Sec. 213. Middle-income housing tax credit
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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: 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— the applicable percentage, of the qualified basis of each qualified middle-income building. For purposes of this section— The term applicable percentage means, with respect to any building, the appropriate percentage prescribed by the Secretary for the earlier of— the month in which such building is placed in service, or 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. 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— 50 percent of the qualified basis of a new building which is not Federally subsidized for the taxable year, and 20 percent of the qualified basis of a building not described in clause (i). The present value under subparagraph
(B)shall be determined— as of the last day of the 1st year of the 15-year period referred to in subparagraph (B), 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 by assuming that the credit allowable under this section for any year is received on the last day of such year. The applicable percentage for any building which is not Federally subsidized for the taxable year shall not be less than 5 percent. 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. In the case of any building to which paragraph (2)(A) does not apply, the applicable percentage is zero unless— a credit is allowed under section 42 with respect to such building for the taxable year, and such building is financed by tax-exempt bonds as described in section 42(h)(4). For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e). For determination of applicable percentage for increases in qualified basis after the 1st year of the credit period, see subsection (f)(3). 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). For purposes of this section— The qualified basis of any qualified middle-income building for any taxable year is an amount equal to— the applicable fraction (determined as of the close of such taxable year) of the eligible basis of such building (determined under subsection (d)). For purposes of subparagraph (A), the term applicable fraction means the smaller of the unit fraction or the floor space fraction. For purposes of subparagraph (B), the term unit fraction means the fraction— the numerator of which is the number of middle-income units in the building, and the denominator of which is the number of residential rental units (whether or not occupied) in such building. For purposes of subparagraph (B), the term floor space fraction means the fraction— the numerator of which is the total floor space of the middle-income units in such building, and the denominator of which is the total floor space of the residential rental units (whether or not occupied) in such 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— beginning on the 1st day in the credit period on which such building is part of such a project, and ending on the last day of the credit period with respect to such building. For purposes of this section— The eligible basis of a new building is its adjusted basis as of the close of the 1st taxable year of the credit period. The eligible basis of an existing building is— 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 zero in any other case. A building meets the requirements of this subparagraph if— the building is acquired by purchase (as defined in section 179(d)(2)), 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, 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 except as provided in subsection (f)(5), a credit is allowable under subsection
(a)by reason of subsection
(e)with respect to the building. 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. 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— 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, by a person whose basis in such building is determined under section 1014(a) (relating to property acquired from a decedent), by any governmental unit or qualified nonprofit organization if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such unit or organization and all the income from such property is exempt from Federal income taxation, 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 of a single-family residence by any individual who owned and used such residence for no other purpose than as his principal residence. 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). For purposes of this subsection— 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. 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. 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. The adjusted basis of any building shall be determined without regard to paragraphs
(2)and
(3)of section 1016(a). The eligible basis of a building shall not include any costs financed with the proceeds of a Federally funded grant. 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. 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— paragraph (2)(B) shall not apply, but 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. A building is described in this subparagraph if— a credit was allowed by reason of subsection
(a)to any prior owner of such building, and 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). 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. For purposes of paragraph (1)— 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. Such term does not include the cost of acquiring any building (or interest therein) or any amount not permitted to be taken into account under paragraph
(3)of subsection (d). In the case of a rehabilitation of a building to which section 280B does not apply, costs relating to the relocation of occupants, including— amounts paid to occupants, amounts paid to third parties for services relating to such relocation, and amounts paid for temporary housing for occupants, shall be treated as chargeable to capital account and taken into account as rehabilitation expenditures. Paragraph
(1)shall apply to rehabilitation expenditures with respect to any building only if— the expenditures are allocable to 1 or more middle-income units or substantially benefit such units, and 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: 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)). 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). 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. For purposes of applying this section with respect to expenditures which are treated as a separate building by reason of this subsection— such expenditures shall be treated as placed in service at the close of the 24-month period referred to in paragraph (3)(A), and 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. 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. 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. For purposes of this section, the term credit period means, with respect to any building, the period of 15 taxable years beginning with— the taxable year in which the building is placed in service, or 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. 