period.
``(2) Existing buildings.--
``(A) In general.--The eligible basis of an 
existing building is--
``(i) in the case of a building which meets 
the requirements of subparagraph (B), its 
adjusted basis as of the close of the 1st 
taxable year of the credit period, and
``(ii) zero in any other case.
``(B) Requirements.--A building meets the 
requirements of this subparagraph if--
``(i) the building is acquired by purchase 
(as defined in section 179(d)(2)),
``(ii) there is a period of at least 10 
years between the date of its acquisition by 
the taxpayer and the date the building was last 
placed in service,
``(iii) the building was not previously 
placed in service by the taxpayer or by any 
person who was a related person with respect to 
the taxpayer as of the time previously placed 
in service, and
``(iv) except as provided in subsection 
(f)(5), a credit is allowable under subsection 
(a) by reason of subsection (e) with respect to 
the building.
``(C) Adjusted basis.--For purposes of subparagraph 
(A), the adjusted basis of any building shall not 
include so much of the basis of such building as is 
determined by reference to the basis of other property 
held at any time by the person acquiring the building.
``(D) Special rules.--
``(i) Special rules for certain 
transfers.--For purposes of determining under 
subparagraph (B)(ii) when a building was last 
placed in service, there shall not be taken 
into account any placement in service--
``(I) in connection with the 
acquisition of the building in a 
transaction in which the basis of the 
building in the hands of the person 
acquiring it is determined in whole or 
in part by reference to the adjusted 
basis of such building in the hands of 
the person from whom acquired,
``(II) by a person whose basis in 
such building is determined under 
section 1014(a) (relating to property 
acquired from a decedent),
``(III) by any governmental unit or 
qualified nonprofit organization (as 
defined in subsection (h)(4)) if the 
requirements of subparagraph (B)(ii) 
are met with respect to the placement 
in service by such unit or organization 
and all the income from such property 
is exempt from Federal income taxation,
``(IV) by any person who acquired 
such building by foreclosure (or by 
instrument in lieu of foreclosure) of 
any purchase-money security interest 
held by such person if the requirements 
of subparagraph (B)(ii) are met with 
respect to the placement in service by 
such person and such building is resold 
within 12 months after the date such 
building is placed in service by such 
person after such foreclosure, or
``(V) of a single-family residence 
by any individual who owned and used 
such residence for no other purpose 
than as his principal residence.
``(ii) Related person.--For purposes of 
subparagraph (B)(iii), a person (hereinafter in 
this subclause referred to as the `related 
person') is related to any person if the 
related person bears a relationship to such 
person specified in section 267(b) or 
707(b)(1), or the related person and such 
person are engaged in trades or businesses 
under common control (within the meaning of 
subsections (a) and (b) of section 52).
``(3) Eligible basis reduced where disproportionate 
standards for units.--
``(A) In general.--Except as provided in 
subparagraph (B), the eligible basis of any building 
shall be reduced by an amount equal to the portion of 
the adjusted basis of the building which is 
attributable to residential rental units in the 
building which are not middle-income units and which 
are above the average quality standard of the middle-
income units in the building.
``(B) Exception where taxpayer elects to exclude 
excess costs.--
``(i) In general.--Subparagraph (A) shall 
not apply with respect to a residential rental 
unit in a building which is not a middle-income 
unit if--
``(I) the excess described in 
clause (ii) with respect to such unit 
is not greater than 15 percent of the 
cost described in clause (ii)(II), and
``(II) the taxpayer elects to 
exclude from the eligible basis of such 
building the excess described in clause 
(ii) with respect to such unit.
``(ii) Excess.--The excess described in 
this clause with respect to any unit is the 
excess of--
``(I) the cost of such unit, over
``(II) the amount which would be 
the cost of such unit if the average 
cost per square foot of middle-income 
units in the building were substituted 
for the cost per square foot of such 
unit.
The Secretary may by regulation provide for the 
determination of the excess under this clause 
on a basis other than square foot costs.
``(4) Special rules relating to determination of adjusted 
basis.--For purposes of this subsection--
``(A) In general.--Except as provided in 
subparagraph (B), the adjusted basis of any building 
shall be determined without regard to the adjusted 
basis of any property which is not residential rental 
property.
``(B) Basis of property in common areas, etc., 
included.--
``(i) In general.--Except as provided in 
clause (ii), the adjusted basis of any building 
shall be determined by taking into account the 
adjusted basis of property (of a character 
subject to the allowance for depreciation) used 
in common areas or provided as comparable 
amenities to all residential rental units in 
such building.
``(ii) Special rule.--In the case of any 
building for which the low-income housing tax 
credit is allowable under section 42, the 
adjusted basis of the building under this 
section shall be determined without regard to 
property used in common areas or provided as 
comparable amenities to all residential rental 
units in such building.
``(C) No reduction for depreciation.--The adjusted 
basis of any building shall be determined without 
regard to paragraphs (2) and (3) of section 1016(a).
``(5) Special rules for determining eligible basis.--
``(A) Federal grants not taken into account in 
determining eligible basis.--The eligible basis of a 
building shall not include any costs financed with the 
proceeds of a Federally funded grant.
``(B) Increase in credit for buildings in high cost 
areas.--
``(i) In general.--In the case of any 
building located in a qualified census tract or 
difficult development area--
``(I) in the case of a new 
building, the eligible basis of such 
building shall be 130 percent of such 
basis determined without regard to this 
subparagraph, and
``(II) in the case of an existing 
building, the rehabilitation 
expenditures taken into account under 
subsection (e) shall be 130 percent of 
such expenditures determined without 
regard to this subparagraph.
``(ii) Qualified census tract.--The term 
`qualified census tract' means, with respect to 
any period any census tract which is treated as 
a qualified census tract under section 
42(d)(5)(B).
``(iii) Difficult development areas.--The 
term `difficult development areas' means any 
census tract which is treated as a difficult 
development area under section 42(d)(5)(B) 
(determined without regard to clause (v) 
thereof).
``(iv) Buildings designated by state 
housing credit agency.--Any building which is 
designated by the State housing credit agency 
as requiring the increase in credit under this 
subparagraph in order for such building to be 
financially feasible as part of a qualified 
middle-income housing project shall be treated 
for purposes of this subparagraph as located in 
a difficult development area which is 
designated for purposes of this subparagraph. 
The preceding sentence shall not apply to any 
building if paragraph (1) of subsection (h) 
does not apply to any portion of the eligible 
basis of such building by reason of paragraph 
(9) of such subsection.
``(6) Credit allowable for certain buildings acquired 
during 10-year period.--
``(A) In general.--Paragraph (2)(B)(ii) shall not 
apply to any Federally-assisted building (as defined in 
section 42(d)(6)(C)(i)) or State-assisted building (as 
defined in section 42(d)(6)(C)(ii)).
``(B) Buildings acquired from insured depository 
institutions in default.--On application by the 
taxpayer, the Secretary may waive paragraph (2)(B)(ii) 
with respect to any building acquired from an insured 
depository institution in default (as defined in 
section 3 of the Federal Deposit Insurance Act) or from 
a receiver or conservator of such an institution.
``(7) Acquisition of building before end of prior credit 
period.--
``(A) In general.--Under regulations prescribed by 
the Secretary, in the case of a building described in 
subparagraph (B) (or interest therein) which is 
acquired by the taxpayer--
``(i) paragraph (2)(B) shall not apply, but
``(ii) the credit allowable by reason of 
subsection (a) to the taxpayer for any period 
after such acquisition shall be equal to the 
amount of credit which would have been 
allowable under subsection (a) for such period 
to the prior owner referred to in subparagraph 
(B) had such owner not disposed of the 
building.
``(B) Description of building.--A building is 
described in this subparagraph if--
``(i) a credit was allowed by reason of 
subsection (a) to any prior owner of such 
building, and
``(ii) the taxpayer acquired such building 
before the end of the credit period for such 
building with respect to such prior owner 
(determined without regard to any disposition 
by such prior owner).
``(e) Rehabilitation Expenditures Treated as Separate New 
Building.--
``(1) In general.--Rehabilitation expenditures paid or 
incurred by the taxpayer with respect to any building shall be 
treated for purposes of this section as a separate new 
building.
