EXTENSION AND MODIFICATION OF LOW-INCOME HOUSING CREDIT.

SEC. 7108. EXTENSION AND MODIFICATION OF LOW-INCOME HOUSING CREDIT. (a) Extension.— (1) In general.—Subsection (n) of section 42 (relating to low-income housing credit) is amended to read as follows— “(n) Termination.— 103 STAT. 2307 “(1) In general.—Except as provided in paragraph (2), for any calendar year after 1990— “(A) clause (i) of subsection (h)(3)(C) shall not apply, and “(B) subsection (h)(4) shall not apply to any building placed in service after 1990. “(2) Exception for bond-financed buildings in progress.—For purposes of paragraph (1)(B), a building shall be treated as placed in service before 1990 if— “(A) the bonds with respect to such building are issued before 1990, “(B) such building is constructed, reconstructed, or rehabilitated by the taxpayer, “(C) more than 10 percent of the reasonably anticipated cost of such construction, reconstruction, or rehabilitation has been incurred as of January 1, 1990, and some of such cost is incurred on or after such date, and “(D) such building is placed in service before January 1, 1992.” (2) Special rule.—In the case of calendar year 1990, section 42(h)(3)(C)(i) of the Internal Revenue Code of 1986 (as amended by subsection (b)(1)) shall be applied by substituting “$.9375” for “$1.25”. (b) 1-Year Carryover of Unused Credit Authority, Etc.— (1) In general.— Section 42(h)(3) (relating to housing credit dollar amount for agencies) is amended by redesignating subparagraphs (D), (E), and (F) as subparagraphs (E), (F), and (G), respectively, and by striking subparagraph (C) and inserting the following new subparagraphs: “(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) $1.25 multiplied by the State population, “(ii) the unused State housing credit ceiling (if any) of such State for the preceding calendar year, “(iii) the amount of State housing credit ceiling returned in the calendar year, plus “(iv) the amount (if any) allocated under subparagraph (D) to such State by the Secretary. For purposes of clause (ii), the unused State housing credit ceiling for any calendar year is the excess (if any) of the amount described in clause (i) 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 does not become a qualified low-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) Unused housing credit carryovers allocated among certain states.— “(i) In general.—The unused housing credit carryover of a State for any calendar year shall be assigned to the Secretary for allocation among qualified States for the succeeding calendar year. 103 STAT. 2308 “(ii) Unused housing credit carryover.—For purposes of this subparagraph, the unused housing credit carryover of a State for any calendar year is the excess (if any) of the unused State housing credit ceiling for such year (as defined in subparagraph (C)(ii)) over the excess (if any) of— “(I) the aggregate housing credit dollar amount allocated for such year, over “(II) the amount described in clause (i) of subparagraph (C). “(iii) Formula for allocation of unused housing credit carryovers among qualified states.—The amount allocated under this subparagraph to a qualified State for any calendar year shall be the amount determined by the Secretary to bear the same ratio to the aggregate unused housing credit carryovers of all States for the preceding calendar year as such State’s population for the calendar year bears to the population of all qualified States for the calendar year. For purposes of the preceding sentence, population shall be determined in accordance with section 146(j). “(iv) Qualified state.—For purposes of this subparagraph, the term ‘qualified State’ means, with respect to a calendar year, any State— “(I) which allocated its entire State housing credit ceiling for the preceding calendar year, and “(II) for which a request is made (not later than May 1 of the calendar year) to receive an allocation under clause (in).” (2) Conforming amendments.— (A) Subparagraph (E) of section 42(h)(5) is amended by striking “subparagraph (E)” and inserting “subparagraph (F)”. (B) Paragraph (6) of section 42(h) is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) as subparagraphs (B), (C), and (D), respectively. (c) Buildings Eligible for Credit Only if Minimum Long-Term Commitment to Low-Income Housing.— (1) In general.—Section 42(h) (relating to limitation on aggregate credit allowable with respect to projects located in a State) is amended by redesignating paragraphs (6) and (7) as paragraphs (7) and (8), respectively, and by inserting after paragraph (5) the following new paragraph: “(6) Buildings eligible for credit only if minimum long-term commitment to low-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 low-income housing commitment is in effect as of the end of such taxable year. “(B) Extended low-income housing commitment.—For purposes of this paragraph, the term ‘extended low-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 103 STAT. 2309than the applicable fraction specified in such agreement, “(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 of clause (i), “(iii) which is binding on all successors of the taxpayer, and “(iv) 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 low-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 low-income housing commitment “(ii) Buildings financed by tax-exempt bonds.