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— 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 the denominator of which is 12. 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. 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— 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 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. 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. 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. 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. In the case of a building described in clause (ii)— subsection (d)(2)(B)(iv) shall not apply, and 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). A building is described in this clause if— a waiver is granted under subsection (d)(4) with respect to the acquisition of the building, and 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. For purposes of this section— The term qualified middle-income housing project means any project for residential rental property if 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. For purposes of the preceding sentence, residential units in a building which is not a qualified middle-income building by reason of subsection (c)(2)(B) shall not be taken into account. 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. For purposes of subparagraph (A), gross rent— 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, 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 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. 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: In the case of a unit which does not have a separate bedroom, 1 individual. 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). 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. 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. 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. 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. 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. 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. A building— other than the 1st building placed in service as part of a project, and 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. 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. 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— the term gross rent shall have the meaning given such term by paragraph (2)(B) of this subsection, and the term applicable income limit means the limitation under paragraph
(1)of this subsection. 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. 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— all amounts so paid are refunded to the occupant on the cessation of his occupancy of a unit in the project, and 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. 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. 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. A project does not fail to meet the general public use requirement solely because of occupancy restrictions or preferences that favor tenants— with special needs, or who are members of a specified group under a Federal program or State program or policy that supports housing for such a specified group. 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. 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. 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. 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). 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— the qualified basis of such building as of the close of the 1st taxable year to which such allocation will apply, over 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. Notwithstanding clause (i), the full amount of the allocation shall be taken into account under paragraph (2). 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. 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. In the case of a project which includes (or will include) more than 1 building, an allocation meets the requirements of this subparagraph if— the allocation is made to the project for a calendar year during the project period, the allocation only applies to buildings placed in service during or after the calendar year for which the allocation is made, and 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. For purposes of clause (i), the term project period means the period— 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 ending with the calendar year the last building is placed in service as part of such project. Any housing credit dollar amount allocated to any building for any calendar year— shall apply to such building for all taxable years in the credit period ending during or after such calendar year, and shall reduce the aggregate housing credit dollar amount of the allocating agency only for such calendar year. 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. 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. The State housing credit ceiling applicable to any State for any calendar year shall be an amount equal to the sum of— the greater of— $1.00 multiplied by the State population, or $1,140,000, plus the amount of State housing credit ceiling returned in the calendar year. For purposes of clause (ii), 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. Rules similar to the rules of section 146(e) (other than paragraph (2)(B) thereof) shall apply for purposes of this paragraph. For purposes of this paragraph, population shall be determined in accordance with section 146(j). In the case of a calendar year after 2024, the $1,140,000 and $1.00 amounts in subparagraph
(C)shall each be increased by an amount equal to— such dollar amount, multiplied by the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting calendar year 2023 for calendar year 2016 in subparagraph (A)(ii) thereof. In the case of the $1,140,000 amount, any increase under clause
(i)which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000. 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. 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). 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. For purposes of this paragraph, the term qualified nonprofit organization means any organization if— such organization is described in paragraph
(3)or
(4)of section 501(c) and is exempt from tax under section 501(a), such organization is determined by the State housing credit agency not to be affiliated with or controlled by a for-profit organization; and one of the exempt purposes of such organization includes the fostering of middle-income housing. 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. 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. Nothing in subparagraph
(E)of paragraph
(3)shall be construed to permit a State not to comply with subparagraph