``(2) Rehabilitation expenditures.--For purposes of 
paragraph (1)--
``(A) In general.--The term `rehabilitation 
expenditures' means amounts chargeable to capital 
account and incurred for property (or additions or 
improvements to property) of a character subject to the 
allowance for depreciation in connection with the 
rehabilitation of a building.
``(B) Cost of acquisition, etc., not included.--
Such term does not include the cost of acquiring any 
building (or interest therein) or any amount not 
permitted to be taken into account under paragraph (3) 
or (4) of subsection (d).
``(3) Minimum expenditures to qualify.--
``(A) In general.--Paragraph (1) shall apply to 
rehabilitation expenditures with respect to any 
building only if--
``(i) the expenditures are allocable to 1 
or more middle-income units or substantially 
benefit such units, and
``(ii) the amount of such expenditures 
during any 24-month period meets the 
requirements of whichever of the following 
subclauses requires the greater amount of such 
expenditures:
``(I) The requirement of this 
subclause is met if such amount is not 
less than 20 percent of the adjusted 
basis of the building (determined as of 
the 1st day of such period and without 
regard to paragraphs (2) and (3) of 
section 1016(a)).
``(II) The requirement of this 
subclause is met if the qualified basis 
attributable to such amount, when 
divided by the number of middle-income 
units in the building, is equal to or 
greater than the dollar amount in 
effect under section 
42(e)(3)(A)(ii)(II) for the calendar 
year in which such expenditures are 
treated as placed in service under 
paragraph (4).
``(B) Exception.--In the case of a building 
acquired by the taxpayer from a governmental unit, at 
the election of the taxpayer, subparagraph (A)(ii)(I) 
shall not apply and the credit under this section for 
such rehabilitation expenditures shall be determined 
using the percentage under subsection (b) which is 
applicable to buildings which are Federally subsidized.
``(C) Date of determination.--The determination 
under subparagraph (A) shall be made as of the close of 
the 1st taxable year in the credit period with respect 
to such expenditures.
``(4) Special rules.--For purposes of applying this section 
with respect to expenditures which are treated as a separate 
building by reason of this subsection--
``(A) such expenditures shall be treated as placed 
in service at the close of the 24-month period referred 
to in paragraph (3)(A), and
``(B) the applicable fraction under subsection 
(c)(1) shall be the applicable fraction for the 
building (without regard to paragraph (1)) with respect 
to which the expenditures were incurred.
Nothing in subsection (d)(2) shall prevent a credit from being 
allowed by reason of this subsection.
``(5) No double counting.--Rehabilitation expenditures may, 
at the election of the taxpayer, be taken into account under 
this subsection or subsection (d)(2)(A)(i) but not under both 
such subsections.
``(6) Regulations to apply subsection with respect to group 
of units in building.--The Secretary may prescribe regulations, 
consistent with the purposes of this subsection, treating a 
group of units with respect to which rehabilitation 
expenditures are incurred as a separate new building.
``(f) Definition and Special Rules Relating to Credit Period.--
``(1) Credit period defined.--For purposes of this section, 
the term `credit period' means, with respect to any building, 
the period of 15 taxable years beginning with--
``(A) the taxable year in which the building is 
placed in service, or
``(B) at the election of the taxpayer, the 
succeeding taxable year,
but only if the building is a qualified middle-income building 
as of the close of the 1st year of such period. The election 
under subparagraph (B), once made, shall be irrevocable.
``(2) Special rule for 1st year of credit period.--
``(A) In general.--The credit allowable under 
subsection (a) with respect to any building for the 1st 
taxable year of the credit period shall be determined 
by substituting for the applicable fraction under 
subsection (c)(1) the fraction--
``(i) the numerator of which is the sum of 
the applicable fractions determined under 
subsection (c)(1) as of the close of each full 
month of such year during which such building 
was in service, and
``(ii) the denominator of which is 12.
``(B) Disallowed 1st-year credit allowed in 16th 
year.--Any reduction by reason of subparagraph (A) in 
the credit allowable (without regard to subparagraph 
(A)) for the 1st taxable year of the credit period 
shall be allowable under subsection (a) for the 1st 
taxable year following the credit period.
``(3) Determination of applicable percentage with respect 
to increases in qualified basis after 1st year of credit 
period.--
``(A) In general.--In the case of any building 
which was a qualified middle-income building as of the 
close of the 1st year of the credit period, if--
``(i) as of the close of any taxable year 
in the credit period (after the 1st year of 
such period) the qualified basis of such 
building, exceeds
``(ii) the qualified basis of such building 
as of the close of the 1st year of the credit 
period,
the applicable percentage which shall apply under 
subsection (a) for the taxable year to such excess 
shall be the percentage equal to \2/3\ of the 
applicable percentage which (after the application of 
subsection (h)) would but for this paragraph apply to 
such basis.
``(B) 1st year computation applies.--A rule similar 
to the rule of paragraph (2)(A) shall apply to any 
increase in qualified basis to which subparagraph (A) 
applies for the 1st year of such increase.
``(4) Dispositions of property.--If a building (or an 
interest therein) is disposed of during any year for which 
credit is allowable under subsection (a), such credit shall be 
allocated between the parties on the basis of the number of 
days during such year the building (or interest) was held by 
each.
``(5) Credit period for existing buildings not to begin 
before rehabilitation credit allowed.--
``(A) In general.--The credit period for an 
existing building shall not begin before the 1st 
taxable year of the credit period for rehabilitation 
expenditures with respect to the building.
``(B) Acquisition credit allowed for certain 
buildings not allowed a rehabilitation credit.--
``(i) In general.--In the case of a 
building described in clause (ii)--
``(I) subsection (d)(2)(B)(iv) 
shall not apply, and
``(II) the credit period for such 
building shall not begin before the 
taxable year which would be the 1st 
taxable year of the credit period for 
rehabilitation expenditures with 
respect to the building under the 
modifications described in clause 
(ii)(II).
``(ii) Building described.--A building is 
described in this clause if--
``(I) a waiver is granted under 
subsection (d)(5) with respect to the 
acquisition of the building, and
``(II) a credit would be allowed 
for rehabilitation expenditures with 
respect to such building if subsection 
(e)(3)(A)(ii)(I) did not apply and if 
the dollar amount in effect under 
subsection (e)(3)(A)(ii)(II) were two-
thirds of such amount.
``(g) Qualified Middle-Income Housing Project.--For purposes of 
this section--
``(1) In general.--The term `qualified middle-income 
housing project' means any project for residential rental 
property if--
``(A) 60 percent or more of the residential units 
in such project are both rent-restricted and occupied 
by individuals whose income is 100 percent or less of 
area median gross income, and
``(B) not less than 20 percent of the residential 
units in such project are units which--
``(i) are described in subparagraph (A), 
and
``(ii) are not residential units which are 
taken into account under section 42.
``(2) Rent-restricted units.--
``(A) In general.--For purposes of paragraph (1), a 
residential unit is rent-restricted if the gross rent 
with respect to such unit does not exceed 30 percent of 
the imputed income limitation applicable to such unit. 
For purposes of the preceding sentence, the amount of 
the income limitation under paragraph (1) applicable 
for any period shall not be less than such limitation 
applicable for the earliest period the building (which 
contains the unit) was included in the determination of 
whether the project is a qualified middle-income 
housing project.
``(B) Gross rent.--For purposes of subparagraph 
(A), gross rent--
``(i) includes any utility allowance 
determined by the Secretary after taking into 
account such determinations under section 8 of 
the United States Housing Act of 1937,
``(ii) does not include any fee for a 
supportive service which is paid to the owner 
of the unit (on the basis of the middle-income 
status of the tenant of the unit) by any 
governmental program of assistance (or by an 
organization described in section 501(c)(3) and 
exempt from tax under section 501(a)) if such 
program (or organization) provides assistance 
for rent and the amount of assistance provided 
for rent is not separable from the amount of 
assistance provided for supportive services, 
and
``(iii) does not include any rental payment 
to the owner of the unit to the extent such 
owner pays an equivalent amount to the Farmers' 
Home Administration under section 515 of the 
Housing Act of 1949.