—If paragraph (4) 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 compliance period on which such building is part of a qualified low-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 compliance period. “(E) Exceptions if foreclosure or if no buyer willing to maintain low-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), 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 low-income portion of the building by any person who will continue to operate such portion as a qualified low-income building. Subclause (II) shall not apply to the extent more stringent requirements are provided in the agreement or in State law. “(ii) Eviction, etc. of existing low-income tenants not permitted.—The termination of an extended use period under clause (i) shall not be construed to permit 103 STAT. 2310before 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 low-income unit, or “(II) any increase in the gross rent with respect to such unit. “(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 low-income portion of the building for an amount not less than the applicable fraction (specified in the extended low-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 (Q), 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 (E), 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 1987’. 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 CPI for any calendar year (as defined in section 1(f)(4)) exceeds the CPI for the preceding calendar year by more than 5 percent, the CPI for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i). “(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) Low-income portion.—For purposes of this paragraph, the low-income portion of a building is the portion of 103 STAT. 2311such building equal to the applicable fraction specified in the extended low-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 compliance 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) Sales of less than low-income portion of building.—In the case of a sale or exchange of only a portion of the low-income portion of the building, only the same portion (as the portion sold or exchanged) of the amount determined under subparagraph (F) shall be taken into account thereunder. “(K) Effect of noncompliance.—If, during a taxable year, there is a determination that an extended low-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. “(L) 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.” (2) Conforming amendment.—Subparagraph (0 of section 42(b)(3) is amended by striking “subsection (h)(6))” and inserting “subsection (h)(7)”. (d) Credit for Acquisition of Existing Building To Apply Only If Building To Be Rehabilitated; Increase in Required Rehabilitation Expenditures.— (1) In general.—Subparagraph (B) of section 42(d)(2) is amended by striking “and” at the end of clause (ii), by striking the period at the end of clause (iii) and inserting “, and”, and by adding at the end thereof the following new clause: “(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.” (2) Credit period for existing buildings not to begin before rehabilitation credit allowed.—Subsection (f) of section 42 (relating to definition and special rules relating to credit period), as amended by subtitle H, is amended by adding at the end thereof the following new paragraph: “(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 103 STAT. 23121st 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)(6)(C) 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 subsection (e)(S)(A)(ii)(II) were applied by substituting ‘$2,000’ for ’$3,000’.” (3) Increase in required rehabilitation expenditures.—Paragraph (3) of section 42(e) is amended by redesignating subparagraph (B) as subparagraph (C) and by striking so much of such paragraph as precedes such subparagraph and inserting the following: “(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 low-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 10 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 low-income units in the building, is $3,000 or more. “(B) Exception from 10 percent rehabilitation.—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 applicable under subsection (b)(2)(B)(ii).” (e) Changes in Rules Relating to Rent Restrictions.— (1) Rent restriction determined on basis of number of bedrooms — (A) Section 42(g)(2) is amended by redesignating subparagraph (C) as subparagraph (E) and by inserting after subparagraph (B) the following new subparagraphs: “(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. 103 STAT. 2313 “(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 low-income unit above the income limitation applicable under paragraph (1), such unit shall continue to be treated as a low-income unit if the income of such occupants initially met such income limitation. “(ii) Next available unit must be rented to low-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.” (B) Subparagraph (A) of section 42(g)(2) is amended by striking “the income limitation under paragraph (1) applicable to individuals occupying such unit” and inserting “the imputed income limitation applicable to such unit” (2) Reduction in area median gross income not to require reduction of rent.—Subparagraph (A) of section 42(g)(2) (relating to rent-restricted units) is amended by adding at the end thereof the following new sentence: “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 low-income housing project.” (3) Exclusion with respect to continuing care facilities not to apply in determining income.—Subparagraph (B) of section 142(d)(2) is amended by adding at the end thereof the following: “Section 7872(g) shall not apply in determining the income of individuals under this subparagraph.” (f) Additional Buildings Eligible for Waiver of 10-Year Period Applicable to Acquisitions of Existing Buildings.