(A)of this paragraph. 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. For purposes of this paragraph, the term extended middle-income housing commitment means any agreement between the taxpayer and the housing credit agency— 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), 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), 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, 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, which is binding on all successors of the taxpayer, and which, with respect to the property, is recorded pursuant to State law as a restrictive covenant. 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. For purposes of this paragraph, the term extended use period means the period— beginning on the 1st day in the credit period on which such building is part of a qualified middle-income housing project, and ending on the later of— the date specified by such agency in such agreement, or the date which is 15 years after the close of the credit period. The extended use period for any building shall terminate 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. 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— the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any middle-income unit, or any increase in the gross rent with respect to such unit not otherwise permitted under this section. 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. The application of this paragraph to projects which consist of more than 1 building shall be made under regulations prescribed by the Secretary. 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. 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. 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. For purposes of clause (i), the clause
(ii)percentage with respect to any building is the percentage which— the housing credit dollar amount allocated to such building, bears to the credit amount determined in accordance with clause (iii). 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— this section were applied without regard to paragraphs (2)(A) and (3)(B) of subsection (f), and subsection (f)(3)(A) were applied without regard to the percentage equal to . 2/3 of 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. 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)(i). The amount of the increase under subparagraph
(A)for any calendar year may only be allocated to buildings located in a rural area (as defined in section 42(d)(5)(B)(iii)(IV)). For purposes of this subsection— The term housing credit agency means any agency authorized to carry out this subsection. The term State includes a possession of the United States. 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. For purposes of this section— The term middle-income unit means any unit in a building if— such unit is rent-restricted (as defined in subsection (g)(2)), and the individuals occupying such unit meet the income limitation applicable under subsection (g)(1) to the project of which such building is a part. 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)). 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. 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. 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. 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— any individual who occupies a residential unit in such building, or any person who is related (as defined in subsection (d)(2)(D)(ii)) to such individual. A unit occupied solely by individuals who— have not attained age 24, and are enrolled in a full-time course of study at an institution of higher education (as defined in section 3304(f)), shall not be treated as a middle-income unit. Clause
(i)shall not apply to a unit occupied by an individual who— is married, if such individual's spouse also occupies the unit, is a person with disabilities (as defined in section 3(b)(3)(E) of the United States Housing Act of 1937), is a veteran (as defined in section 101(2) of title 38, United States Code), has one or more qualifying children (as defined in section 152(c)), if such children also occupy the unit, the individual is not a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of another individual, and such children are not claimed as dependents (as so defined) of another individual, or is, or was immediately prior to attaining the age of majority— an emancipated minor or in legal guardianship as determined by a court of competent jurisdiction in the individual's State of legal residence, 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 was an unaccompanied youth (within the meaning of section 725(6) of the McKinney-Vento Homeless Assistance Act ( 42 U.S.C. 11434a(6) )) or a homeless child or youth (within the meaning of section 725(2) of such Act ( 42 U.S.C. 11434a(2) )). 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. In the case of a building to which clause
(i)applies, the applicable fraction shall not exceed 80 percent of the unit fraction. 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. The term new building means a building the original use of which begins with the taxpayer. The term existing building means any building which is not a new building. 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. No Federal income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified middle-income building merely by reason of an option held by the tenants (in cooperative form or otherwise) or resident management corporation of such building or by a qualified nonprofit organization or government agency to purchase the property or all of the partnership interests (other than interests of the person exercising such option or a related party thereto (within the meaning of section 267(b) or 707(b)(1))) relating to the property after the close of the credit period for a price which is not less than the minimum purchase price determined under subparagraph (B). For purposes of subparagraph (A), the minimum purchase price under this subparagraph is an amount equal to the principal amount of outstanding indebtedness secured by the building (other than indebtedness incurred within the 5-year period ending on the date of the sale to the tenants). In the case of a purchase of a partnership interest, the minimum purchase price is an amount equal to such interest's ratable share of the amount determined under the preceding sentence. 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. 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. Subparagraph
(A)shall not apply to any tax-exempt obligation used to provide construction financing for any building if— such obligation (when issued) identified the building for which the proceeds of such obligation would be used, and such obligation is redeemed before such building is placed in service. 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). For purposes of this section— 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. For purposes of paragraph (1)— If the requirements of subparagraphs (B), (C), and