For purposes of clause (ii), the term `supportive 
service' means any service provided under a planned 
program of services designed to enable residents of a 
residential rental property to remain independent and 
avoid placement in a hospital, nursing home, or 
intermediate care facility for the mentally or 
physically handicapped.
``(C) Imputed income limitation applicable to 
unit.--For purposes of this paragraph, the imputed 
income limitation applicable to a unit is the income 
limitation which would apply under paragraph (1) to 
individuals occupying the unit if the number of 
individuals occupying the unit were as follows:
``(i) In the case of a unit which does not 
have a separate bedroom, 1 individual.
``(ii) In the case of a unit which has 1 or 
more separate bedrooms, 1.5 individuals for 
each separate bedroom.
In the case of a project with respect to which a credit 
is allowable by reason of this section and for which 
financing is provided by a bond described in section 
142(a)(7), the imputed income limitation shall apply in 
lieu of the otherwise applicable income limitation for 
purposes of applying section 142(d)(4)(B)(ii).
``(D) Treatment of units occupied by individuals 
whose incomes rise above limit.--
``(i) In general.--Except as provided in 
clause (ii), notwithstanding an increase in the 
income of the occupants of a middle-income unit 
above the income limitation applicable under 
paragraph (1), such unit shall continue to be 
treated as a middle-income unit if the income 
of such occupants initially met such income 
limitation and such unit continues to be rent-
restricted.
``(ii) Next available unit must be rented 
to middle-income tenant if income rises above 
140 percent of income limit.--If the income of 
the occupants of the unit increases above 140 
percent of the income limitation applicable 
under paragraph (1), clause (i) shall cease to 
apply to such unit if any residential rental 
unit in the building (of a size comparable to, 
or smaller than, such unit) is occupied by a 
new resident whose income exceeds such income 
limitation.
``(3) Date for meeting requirements.--
``(A) In general.--Except as otherwise provided in 
this paragraph, a building shall be treated as a 
qualified middle-income building only if the project 
(of which such building is a part) meets the 
requirements of paragraph (1) not later than the close 
of the 1st year of the credit period for such building.
``(B) Buildings which rely on later buildings for 
qualification.--
``(i) In general.--In determining whether a 
building (hereinafter in this subparagraph 
referred to as the `prior building') is a 
qualified middle-income building, the taxpayer 
may take into account 1 or more additional 
buildings placed in service during the 12-month 
period described in subparagraph (A) with 
respect to the prior building only if the 
taxpayer elects to apply clause (ii) with 
respect to each additional building taken into 
account.
``(ii) Treatment of elected buildings.--In 
the case of a building which the taxpayer 
elects to take into account under clause (i), 
the period under subparagraph (A) for such 
building shall end at the close of the 12-month 
period applicable to the prior building.
``(iii) Date prior building is treated as 
placed in service.--For purposes of determining 
the credit period for the prior building, the 
prior building shall be treated for purposes of 
this section as placed in service on the most 
recent date any additional building elected by 
the taxpayer (with respect to such prior 
building) was placed in service.
``(C) Special rule.--A building--
``(i) other than the 1st building placed in 
service as part of a project, and
``(ii) other than a building which is 
placed in service during the 12-month period 
described in subparagraph (A) with respect to a 
prior building which becomes a qualified 
middle-income building,
shall in no event be treated as a qualified middle-
income building unless the project is a qualified 
middle-income housing project (without regard to such 
building) on the date such building is placed in 
service.
``(D) Projects with more than 1 building must be 
identified.--For purposes of this section, a project 
shall be treated as consisting of only 1 building 
unless, before the close of the 1st calendar year in 
the project period (as defined in subsection 
(h)(1)(F)(ii)), each building which is (or will be) 
part of such project is identified in such form and 
manner as the Secretary may provide.
``(4) Certain rules made applicable.--Paragraphs (2) (other 
than subparagraph (A) thereof), (3), and (7) of section 142(d), 
and section 6652(j), shall apply for purposes of determining 
whether any project is a qualified middle-income housing 
project and whether any unit is a middle-income unit; except 
that, in applying such provisions for such purposes--
``(A) the term `gross rent' shall have the meaning 
given such term by paragraph (2)(B) of this subsection, 
and
``(B) the term `applicable income limit' means the 
limitation under paragraph (1) of this subsection.
``(5) Election to treat building after credit period as not 
part of a project.--For purposes of this section, the taxpayer 
may elect to treat any building as not part of a qualified 
middle-income housing project for any period beginning after 
the credit period for such building.
``(6) Special rule where de minimis equity contribution.--
Property shall not be treated as failing to be residential 
rental property for purposes of this section merely because the 
occupant of a residential unit in the project pays (on a 
voluntary basis) to the lessor a de minimis amount to be held 
toward the purchase by such occupant of a residential unit in 
such project if--
``(A) all amounts so paid are refunded to the 
occupant on the cessation of his occupancy of a unit in 
the project, and
``(B) the purchase of the unit is not permitted 
until after the close of the credit period with respect 
to the building in which the unit is located.
Any amount paid to the lessor as described in the preceding 
sentence shall be included in gross rent under paragraph (2) 
for purposes of determining whether the unit is rent-
restricted.
``(7) Scattered site projects.--Buildings which would (but 
for their lack of proximity) be treated as a project for 
purposes of this section shall be so treated if all of the 
dwelling units in each of the buildings are rent-restricted 
(within the meaning of paragraph (2)) residential rental units.
``(8) Waiver of certain recertifications.--On application 
by the taxpayer, the Secretary may waive any annual 
recertification of tenant income for purposes of this 
subsection, if the entire building is occupied by middle-income 
tenants.
``(9) Clarification of general public use requirement.--A 
project does not fail to meet the general public use 
requirement solely because of occupancy restrictions or 
preferences that favor tenants--
``(A) with special needs,
``(B) who are members of a specified group under a 
Federal program or State program or policy that 
supports housing for such a specified group, or
``(C) who are involved in artistic or literary 
activities.
``(h) Limitation on Aggregate Credit Allowable With Respect to 
Projects Located in a State.--
``(1) Credit may not exceed credit amount allocated to 
building.--
``(A) In general.--The amount of the credit 
determined under this section for any taxable year with 
respect to any building shall not exceed the housing 
credit dollar amount allocated to such building under 
this subsection.
``(B) Time for making allocation.--Except in the 
case of an allocation which meets the requirements of 
subparagraph (C), (D), (E), or (F), an allocation shall 
be taken into account under subparagraph (A) only if it 
is made not later than the close of the calendar year 
in which the building is placed in service.
``(C) Exception where binding commitment.--An 
allocation meets the requirements of this subparagraph 
if there is a binding commitment (not later than the 
close of the calendar year in which the building is 
placed in service) by the housing credit agency to 
allocate a specified housing credit dollar amount to 
such building beginning in a specified later taxable 
year.
``(D) Exception where increase in qualified 
basis.--
``(i) In general.--An allocation meets the 
requirements of this subparagraph if such 
allocation is made not later than the close of 
the calendar year in which ends the taxable 
year to which it will 1st apply but only to the 
extent the amount of such allocation does not 
exceed the limitation under clause (ii).
``(ii) Limitation.--The limitation under 
this clause is the amount of credit allowable 
under this section (without regard to this 
subsection) for a taxable year with respect to 
an increase in the qualified basis of the 
building equal to the excess of--
``(I) the qualified basis of such 
building as of the close of the 1st 
taxable year to which such allocation 
will apply, over
``(II) the qualified basis of such 
building as of the close of the 1st 
taxable year to which the most recent 
prior housing credit allocation with 
respect to such building applied.
``(iii) Housing credit dollar amount 
reduced by full allocation.--Notwithstanding 
clause (i), the full amount of the allocation 
shall be taken into account under paragraph 
(2).
``(E) Exception where 10 percent of cost 
incurred.--
``(i) In general.--An allocation meets the 
requirements of this subparagraph if such 
allocation is made with respect to a qualified 
building which is placed in service not later 
than the close of the second calendar year 
following the calendar year in which the 
allocation is made.