—Paragraph (6) of section 42(d) is amended by redesignating subparagraph (C) as subparagraph (E) and by inserting after subparagraph (B) the following new subparagraphs: “(C) Low-income buildings where mortgage may be prepaid.—A waiver may be granted under subparagraph (A) (without regard to any clause thereof) with respect to a federally-assisted building described in clause (ii) or (iii) of subparagraph (B) if— “(i) the mortgage on such building is eligible for prepayment under subtitle B of the Emergency Low 103 STAT. 2314Income Housing Preservation Act of 1987 or under section 502(c) of the Housing Act of 1949 at any time within 1 year after the date of the application for such a waiver, “(ii) the appropriate Federal official certifies to the Secretary that it is reasonable to expect that, if the waiver is not granted, such building will cease complying with its low-income occupancy requirements, and “(iii) the eligibility to prepay such mortgage without the approval of the appropriate Federal official is waived by all persons who are so eligible and such waiver is binding on all successors of such persons. “(D) Buildings acquired from insured depository institutions in default.—A waiver may be granted under subparagraph (A) (without regard to any clause thereof) 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.” (g) Increase in Credit for Buildings in High Cost Areas.—Paragraph (5) of section 42(d) (relating to eligible basis) is amended by adding at the end thereof the following new subparagraph: “(D) 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 which is designated for purposes of this subparagraph— “(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.— “(I) In general.—The term ‘qualified census tract’ means any census tract in which 50 percent or more of the households have an income which is less than 60 percent of the area median gross income. “(II) Limit on msa’s designated.—The portion of a metropolitan statistical area which may be designated for purposes of this subparagraph shall not exceed an area having 20 percent of the population of such metropolitan statistical area. “(III) Determination of areas.—For purposes of this clause, each metropolitan statistical area shall be treated as a separate area and all nonmetropolitan areas in a State shall be treated as 1 area. “(iii) Difficult development areas.— “(I) In general.—The term ‘difficult development areas’ means any area designated by the Secretary of Housing and Urban Development as 103 STAT. 2315an area which has high construction, land, and utility costs relative to area median gross income. “(II) Limit on areas designated.—The portions of metropolitan statistical areas which may be designated for purposes of this subparagraph shall not exceed an aggregate area having 20 percent of the population of such metropolitan statistical areas. A comparable rule shall apply to nonmetropolitan areas. “(iv) Special rules and definitions.—For purposes of this subparagraph— “(I) population shall be determined on the basis of the most recent decennial census for which data are available, “(II) area median gross income shall be determined in accordance with subsection (g)(4), “(III) the term ‘metropolitan statistical area’ has the same meaning as when used in section 143(k)(2)(B), and “(IV) the term ‘nonmetropolitan area’ means any county (or portion thereof) which is not within a metropolitan statistical area.” (h) Changes in Rules Relating to Buildings fob Which Credit May Be Allowed.— (1) Single-room occupancy units rented on a monthly basis.—Subparagraph (B) of section 42(i)(3) (relating to low income unit) is amended by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, 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.” (2) Special needs housing.—Subparagraph (B) of section 42(g)(2) (relating to gross rent) is amended— (A) in clause (i), by striking “and” at the end, (B) in clause (ii), by striking the period at the end and inserting “, and”, and (C) by adding at the end the following: “(iii) does not include any fee for a supportive service which is paid to the owner of the unit (on the basis of the low-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. For purposes of clause (iii), 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. In the case of a single-room occupancy unit or a building described in subsection (i)(3)(B)(iii), such term includes any service provided to assist tenants in locating and retaining permanent housing.” 103 STAT. 2316 (3) Scattered bite projects.—Section 42(g) (relating to qualified low-income housing project) is amended by adding at the end thereof the following new paragraph: “(7) Scattered site projects.—Buildings which would (but for their lack of proximity) be treated as a project for purposes of this section snail 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.” (4) Owner-occupied buildings having 4 or fewer units eligible for credit where development plan.— Section 42(i)(3) (defining low-income unit), as amended by subtitle H, is amended by adding at the end thereof the following new subparagraph: “(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 (as defined in subsection (h)(5)(C)). “(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.” (5) Buildings receiving section 8 moderate rehabilitation assistance or similar assistance not eligible for credit.—Section 42(b)(1) (relating to applicable percentage for buildings placed in service during 1987) is amended by adding at the end thereof the following new flush sentence: “A building shall not be treated as described in subparagraph (B) if, at any time during the credit period, moderate rehabilitation assistance is provided with respect to such building under section 8(e)(2) of the United States Housing Act of 1937.” (i) Application of Credit to Transitional Housing for the Homeless; Denial of Credit for Substandard Housing.