AVERAGE INCOME TEST FOR LOW-INCOME HOUSING CREDIT.

SEC. 103. AVERAGE INCOME TEST FOR LOW-INCOME HOUSING CREDIT. (a) In General.—Paragraph (1) of section 42(g) of the Internal Revenue Code of 1986 is amended— (1) by striking “subparagraph (A) or (B)” and inserting “subparagraph (A), (B), or (C)”, and (2) by inserting after subparagraph (B) the following new subparagraph: “(C) Average income test.— “(i) In general.—The project meets the minimum requirements of this subparagraph if 40 percent or more (25 percent or more in the case of a project described in section 142(d)(6)) of the residential units in such project are both rent-restricted and occupied by individuals whose income does not exceed the imputed income limitation designated by the taxpayer with respect to the respective unit. “(ii) Special rules relating to income limitation.—For purposes of clause (i)— “(I) Designation.—The taxpayer shall designate the imputed income limitation of each unit taken into account under such clause. “(II) Average test.—The average of the imputed income limitations designated under subclause (I) shall not exceed 60 percent of area median gross income. “(III) 10-percent increments.—The designated imputed income limitation of any unit under subclause (I) shall be 20 percent, 30 percent, 40 percent, 50 percent, 60 percent, 70 percent, or 80 percent of area median gross income.” . (b) Rules Relating to Next Available Unit.—Subparagraph (D) of section 42(g)(2) of the Internal Revenue Code of 1986 is amended— (1) in clause (i), by striking “clause (ii)” and inserting “clauses (ii), (iii), and (iv)”, (2) in clause (ii)— (A) by striking “If” and inserting “In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (A) or (B) of paragraph (1), if”, (B) by striking the second sentence, and (C) by striking “Next available unit must be rented to low-income tenant if income rises above 140 percent of income limit” in the heading and inserting “Rental of next available unit in case of 20-50 or 40-60 test”, and (3) by adding at the end the following new clauses: “(iii) Rental of next available unit in case of average income test.—In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (C) of paragraph (1), if the income of the occupants of the unit increases above 140 percent of the greater of— “(I) 60 percent of area median gross income, or “(II) the imputed income limitation designated with respect to the unit under paragraph (1)(C)(ii)(I), clause (i) shall cease to apply to any 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 the limitation described in clause (v). “(iv) Deep rent skewed projects.—In the case of a project described in section 142(d)(4)(B), clause (ii) or (iii), whichever is applicable, shall be applied by substituting ‘170 percent’ for ‘140 percent’, and— “(I) in the case of clause (ii), by substituting ‘any low-income unit in the building is occupied by a new resident whose income exceeds 40 percent of area median gross income’ for ‘any residential rental unit’ and all that follows in such clause, and “(II) in the case of clause (iii), by substituting ‘any low-income unit in the building is occupied by a new resident whose income exceeds the lesser of 40 percent of area median gross income or the imputed income limitation designated with respect to such unit under paragraph (1)(C)(ii)(I)’ for ‘any residential rental unit’ and all that follows in such clause. “(v) Limitation described.—For purposes of clause (iii), the limitation described in this clause with respect to any unit is— “(I) the imputed income limitation designated with respect to such unit under paragraph (1)(C)(ii)(I), in the case of a unit which was taken into account as a low-income unit prior to becoming vacant, and “(II) the imputed income limitation which would have to be designated with respect to such unit under such paragraph in order for the project to continue to meet the requirements of paragraph (1)(C)(ii)(II), in the case of any other unit.” . (c) [26 U.S.C. 42 note] Effective Date.—The amendments made by this section shall apply to elections made under section 42(g)(1) of the Internal Revenue Code of 1986 after the date of the enactment of this Act.