``(ii) Qualified building.--For purposes of 
clause (i), the term `qualified building' means 
any building which is part of a project if the 
taxpayer's basis in such project (as of the 
date which is 1 year after the date that the 
allocation was made) is more than 10 percent of 
the taxpayer's reasonably expected basis in 
such project (as of the close of the second 
calendar year referred to in clause (i)). Such 
term does not include any existing building 
unless a credit is allowable under subsection 
(e) for rehabilitation expenditures paid or 
incurred by the taxpayer with respect to such 
building for a taxable year ending during the 
second calendar year referred to in clause (i) 
or the prior taxable year.
``(F) Allocation of credit on a project basis.--
``(i) In general.--In the case of a project 
which includes (or will include) more than 1 
building, an allocation meets the requirements 
of this subparagraph if--
``(I) the allocation is made to the 
project for a calendar year during the 
project period,
``(II) the allocation only applies 
to buildings placed in service during 
or after the calendar year for which 
the allocation is made, and
``(III) the portion of such 
allocation which is allocated to any 
building in such project is specified 
not later than the close of the 
calendar year in which the building is 
placed in service.
``(ii) Project period.--For purposes of 
clause (i), the term `project period' means the 
period--
``(I) beginning with the 1st 
calendar year for which an allocation 
may be made for the 1st building placed 
in service as part of such project, and
``(II) ending with the calendar 
year the last building is placed in 
service as part of such project.
``(2) Allocated credit amount to apply to all taxable years 
ending during or after credit allocation year.--Any housing 
credit dollar amount allocated to any building for any calendar 
year--
``(A) shall apply to such building for all taxable 
years in the credit period ending during or after such 
calendar year, and
``(B) shall reduce the aggregate housing credit 
dollar amount of the allocating agency only for such 
calendar year.
``(3) Housing credit dollar amount for agencies.--
``(A) In general.--The aggregate housing credit 
dollar amount which a housing credit agency may 
allocate for any calendar year is the portion of the 
State housing credit ceiling allocated under this 
paragraph for such calendar year to such agency.
``(B) State ceiling initially allocated to state 
housing credit agencies.--Except as provided in 
subparagraph (D), the State housing credit ceiling for 
each calendar year shall be allocated to the housing 
credit agency of such State. If there is more than 1 
housing credit agency of a State, all such agencies 
shall be treated as a single agency.
``(C) State housing credit ceiling.--The State 
housing credit ceiling applicable to any State for any 
calendar year shall be an amount equal to the sum of--
``(i) the unused State housing credit 
ceiling (if any) of such State for the 
preceding calendar year,
``(ii) the greater of--
``(I) $1.00 multiplied by the State 
population, or
``(II) $1,500,000, plus
``(iii) the amount of State housing credit 
ceiling returned in the calendar year.
For purposes of clause (i), the unused State housing 
credit ceiling for any calendar year is the excess (if 
any) of the sum of the amounts described in clauses 
(ii) (reduced by the aggregate amounts described in 
paragraph (10)(A)(i) with respect to all elections made 
for such calendar year) and (iii) over the aggregate 
housing credit dollar amount allocated for such year. 
For purposes of clause (iii), the amount of State 
housing credit ceiling returned in the calendar year 
equals the housing credit dollar amount previously 
allocated within the State to any project which fails 
to meet the 10 percent test under paragraph (1)(E)(ii) 
on a date after the close of the calendar year in which 
the allocation was made or which does not become a 
qualified middle-income housing project within the 
period required by this section or the terms of the 
allocation or to any project with respect to which an 
allocation is cancelled by mutual consent of the 
housing credit agency and the allocation recipient.
``(D) State may provide for different allocation.--
Rules similar to the rules of section 146(e) (other 
than paragraph (2)(B) thereof) shall apply for purposes 
of this paragraph.
``(E) Population.--For purposes of this paragraph, 
population shall be determined in accordance with 
section 146(j).
``(F) Cost-of-living adjustment.--
``(i) In general.--In the case of a 
calendar year after 2026, the $1,500,000 and 
$1.00 amounts in subparagraph (C) shall each be 
increased by an amount equal to--
``(I) such dollar amount, 
multiplied by
``(II) the cost-of-living 
adjustment determined under section 
1(f)(3) for such calendar year by 
substituting `calendar year 2025' for 
`calendar year 2016' in subparagraph 
(A)(ii) thereof.
``(ii) Rounding.--
``(I) In the case of the $1,500,000 
amount, any increase under clause (i) 
which is not a multiple of $5,000 shall 
be rounded to the next lowest multiple 
of $5,000.
``(II) In the case of the $1.00 
amount, any increase under clause (i) 
which is not a multiple of 5 cents 
shall be rounded to the next lowest 
multiple of 5 cents.
``(4) Portion of state ceiling set-aside for certain 
projects involving qualified nonprofit organizations.--
``(A) In general.--Not more than 90 percent of the 
State housing credit ceiling (determined without regard 
to paragraph (7)) for any State for any calendar year 
shall be allocated to projects other than qualified 
middle-income housing projects described in 
subparagraph (B).
``(B) Projects involving qualified nonprofit 
organizations.--For purposes of subparagraph (A), a 
qualified middle-income housing project is described in 
this subparagraph if a qualified nonprofit organization 
is to own an interest in the project (directly or 
through a partnership) and materially participate 
(within the meaning of section 469(h)) in the 
development and operation of the project throughout the 
credit period.
``(C) Qualified nonprofit organization.--For 
purposes of this paragraph, the term `qualified 
nonprofit organization' means any organization if--
``(i) such organization is described in 
paragraph (3) or (4) of section 501(c) and is 
exempt from tax under section 501(a),
``(ii) such organization is determined by 
the State housing credit agency not to be 
affiliated with or controlled by a for-profit 
organization, and
``(iii) one of the exempt purposes of such 
organization includes the fostering of middle-
income housing.
``(D) Treatment of certain subsidiaries.--
``(i) In general.--For purposes of this 
paragraph, a qualified nonprofit organization 
shall be treated as satisfying the ownership 
and material participation test of subparagraph 
(B) if any qualified corporation in which such 
organization holds stock satisfies such test.
``(ii) Qualified corporation.--For purposes 
of clause (i), the term `qualified corporation' 
means any corporation if 100 percent of the 
stock of such corporation is held by 1 or more 
qualified nonprofit organizations at all times 
during the period such corporation is in 
existence.
``(E) State may not override set-aside.--Nothing in 
subparagraph (E) of paragraph (3) shall be construed to 
permit a State not to comply with subparagraph (A) of 
this paragraph.
``(5) Buildings eligible for credit only if minimum long-
term commitment to middle-income housing.--
``(A) In general.--No credit shall be allowed by 
reason of this section with respect to any building for 
the taxable year unless an extended middle-income 
housing commitment is in effect as of the end of such 
taxable year.
``(B) Extended middle-income housing commitment.--
For purposes of this paragraph, the term `extended 
middle-income housing commitment' means any agreement 
between the taxpayer and the housing credit agency--
``(i) which requires that the applicable 
fraction (as defined in subsection (c)(1)) for 
the building for each taxable year in the 
extended use period will not be less than the 
applicable fraction specified in such agreement 
and which prohibits the actions described in 
subclauses (I) and (II) of subparagraph 
(E)(ii),
``(ii) which allows individuals who meet 
the income limitation applicable to the 
building under subsection (g) (whether 
prospective, present, or former occupants of 
the building) the right to enforce in any State 
court the requirement and prohibitions of 
clause (i),
``(iii) which prohibits the disposition to 
any person of any portion of the building to 
which such agreement applies unless all of the 
building to which such agreement applies is 
disposed of to such person,
``(iv) which prohibits the refusal to lease 
to a holder of a voucher or certificate of 
eligibility under section 8 of the United 
States Housing Act of 1937 because of the 
status of the prospective tenant as such a 
holder,
``(v) which is binding on all successors of 
the taxpayer, and
``(vi) which, with respect to the property, 
is recorded pursuant to State law as a 
restrictive covenant.
``(C) Allocation of credit may not exceed amount 
necessary to support commitment.--
``(i) In general.--The housing credit 
dollar amount allocated to any building may not 
exceed the amount necessary to support the 
applicable fraction specified in the extended 
middle-income housing commitment for such 
building, including any increase in such 
fraction pursuant to the application of 
subsection (f)(3) if such increase is reflected 
in an amended middle-income housing commitment.