(D)are met with respect to any financing borrowed from a qualified nonprofit organization, the determination of whether such financing is qualified commercial financing with respect to any qualified middle-income building shall be made without regard to whether such organization— is actively and regularly engaged in the business of lending money, or is a person described in section 49(a)(1)(D)(iv)(II). 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 subsection (d)(5)(B) if— a security interest in such building is not permitted by a Federal agency holding or insuring the mortgage secured by such building, and the proceeds from the financing (if any) are applied to acquire or improve such building. 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). The requirements of this subparagraph are met with respect to any financing if such financing is fully repaid on or before the earliest of— the date on which such financing matures, the 90th day after the close of the credit period with respect to the qualified middle-income building, or 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. 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. 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— 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 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. 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). Rules similar to the rules of subparagraphs
(A)and
(D)of section 42(j)(4) shall apply for purposes of this subsection. 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)— the taxable year, and calendar year, in which such building was placed in service, the adjusted basis and eligible basis of such building as of the close of the 1st year of the credit period, the maximum applicable percentage and qualified basis permitted to be taken into account by the appropriate housing credit agency under subsection (h), and 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. 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— the qualified basis for the taxable year of each qualified middle-income building of the taxpayer, the information described in paragraph (1)(C) for the taxable year, and 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. 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— the amount of housing credit amount allocated to each building for such year, sufficient information to identify each such building and the taxpayer with respect thereto, and 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. Notwithstanding any other provision of this section, the housing credit dollar amount with respect to any building shall be zero unless— 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, 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 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. For purposes of this paragraph, the term qualified allocation plan means any plan— which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions, which also gives preference in allocating housing credit dollar amounts among selected projects to— projects obligated to serve qualified tenants for the longest periods, projects in areas where rents are unaffordable to median income households, projects which target housing to tenants at a range of incomes between 60 and 100 percent of area median gross income, and projects located near transit hubs, and 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. The selection criteria set forth in a qualified allocation plan must include— project location, housing needs characteristics, project characteristics, including whether the project includes the use of existing housing as part of a community revitalization plan, sponsor characteristics, tenant populations with special housing needs, tenant populations of individuals with children, projects intended for eventual tenant ownership, the energy efficiency of the project, and the historic nature of the project. 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. 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. In making the determination under subparagraph (A), the housing credit agency shall consider— the sources and uses of funds and the total financing planned for the project, any proceeds or receipts expected to be generated by reason of tax benefits, the percentage of the housing credit dollar amount used for project costs other than the cost of intermediaries, and 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. A determination under subparagraph
(A)shall be made as of each of the following times: The application for the housing credit dollar amount. The allocation of the housing credit dollar amount. The date the building is placed in service. 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. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations— dealing with— projects which include more than 1 building or only a portion of a building, or buildings which are placed in service in portions, providing for the application of this section to short taxable years, preventing the avoidance of the rules of this section, and 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. . 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: the middle-income housing credit determined under section 42A(a). . Clause
(i)of section 42(h)(3)(C) of the Internal Revenue Code of 1986 is amended— by striking the unused and inserting the sum of— the unused , by inserting plus after calendar year, , and by adding at the end the following new subclause: the unused middle-income State housing credit (if any) of such State for the preceding calendar year, . The second sentence of section 42(h)(3)(C) of such Code is amended by inserting , and the unused middle-income State housing credit for any calendar year is the excess (if any) of the amount described in section 42A(h)(3)(C) (after application of section 42A(h)(7)) for such State over the aggregate amount of middle-income housing credit dollar amount allocated by such State under section 42A for such year after for such year . Section 42(h)(3)(D)(ii) of such Code is amended— by inserting the sum of after is the excess (if any) of ; and by inserting plus the unused middle-income State housing credit (as so defined) after as defined in subparagraph (C)(i)) . Section 1016(a) of the Internal Revenue Code of 1986 is amended— by striking and at the end of paragraph (37); by redesignating paragraph
(38)as paragraph (39); and by inserting after paragraph
(37)the following new paragraph: to the extent provided in section 42A(i)(8), and . Section 59A(b)(4) of he Internal Revenue Code of 1986 is amended by redesignating subparagraphs
(B)and
(C)as subparagraphs
(C)and (D), respectively, and by inserting after subparagraphs
(A)the following new subparagraph: the middle-income housing credit determined under section 42A(a), . Section 45L(e) of the Internal Revenue Code of 1986 is amended by inserting or 42A after 42 . Section 50(c)(3)(C) of such Code is amended by inserting or 42A after 42 . Section 55(c)(1) of such Code is amended by inserting 42A(j), before 45(e)(11)(C) . 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 . 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. . The amendments made by this section shall apply to buildings placed in service after December 31, 2023, in taxable years ending after such date.
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U.S. Code
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Sec. 213
Middle-income housing tax credit
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