— (1) In general.— Subparagraph (B) of section 42(i)(3) (defining low-income unit) is amended to read as follows: “(B) Exceptions.— “(i) In general.—A unit shall not be treated as a low-income unit unless the unit is suitable for occupancy and used other than on a transient basis. “(ii) Suitability for occupancy.—For purposes of clause (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. “(iii) Transitional housing for homeless.—For purposes of clause (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— “(I) which is used exclusively to facilitate the transition of homeless individuals (within the 103 STAT. 2317meaning 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 “(II) in which a governmental entity or qualified nonprofit organization (as defined in subsection (h)(5)) provides such individuals with temporary housing and supportive services designed to assist such individuals in locating and retaining permanent housing. “(iv) Single-Room occupancy units.—For purposes of clause (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.” (2) Qualified basis to include portion of building used to provide supportive services.— Paragraph (1) of section 42(c) is amended by adding at the end thereof the following new subparagraph: “(E) Qualified basis to include portion of building used to provide supportive services for homeless.—In the case of a qualified low-income building described in subsection (i)(3)(B)(iii), the qualified basis of such building for any taxable year shall be increased by the lesser of— “(i) so much of the eligible basis of such building as is used throughout the year to provide supportive services designed to assist tenants in locating and retaining permanent housing, or “(ii) 20 percent of the qualified basis of such building (determined without regard to this subparagraph).” (j) Volume Cap Not To Apply Where 50 Percent or More of Building Is Financed With Tax-Exempt Bonds.—Subparagraph (B) of section 42(h)(4) is amended by striking “70 percent” each place it appears and inserting “50 percent”. (k) Building Not Treated as Federally Subsidized By Reason of Community Development Block Grant.—Subparagraph (D) of section 42(i)(2) (defining below market Federal loan) is amended by adding at the end thereof the following new sentence: “Such term shall not include any loan which would be a below market Federal loan solely by reason of assistance provided under section 106, 107, or 108 of the Housing and Community Development Act of 1974 (as in effect on the date of the enactment of this sentence).” (l) Eligible Basis for New Buildings To Include Expenditures Before Close of 1st Year of Credit Period.— (1) New buildings.—Paragraph (1) of section 42(d) (relating to eligible basis for new buildings) is amended by inserting before the period “as of the close of the 1st taxable year of the credit period”. (2) Existing buildings.—Subparagraph (A) of section 42(d)(2) (relating to eligible basis for existing buildings) is amended by striking “subparagraph (B)” and all that follows through the end of clause (i) and inserting “subparagraph (B), its adjusted basis as of the close of the 1st taxable year of the credit period, and”. (3) Conforming amendments.— (A) Subparagraph (C) of section 42(d)(2) is amended by striking “Acquisition cost” in the heading and inserting 103 STAT. 2318“Adjusted basis” and by striking “cost” in the text and inserting “adjusted basis”. (B) Paragraph (5) of section 42(d), as amended by subsection (g), is further amended by striking subparagraph (A), by redesignating subparagraphs (B), (C), and (D) as subparagraphs (A), (B), and (C), respectively, and by striking the paragraph heading and inserting the following: “(5) Special rules for determining eligible basis.—”. (C) Paragraph (5) of section 42(e) is amended by striking “subsection (d)(2)(A)(i)(II)” and inserting “subsection (d)(2)(A)(i)”. (m) Housing Credit May Be Allocated on Project Basis.— (1) In general.— Section 42(h)(1) (relating to credit may not exceed credit amount allocated to building) is amended by adding at the end thereof the following new subparagraph: “(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) Conforming amendment.—Subparagraph (B) of section 42(h)(1) is amended by striking “or (E)” and inserting “(E), or (F)”. (3) Projects with more than 1 building must be identified.— Section 42(g)(3) (relating to date for meeting requirements) is amended by adding at the end thereof the following new subparagraph: “(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)(I)(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.” (n) Changes in Rules Related to Deep Rent Skewed Projects.— (1) Clause (iii) of section 142(d)(4)(B) (relating to deep rent skewed project) is amended by striking “⅓” and inserting “½”. (2) Section 42(g)(4) (relating to certain rules made applicable) is amended by striking “(other than section 142(d)(4)(B)(iii))”. 103 STAT. 2319 (o) Increased Responsibilities for Housing Credit Agencies.