``(ii) Buildings financed by tax-exempt 
bonds.--If paragraph (9) applies to any 
building the amount of credit allowed in any 
taxable year may not exceed the amount 
necessary to support the applicable fraction 
specified in the extended low-income housing 
commitment for such building. Such commitment 
may be amended to increase such fraction.
``(D) Extended use period.--For purposes of this 
paragraph, the term `extended use period' means the 
period--
``(i) beginning on the 1st day in the 
credit period on which such building is part of 
a qualified middle-income housing project, and
``(ii) ending on the later of--
``(I) the date specified by such 
agency in such agreement, or
``(II) the date which is 15 years 
after the close of the credit period.
``(E) Exceptions if foreclosure or if no buyer 
willing to maintain middle-income status.--
``(i) In general.--The extended use period 
for any building shall terminate--
``(I) on the date the building is 
acquired by foreclosure (or instrument 
in lieu of foreclosure) unless the 
Secretary determines that such 
acquisition is part of an arrangement 
with the taxpayer a purpose of which is 
to terminate such period, or
``(II) on the last day of the 
period specified in subparagraph (I) if 
the housing credit agency is unable to 
present during such period a qualified 
contract for the acquisition of the 
middle-income portion of the building 
by any person who will continue to 
operate such portion as a qualified 
middle-income building.
Subclause (II) shall no apply to the extent 
more stringent requirements are provided in the 
agreement or in State law.
``(ii) Eviction, etc., of existing middle-
income tenants not permitted.--The termination 
of an extended use period under clause (i) 
shall not be construed to permit before the 
close of the 3-year period following such 
termination--
``(I) the eviction or the 
termination of tenancy (other than for 
good cause) of an existing tenant of 
any middle-income unit, or
``(II) any increase in the gross 
rent with respect to such unit not 
otherwise permitted under this section.
``(F) Qualified contract.--For purposes of 
subparagraph (E), the term `qualified contract' means a 
bona fide contract to acquire (within a reasonable 
period after the contract is entered into) the 
nonmiddle-income portion of the building for fair 
market value and the middle-income portion of the 
building for an amount not less than the applicable 
fraction (specified in the extended middle-income 
housing commitment) of--
``(i) the sum of--
``(I) the outstanding indebtedness 
secured by, or with respect to, the 
building,
``(II) the adjusted investor equity 
in the building, plus
``(III) other capital contributions 
not reflected in the amounts described 
in subclause (I) or (II), reduced by
``(ii) cash distributions from (or 
available for distribution from) the project.
The Secretary shall prescribe such regulations as may 
be necessary or appropriate to carry out this 
paragraph, including regulations to prevent the 
manipulation of the amount determined under the 
preceding sentence.
``(G) Adjusted investor equity.--
``(i) In general.--For purposes of 
subparagraph (F), the term `adjusted investor 
equity' means, with respect to any calendar 
year, the aggregate amount of cash taxpayers 
invested with respect to the project increased 
by the amount equal to--
``(I) such amount, multiplied by
``(II) the cost-of-living 
adjustment for such calendar year, 
determined under section 1(f)(3) by 
substituting the base calendar year for 
`calendar year 2016' in subparagraph 
(A)(ii) thereof.
An amount shall be taken into account as an 
investment in the project only to the extent 
there was an obligation to invest such amount 
as of the beginning of the credit period and to 
the extent such amount is reflected in the 
adjusted basis of the project.
``(ii) Cost-of-living increases in excess 
of 5 percent not taken into account.--Under 
regulations prescribed by the Secretary, if the 
C-CPI-U for any calendar year (as defined in 
section 1(f)(6)) exceeds the C-CPI-U for the 
preceding calendar year by more than 5 percent, 
the C-CPI-U for the base calendar year shall be 
increased such that such excess shall never be 
taken into account under clause (i). In the 
case of a base calendar year before 2017, the 
C-CPI-U for such year shall be determined by 
multiplying the CPI for such year by the amount 
determined under section 1(f)(3)(B).
``(iii) Base calendar year.--For purposes 
of this subparagraph, the term `base calendar 
year' means the calendar year with or within 
which the 1st taxable year of the credit period 
ends.
``(H) Middle-income portion.--For purposes of this 
paragraph, the middle-income portion of a building is 
the portion of such building equal to the applicable 
fraction specified in the extended middle-income 
housing commitment for the building.
``(I) Period for finding buyer.--The period 
referred to in this subparagraph is the 1-year period 
beginning on the date (after the 14th year of the 
credit period) the taxpayer submits a written request 
to the housing credit agency to find a person to 
acquire the taxpayer's interest in the low-income 
portion of the building.
``(J) Effect of noncompliance.--If, during a 
taxable year, there is a determination that an extended 
middle-income housing agreement was not in effect as of 
the beginning of such year, such determination shall 
not apply to any period before such year and 
subparagraph (A) shall be applied without regard to 
such determination if the failure is corrected within 1 
year from the date of the determination.
``(K) Projects which consist of more than 1 
building.--The application of this paragraph to 
projects which consist of more than 1 building shall be 
made under regulations prescribed by the Secretary.
``(6) Special rules.--
``(A) Building must be located within jurisdiction 
of credit agency.--A housing credit agency may allocate 
its aggregate housing credit dollar amount only to 
buildings located in the jurisdiction of the 
governmental unit of which such agency is a part.
``(B) Agency allocations in excess of limit.--If 
the aggregate housing credit dollar amounts allocated 
by a housing credit agency for any calendar year exceed 
the portion of the State housing credit ceiling 
allocated to such agency for such calendar year, the 
housing credit dollar amounts so allocated shall be 
reduced (to the extent of such excess) for buildings in 
the reverse of the order in which the allocations of 
such amounts were made.
``(C) Credit reduced if allocated credit dollar 
amount is less than credit which would be allowable 
without regard to placed in service convention, etc.--
``(i) In general.--The amount of the credit 
determined under this section with respect to 
any building shall not exceed the clause (ii) 
percentage of the amount of the credit which 
would (but for this subparagraph) be determined 
under this section with respect to such 
building.
``(ii) Determination of percentage.--For 
purposes of clause (i), the clause (ii) 
percentage with respect to any building is the 
percentage which--
``(I) the housing credit dollar 
amount allocated to such building, 
bears to
``(II) the credit amount determined 
in accordance with clause (iii).
``(iii) Determination of credit amount.--
The credit amount determined in accordance with 
this clause is the amount of the credit which 
would (but for this subparagraph) be determined 
under this section with respect to the building 
if--
``(I) this section were applied 
without regard to paragraphs (2)(A) and 
(3)(B) of subsection (f), and
``(II) subsection (f)(3)(A) were 
applied without regard to `the 
percentage equal to \2/3\ of'.
``(D) Housing credit agency to specify applicable 
percentage and maximum qualified basis.--In allocating 
a housing credit dollar amount to any building, the 
housing credit agency shall specify the applicable 
percentage and the maximum qualified basis which may be 
taken into account under this section with respect to 
such building. The applicable percentage and maximum 
qualified basis so specified shall not exceed the 
applicable percentage and qualified basis determined 
under this section without regard to this subsection.
``(7) Increase in state ceiling dedicated to certain rural 
development projects.--
``(A) In general.--The State housing credit ceiling 
for any calendar year shall be increased by an amount 
equal to 5 percent of the amount determined under 
paragraph (3)(C)(ii).
``(B) Use of increased amount.--
``(i) In general.--The amount of the 
increase under subparagraph (A) for any 
calendar year may only be allocated to 
buildings located in a rural area.
``(ii) Rural area.--For purposes of clause 
(i), the term `rural area' means any non-
metropolitan area, or any rural area as defined 
by section 520 of the Housing Act of 1949, 
which is identified by the qualified allocation 
plan under subsection (l)(1)(B).
``(8) Other definitions.--For purposes of this subsection--
``(A) Housing credit agency.--The term `housing 
credit agency' means any agency authorized to carry out 
this subsection.
``(B) Possessions treated as states.--The term 
`State' includes a possession of the United States.
``(9) Credit for buildings financed by tax-exempt bonds 
subject to volume cap not taken into account.--Rules similar to 
the rules of subsections (h)(4), (m)(1)(D), and (m)(2)(D) of 
section 42 shall apply for purposes of this subsection.
``(10) Election to transfer state housing credit ceiling 
for allocations to low-income buildings.--
``(A) In general.--If a State housing credit agency 
makes an election under this paragraph with respect to 
a calendar year--
``(i) the State housing credit ceiling for 
such calendar year under paragraph (3) 
(determined before application of paragraph 
(7)) shall be reduced by the amount specified 
in such election,
``(ii) the amount determined under 
paragraph (7) for such calendar year shall be 
reduced by the amount specified in such 
election, and
``(iii) the amount determined under section 
42(h)(3)(C)(ii) for such calendar year shall be 
increased by the sum of the amounts specified 
in clauses (i) and (ii), except that any amount 
specified under clause (ii)--
``(I) may only be allocated under 
such section to qualified low-income 
buildings (as defined in section 42) 
located in a rural area (as defined in 
paragraph (7), and
``(II) shall not be taken into 
account for purposes of determining the 
unused housing credit ceiling under the 
second sentence of section 42(h)(3)(C).
``(B) Time and manner for making election.--
``(i) In general.--An election under this 
paragraph--
``(I) shall be made before the end 
of the calendar year with respect to 
which such election applies,
``(II) shall be made in such manner 
as specified by the Secretary, and
``(III) shall separately specify 
the amount of reductions to be made 
under paragraph (3) and paragraph (7).
``(ii) Frequency.--A State housing credit 
agency may make more than one election under 
this section with respect to any calendar year, 
and any such election, once made, shall be 
revocable only if such revocation is made 
before the end of the calendar year with 
respect to which such election is made.
``(C) Limitation.--The aggregate amount specified 
in elections under this paragraph with respect to any 
State housing credit agency for calendar year shall not 
exceed the sum of--
``(i) the amount determined under paragraph 
(3)(C)(ii) for such calendar year, plus
``(ii) the amount determined under 
paragraph (7) for such calendar year.
``(i) Definitions and Special Rules.--For purposes of this 
section--
``(1) Middle-income unit.--
``(A) In general.--The term `middle-income unit' 
means any unit in a building if--
``(i) such unit is rent-restricted (as 
defined in subsection (g)(2)), and
``(ii) the individuals occupying such unit 
meet the income limitation applicable under 
subsection (g)(1) to the project of which such 
building is a part.
``(B) Exceptions.--
``(i) Exclusion of low-income units.--A 
unit shall not be treated as a middle-income 
unit if such unit is a low-income unit (as 
defined under section 42(i)(3)).
``(ii) Unit must be suitable for permanent 
occupancy.--
``(I) In general.--A unit shall not 
be treated as a middle-income unit 
unless the unit is suitable for 
occupancy and used other than on a 
transient basis.
``(II) Transitional housing for 
homeless.--For purposes of subclause 
(I), a unit shall be considered to be 
used other than on a transient basis if 
the unit contains sleeping 
accommodations and kitchen and bathroom 
facilities and is located in a 
building--
``(aa) which is used 
exclusively to facilitate the 
transition of homeless 
individuals (within the meaning 
of section 103 of the Stewart 
B. McKinney Homeless Assistance 
Act (42 U.S.C. 11302), as in 
effect on the date of the 
enactment of this clause) to 
independent living within 24 
months, and
``(bb) in which a 
governmental entity or 
qualified nonprofit 
organization (as defined in 
subsection (h)(4)) provides 
such individuals with temporary 
housing and supportive services 
designed to assist such 
individuals in locating and 
retaining permanent housing.
``(III) Suitability for 
occupancy.--For purposes of subclause 
(I), the suitability of a unit for 
occupancy shall be determined under 
regulations prescribed by the Secretary 
taking into account local health, 
safety, and building codes.
``(IV) Single-room occupancy 
units.--For purposes of subclause (I), 
a single-room occupancy unit shall not 
be treated as used on a transient basis 
merely because it is rented on a month-
by-month basis.
``(C) Special rule for buildings having 4 or fewer 
units.--In the case of any building which has 4 or 
fewer residential rental units, no unit in such 
building shall be treated as a middle-income unit if 
the units in such building are owned by--
``(i) any individual who occupies a 
residential unit in such building, or
``(ii) any person who is related (as 
defined in subsection (d)(2)(D)(ii)) to such 
individual.
``(D) Certain students not to disqualify unit.--A 
unit shall not fail to be treated as a middle-income 
unit merely because it is occupied--
``(i) by an individual who is--
``(I) a student and receiving 
assistance under title IV of the Social 
Security Act,
``(II) a student who was previously 
under the care and placement 
responsibility of the State agency 
responsible for administering a plan 
under part B or part E of title IV of 
the Social Security Act, or
``(III) enrolled in a job training 
program receiving assistance under the 
Job Training Partnership Act or under 
other similar Federal, State, or local 
laws, or
``(ii) entirely by full-time students if 
such students are--
``(I) single parents and their 
children and such parents are not 
dependents (as defined in section 152, 
determined without regard to 
subsections (b)(1), (b)(2), and 
(d)(1)(B) thereof) of another 
individual and such children are not 
dependents (as so defined) of another 
individual other than a parent of such 
children, or
``(II) married and file a joint 
return.
``(E) Owner-occupied buildings having 4 or fewer 
units eligible for credit where development plan.--
``(i) In general.--Subparagraph (C) shall 
not apply to the acquisition or rehabilitation 
of a building pursuant to a development plan of 
action sponsored by a State or local government 
or a qualified nonprofit organization.
``(ii) Limitation on credit.--In the case 
of a building to which clause (i) applies, the 
applicable fraction shall not exceed 80 percent 
of the unit fraction.
``(iii) Certain unrented units treated as 
owner-occupied.--In the case of a building to 
which clause (i) applies, any unit which is not 
rented for 90 days or more shall be treated as 
occupied by the owner of the building as of the 
1st day it is not rented.
``(2) New building.--The term `new building' means a 
building the original use of which begins with the taxpayer.
``(3) Existing building.--The term `existing building' 
means any building which is not a new building.
``(4) Application to estates and trusts.--In the case of an 
estate or trust, the amount of the credit determined under 
subsection (a) shall be apportioned between the estate or trust 
and the beneficiaries on the basis of the income of the estate 
or trust allocable to each.
``(5) Impact of tenant's right of 1st refusal to acquire 
property.--
``(A) In general.--No Federal income tax benefit 
shall fail to be allowable to the taxpayer with respect 
to any qualified middle-income building merely by 
reason of a right of 1st refusal held by the tenants 
(in cooperative form or otherwise) or resident 
management corporation of such building or by a 
qualified nonprofit organization (as defined in 
subsection (h)(4)(C)) or government agency to purchase 
the property after the close of the credit period for a 
price which is not less than the minimum purchase price 
determined under subparagraph (B).
``(B) Minimum purchase price.--For purposes of 
subparagraph (A), the minimum purchase price under this 
subparagraph is an amount equal to the sum of--
``(i) the principal amount of outstanding 
indebtedness secured by the building (other 
than indebtedness incurred within the 5-year 
period ending on the date of the sale to the 
tenants), and
``(ii) all Federal, State, and local taxes 
attributable to such sale.
Except in the case of Federal income taxes, there shall 
not be taken into account under clause (ii) any 
additional tax attributable to the application of 
clause (ii).
``(6) Impact of purchase option to acquire property.--
``(A) In general.--No Federal income tax benefit 
shall fail to be allowable to the taxpayer with respect 
to any qualified middle-income building merely by 
reason of a purchase option held by the tenants (in 
cooperative form or otherwise) or resident management 
corporation of such building or by a qualified 
nonprofit organization (as defined in subsection 
(h)(4)(C)) or government agency to purchase the 
property or all of the partnership interests (other 
than interests of the person exercising such option or 
a related party thereto (within the meaning of section 
267(b) or 707(b)(1))) relating to the property after 
the close of the credit period for a price which is not 
less than the minimum purchase price determined under 
subparagraph (B).
``(B) Minimum purchase price.--For purposes of 
subparagraph (A)--
``(i) In general.--Except as provided in 
clause (ii), the minimum purchase price is the 
amount determined under paragraph (5)(B).