—Section 42 is amended by redesignating subsections (m) and (n) as subsections (n) and (o), respectively, and by inserting after subsection (l) the following new subsection: “(m) 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 147(f)(2) (other than subparagraph (B)(ii) thereof)) of which such agency is a part, and “(ii) such agency notifies the chief executive officer (or the equivalent) of the local jurisdiction within which the building is located of such project and provides such individual a reasonable opportunity to comment on the project. “(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 gives the highest priority to those projects as to which the highest percentage of the housing credit dollar amount is to be used for project costs other than the cost of intermediaries unless granting such priority would impede the development of projects in hard-to-develop areas, “(iii) which also gives preference in allocating housing credit dollar amounts among selected projects to— “(I) projects serving the lowest income tenants, and “(II) projects obligated to serve qualified tenants for the longest periods, and “(iv) which provides a procedure that the agency will follow in notifying the Internal Revenue Service of noncompliance with the provisions of this section which such agency becomes aware of. “(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, “(iv) sponsor characteristics, “(v) participation of local tax-exempt organizations, “(vi) tenant populations with special housing needs, and “(vii) public housing waiting lists. “(D) Application to bond financed projects.—Subsection (h)(4) shall not apply to any project unless the project satisfies the requirements for allocation of a housing credit 103 STAT. 2320dollar amount under the qualified allocation plan applicable to the area in which the project is located. “(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 low-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, and “(ii) any proceeds or receipts expected to be generated by reason of tax benefits. 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. “(D) Application to bond financed projects.—Subsection (h)(4) shall not apply to any project unless the governmental unit which issued the bonds (or on behalf of which the bonds were issued) makes a determination under rules similar to the rules of subparagraphs (A) and (B).” (o) Application of At-Risk Rules With Respect To Certain Financing Provided by Qualified Nonprofit Organizations.—Subparagraph (D) of section 42(k)(2) (relating to application of at-risk rules) is amended by adding at the end thereof the following new flush sentence: “In the case of a qualified nonprofit organization which is not described in section 46ic)(8)(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 low-income building or the date which is 15 years after the close of a compliance period with respect thereto.” (p) Time for Certification.—Section 42(l)(1) (relating to certification with respect to 1st year of credit period) is amended— (1) by striking “Not later than the 90th day following” and inserting “Following”, and (2) by inserting “at such time and” before “in such form”. 103 STAT. 2321 (q) Impact of Tenant’s Right of 1st Refusal to Acquire Property.—Subsection (i) of section 42 is amended by adding at the end thereof the following new paragraph: “(8) Impact of tenants 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 low-income building merely by reason of a right of 1st refusal held by the tenants of such building to purchase the property after the close of the compliance 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).” (r) Effective Dates.— (1) In general.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to determinations under section 42 of the Internal Revenue Code of 1986 with respect to housing credit dollar amounts allocated from State housing credit ceilings for calendar years after 1989. (2) Buildings not subject to allocation limits.—Except as otherwise provided in this subsection, to the extent paragraph (1) of section 42(h) of such Code does not apply to any building by reason of paragraph (4) thereof, the amendments made by this section shall apply to buildings placed in service after December 31, 1989. (3) One-year carryover of unused credit authority, etc.—The amendments made by subsection (b) shall apply to calendar years after 1989, but clauses (ii), (iii), and (iv) of section 42(h)(3)(C) of such Code (as added by this section) shall be applied without regard to allocations for 1989 or any preceding year. (4) Additional buildings eligible for waiver of 10-year rule.—The amendments made by subsection (0 shall take effect on the date of the enactment of this Act. (5) Certifications with respect to 1st year of credit period.—The amendment made by subsection (p) shall apply to taxable years ending on or after December 31, 1989. (6) Certain rules which apply to bonds.—Paragraphs (1)(D) and (2)(D) of section 42(m) of such Code, as added by this section, shall apply to obligations issued December 31, 1989. (7) Clarifications.—The amendments made by the following provisions of this section shall apply as if included in the amendments made by section 252 of the Tax Reform Act of 1986: (A) Paragraph (1) of subsection (h) (relating to units rented on a monthly basis). 103 STAT. 2322 (B) Subsection (l) (relating to eligible basis for new buildings to include expenditures before close of 1st year of credit period). (8) Guidance on difficult development areas and posting of bond to avoid recapture.—Not later than 180 days after the date of the enactment of this Act— (A) the Secretary of Housing and Urban Development shall publish initial guidance on the designation of difficult development areas under section 42(d)(5)(C) of such Code, as added by this section, and (B) the Secretary of the Treasury shall publish initial guidance under section 42(j)(6) of such Code (relating to no recapture on disposition of building (or interest therein) where bond posted).