``(ii) Partnership interests.--In the case 
of a purchase of all of the partnership 
interests relating to a property, the minimum 
purchase price under this subparagraph shall be 
an amount not less than the sum of the 
interests' shares of the amount which would be 
determined with respect to the property under 
paragraph (5)(B) without regard to this 
sentence.
``(C) Property.--For purposes of subparagraph (A), 
the term `property' may include all or any of the 
assets held for the development, operation, or 
maintenance of a building.
``(D) Application to S corporations and other pass-
through entities.--Except as provided by the Secretary, 
the rules of this paragraph shall apply to S 
corporations and other pass-through entities in the 
same manner as such rules apply to partnerships.
``(7) Treatment of rural projects.--For purposes of this 
section, in the case of any project for residential rental 
property located in a rural area (as defined in section 520 of 
the Housing Act of 1949), any income limitation measured by 
reference to area median gross income shall be measured by 
reference to the greater of area median gross income or 
national non-metropolitan median income. The preceding sentence 
shall not apply with respect to any building if paragraph (1) 
of section 42(h) does not apply by reason of paragraph (9) 
thereof to any portion of the credit determined under this 
section with respect to such building.
``(8) Determination of whether building is federally 
subsidized.--
``(A) In general.--Except as otherwise provided in 
this paragraph, for purposes of this section, a project 
shall be treated as Federally subsidized for any 
taxable year if, at any time during such taxable year 
or any prior taxable year, there is or was outstanding 
any obligation the interest on which is exempt from tax 
under section 103 the proceeds of which are or were 
used (directly or indirectly) with respect to such 
project or the operation thereof.
``(B) Election to reduce eligible basis by proceeds 
of obligations.--A tax-exempt obligation shall not be 
taken into account under subparagraph (A) if the 
taxpayer elects to exclude from the eligible basis of 
the building for purposes of subsection (d) the 
proceeds of such obligation.
``(C) Special rule for subsidized construction 
financing.--Subparagraph (A) shall not apply to any 
tax-exempt obligation used to provide construction 
financing for any building if--
``(i) such obligation (when issued) 
identified the building for which the proceeds 
of such obligation would be used, and
``(ii) such obligation is redeemed before 
such building is placed in service.
``(9) Reduction in basis.--In the case of any building for 
which a credit is allowable under this section and section 42, 
the basis of the building shall be reduced by the amount of 
such credit allowed under subsection (a).
``(j) Application of At-Risk Rules.--For purposes of this section--
``(1) In general.--Except as otherwise provided in this 
subsection, rules similar to the rules of section 49(a)(1) 
(other than subparagraphs (D)(ii)(II) and (D)(iv)(I) thereof), 
section 49(a)(2), and section 49(b)(1) shall apply in 
determining the qualified basis of any building in the same 
manner as such sections apply in determining the credit base of 
property.
``(2) Special rules for determining qualified person.--For 
purposes of paragraph (1)--
``(A) In general.--If the requirements of 
subparagraphs (B), (C), and (D) are met with respect to 
any financing borrowed from a qualified nonprofit 
organization (as defined in subsection (h)(4)), the 
determination of whether such financing is qualified 
commercial financing with respect to any qualified 
middle-income building shall be made without regard to 
whether such organization--
``(i) is actively and regularly engaged in 
the business of lending money, or
``(ii) is a person described in section 
49(a)(1)(D)(iv)(II).
``(B) Financing secured by property.--The 
requirements of this subparagraph are met with respect 
to any financing if such financing is secured by the 
qualified middle-income building, except that this 
subparagraph shall not apply in the case of a federally 
assisted building described in section 42(d)(6)(C)(i) 
if--
``(i) a security interest in such building 
is not permitted by a Federal agency holding or 
insuring the mortgage secured by such building, 
and
``(ii) the proceeds from the financing (if 
any) are applied to acquire or improve such 
building.
``(C) Portion of building attributable to 
financing.--The requirements of this subparagraph are 
met with respect to any financing for any taxable year 
in the credit period if, as of the close of such 
taxable year, not more than 60 percent of the eligible 
basis of the qualified middle-income building is 
attributable to such financing (reduced by the 
principal and interest of any governmental financing 
which is part of a wrap-around mortgage involving such 
financing).
``(D) Repayment of principal and interest.--The 
requirements of this subparagraph are met with respect 
to any financing if such financing is fully repaid on 
or before the earliest of--
``(i) the date on which such financing 
matures,
``(ii) the 90th day after the close of the 
credit period with respect to the qualified 
middle-income building, or
``(iii) the date of its refinancing or the 
sale of the building to which such financing 
relates.
In the case of a qualified nonprofit organization which 
is not described in section 49(a)(1)(D)(iv)(II) with 
respect to a building, clause (ii) of this subparagraph 
shall be applied as if the date described therein were 
the 90th day after the earlier of the date the building 
ceases to be a qualified middle-income building or the 
date which is 15 years after the close of a credit 
period with respect thereto.
``(3) Present value of financing.--If the rate of interest 
on any financing described in paragraph (2)(A) is less than the 
rate which is 1 percentage point below the applicable Federal 
rate as of the time such financing is incurred, then the 
qualified basis (to which such financing relates) of the 
qualified middle-income building shall be the present value of 
the amount of such financing, using as the discount rate such 
applicable Federal rate. For purposes of the preceding 
sentence, the rate of interest on any financing shall be 
determined by treating interest to the extent of government 
subsidies as not payable.
``(4) Failure to fully repay.--
``(A) In general.--To the extent that the 
requirements of paragraph (2)(D) are not met, then the 
taxpayer's tax under this chapter for the taxable year 
in which such failure occurs shall be increased by an 
amount equal to the applicable portion of the credit 
under this section with respect to such building, 
increased by an amount of interest for the period--
``(i) beginning with the due date for the 
filing of the return of tax imposed by chapter 
1 for the 1st taxable year for which such 
credit was allowable, and
``(ii) ending with the due date for the 
taxable year in which such failure occurs,
determined by using the underpayment rate and method 
under section 6621.
``(B) Applicable portion.--For purposes of 
subparagraph (A), the term `applicable portion' means 
the aggregate decrease in the credits allowed to a 
taxpayer under section 38 for all prior taxable years 
which would have resulted if the eligible basis of the 
building were reduced by the amount of financing which 
does not meet requirements of paragraph (2)(D).
``(C) Certain rules to apply.--Rules similar to the 
rules of subparagraphs (A) and (D) of section 42(j)(4) 
shall apply for purposes of this subsection.
``(k) Certifications and Other Reports to Secretary.--
``(1) Certification with respect to 1st year of credit 
period.--Following the close of the 1st taxable year in the 
credit period with respect to any qualified middle-income 
building, the taxpayer shall certify to the Secretary (at such 
time and in such form and in such manner as the Secretary 
prescribes)--
``(A) the taxable year, and calendar year, in which 
such building was placed in service,
``(B) the adjusted basis and eligible basis of such 
building as of the close of the 1st year of the credit 
period,
``(C) the maximum applicable percentage and 
qualified basis permitted to be taken into account by 
the appropriate housing credit agency under subsection 
(h), and
``(D) such other information as the Secretary may 
require.
In the case of a failure to make the certification required by 
the preceding sentence on the date prescribed therefor, unless 
it is shown that such failure is due to reasonable cause and 
not to willful neglect, no credit shall be allowable by reason 
of subsection (a) with respect to such building for any taxable 
year ending before such certification is made.
``(2) Annual reports to the secretary.--The Secretary may 
require taxpayers to submit an information return (at such time 
and in such form and manner as the Secretary prescribes) for 
each taxable year setting forth--
``(A) the qualified basis for the taxable year of 
each qualified middle-income building of the taxpayer,
``(B) the information described in paragraph (1)(C) 
for the taxable year, and
``(C) such other information as the Secretary may 
require.
The penalty under section 6652(j) shall apply to any failure to 
submit the return required by the Secretary under the preceding 
sentence on the date prescribed therefor.
``(3) Annual reports from housing credit agencies.--Each 
agency which allocates any housing credit amount to any 
building for any calendar year shall submit to the Secretary 
(at such time and in such manner as the Secretary shall 
prescribe) an annual report specifying--
``(A) the amount of housing credit amount allocated 
to each building for such year,
``(B) sufficient information to identify each such 
building and the taxpayer with respect thereto, and
``(C) such other information as the Secretary may 
require.
The penalty under section 6652(j) shall apply to any failure to 
submit the report required by the preceding sentence on the 
date prescribed therefor.
``(l) Responsibilities of Housing Credit Agencies.--
``(1) Plans for allocation of credit among projects.--
``(A) In general.--Notwithstanding any other 
provision of this section, the housing credit dollar 
amount with respect to any building shall be zero 
unless--
``(i) such amount was allocated pursuant to 
a qualified allocation plan of the housing 
credit agency which is approved by the 
governmental unit (in accordance with rules 
similar to the rules of section 42(m)(1)) of 
which such agency is a part,
``(ii) a comprehensive market study of the 
housing needs of middle-income individuals in 
the area to be served by the project is 
conducted before the credit allocation is made 
and at the developer's expense by a 
disinterested party who is approved by such 
agency, and
``(iii) a written explanation is available 
to the general public for any allocation of a 
housing credit dollar amount which is not made 
in accordance with established priorities and 
selection criteria of the housing credit 
agency.
``(B) Qualified allocation plan.--For purposes of 
this paragraph, the term `qualified allocation plan' 
means any plan--
``(i) which sets forth selection criteria 
to be used to determine housing priorities of 
the housing credit agency which are appropriate 
to local conditions,
``(ii) which also gives preference in 
allocating housing credit dollar amounts among 
selected projects to--
``(I) projects obligated to serve 
qualified tenants for the longest 
periods,
``(II) projects in areas with 
insufficient supply of housing 
affordable to median income households,
``(III) projects which target 
housing to tenants at a range of 
incomes between 60 and 100 percent of 
area median gross income, and
``(IV) projects located near 
transit hubs, and
``(iii) which provides a procedure that the 
agency (or an agent or other private contractor 
of such agency) will follow in monitoring for 
noncompliance with the provisions of this 
section and in notifying the Internal Revenue 
Service of such noncompliance which such agency 
becomes aware of and in monitoring for 
noncompliance with habitability standards 
through regular site visits.
``(C) Certain selection criteria must be used.--The 
selection criteria set forth in a qualified allocation 
plan must include--
``(i) project location,
``(ii) housing needs characteristics,
``(iii) project characteristics, including 
whether the project includes the use of 
existing housing as part of a community 
revitalization plan,
``(iv) sponsor characteristics,
``(v) tenant populations with special 
housing needs,
``(vi) tenant populations of individuals 
with children,
``(vii) projects intended for eventual 
tenant ownership,
``(viii) the energy efficiency of the 
project, and
``(ix) the historic nature of the project.
``(D) Certain selection criteria prohibited.--The 
selection criteria set forth in a qualified allocation 
plan shall not include a requirement of local approval 
or local contributions, either as a threshold 
qualification requirement or as part of a point system 
to be considered for allocations of housing credit 
dollar amount.
``(2) Credit allocated to building not to exceed amount 
necessary to assure project feasibility.--
``(A) In general.--The housing credit dollar amount 
allocated to a project shall not exceed the amount the 
housing credit agency determines is necessary for the 
financial feasibility of the project and its viability 
as a qualified middle-income housing project throughout 
the credit period.
``(B) Agency evaluation.--In making the 
determination under subparagraph (A), the housing 
credit agency shall consider--
``(i) the sources and uses of funds and the 
total financing planned for the project,
``(ii) any proceeds or receipts expected to 
be generated by reason of tax benefits,
``(iii) the percentage of the housing 
credit dollar amount used for project costs 
other than the cost of intermediaries, and
``(iv) the reasonableness of the 
developmental and operational costs of the 
project.
Clause (iii) shall not be applied so as to impede the 
development of projects in hard-to-develop areas. Such 
a determination shall not be construed to be a 
representation or warranty as to the feasibility or 
viability of the project.
``(C) Determination made when credit amount applied 
for and when building placed in service.--
``(i) In general.--A determination under 
subparagraph (A) shall be made as of each of 
the following times:
``(I) The application for the 
housing credit dollar amount.
``(II) The allocation of the 
housing credit dollar amount.
``(III) The date the building is 
placed in service.
``(ii) Certification as to amount of other 
subsidies.--Prior to each determination under 
clause (i), the taxpayer shall certify to the 
housing credit agency the full extent of all 
Federal, State, and local subsidies which apply 
(or which the taxpayer expects to apply) with 
respect to the building.
``(m) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including--
``(1) regulations dealing with--
``(A) projects which include more than 1 building 
or only a portion of a building, or
``(B) buildings which are placed in service in 
portions,
``(2) regulations providing for the application of this 
section to short taxable years,
``(3) regulations preventing the avoidance of the rules of 
this section,
``(4) regulations providing the opportunity for housing 
credit agencies to correct administrative errors and omissions 
with respect to allocations and record keeping within a 
reasonable period after their discovery, taking into account 
the availability of regulations and other administrative 
guidance from the Secretary, and
``(5) in consultation with the Secretary of Housing and 
Urban Development, regulations or guidance to promote uniform 
definitions and to streamline requirements with respect to 
qualified middle-income buildings which receive funding from 
programs administrated by the Department of Housing and Urban 
Development, including programs authorized by Native American 
Housing Assistance and Self-Determination Act of 1996.''.
(b) Treatment as Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 is amended by striking ``plus'' at 
the end of paragraph (40), by striking the period at the end of 
paragraph (41) and inserting ``, plus'', and by adding at the end the 
following new paragraph:
``(42) the middle-income housing credit determined under 
section 42A(a).''.
(c) Reduction in Basis.--Section 1016(a) of the Internal Revenue 
Code of 1986 is amended--
(1) by striking ``and'' at the end of paragraph (37),
(2) by redesignating paragraph (38) as paragraph (39), and
(3) by inserting after paragraph (37) the following new 
paragraph:
``(38) to the extent provided in section 42A(i)(9), and''.
(d) Treatment Under Base Erosion Minimum Tax .--Section 59A(b)(3) 
of the Internal Revenue Code of 1986, as amended by Public Law 119-21, 
is amended by redesignating subparagraphs (B) and (C) as subparagraphs 
(C) and (D), respectively, and by inserting after subparagraph (A) the 
following new subparagraph:
``(B) the middle-income housing credit determined 
under section 42A(a),''.
(e) Conforming Amendments Relating to Low-Income Housing Tax 
Credit.--Section 42(n) of the Internal Revenue Code of 1986 is 
amended--
(1) by striking ``including regulations--'' in the matter 
preceding paragraph (1) and inserting ``including--'',
(2) by inserting ``regulations'' before ``dealing with'' in 
paragraph (1),
(3) by inserting ``regulations'' before ``providing'' in 
paragraphs (2) and (4),
(4) by inserting ``regulations'' before ``preventing'' in 
paragraph (3),
(5) by striking ``and'' at the end of paragraph (3),
(6) by striking the period at the end of paragraph (4) and 
inserting ``, and'', and
(7) by adding at the end the following new paragraph
``(5) in consultation with the Secretary of Housing and 
Urban Development, regulations or guidance to promote uniform 
definitions and to streamline requirements with respect to 
qualified low-income buildings which receive funding from 
programs administrated by the Department of Housing and Urban 
Development, including programs authorized by Native American 
Housing Assistance and Self-Determination Act of 1996.''.
(f) Conforming Amendments.--
(1) Section 45L(e) of the Internal Revenue Code of 1986 is 
amended by inserting ``or 42A'' after ``42''.
(2) Section 50(c)(3)(C) of such Code is amended by 
inserting ``or 42A'' after ``42''.
(3) Section 55(c)(1) of such Code is amended by inserting 
``42A(j),'' before ``45(e)(11)(C)''.
(4) Subsections (i)(3)(C), (i)(6)(B)(i), and (k)(1) of 
section 469 of such Code are each amended by inserting ``or 
42A'' after ``42''.
(5) The table of sections for subpart D of part IV of 
subchapter A of chapter 1 of such Code is amended by inserting 
after the item relating to section 42 the following new item:

``Sec. 42A. Middle-income housing credit.''.
(g) Effective Date.--The amendments made by this section shall 
apply to buildings placed in service after December 31, 2025, in 
taxable years ending after such date.
<all>