102 STAT. 3376 PUBLIC LAW 100-647—NOV. 10, 1988

"(B) 1st YEAR COMPUTATION APPLIES.—A rule similar to
the rule of paragraph (2)(A) shall apply to any increase in
qualified basis to which subparagraph (A) applies for the 1st
year of such increase/'

(B) Paragraph (3) of section 42(b) of the 1986 Code is amended
to read as follows:

"(3) CROSS REFERENCES.—

"(A) For treatment of certain rehabilitation expenditures as separate new
buildings, see subsection (e).

"(B) For determination of applicable percentage for increases in qualified
basis after the 1st year of the credit period, see subsection (f)(3).

"(C) For authority of housing credit agency to limit applicable percentage
and qualified basis which may be taken into account under this section with
respect to any building, see subsection (h)(6)."

(10) Subparagraph (B) of section 42(g)(2) of the 1986 Code
(defining gross rent) is amended by striking out "Federal rental
assistance" and inserting in lieu thereof "rental assistance".

(11) Paragraph (2) of section 42(g) of the 1986 Code is amended
by adding at the end thereof the following new subparagraph:

"(C) UNITS WHERE FEDERAL RENTAL ASSISTANCE IS REDUCED

AS TENANT'S INCOME INCREASES.—If the gross rent with
respect to a residential unit exceeds the limitation under
subparagraph (A) by reason of the fact that the income of
the occupants thereof exceeds the income limitation ap-
plicable under paragraph (1), such unit shall, nevertheless,
be treated as a rent-restricted unit for purposes of para-
graph (1) if—

"(i) a Federal rental assistance payment described in
subparagraph (B)(i) is made with respect to such unit or
its occupants, and

"(ii) the sum of such payment and the gross rent with
respect to such unit does not exceed the sum of the
amount of such payment which would be made and the
gross rent which would be payable with respect to such
unit if—

"(I) the income of the occupants thereof did not
exceed the income limitation applicable under
paragraph (1), and

"(II) such units were rent-restricted within the
meaning of subparagraph (A).

The preceding sentence shall apply to any unit only if the
result described in clause (ii) is required by Federal statute
as of the date of the enactment of this subparagraph and as
of the date the Federal rental assistance payment is made."

(12) Paragraph (3) of section 42(g) of the 1986 Code is amended
to read as follows:

Disadvantage^ "(3) DATE FOR MEETING REQUIREMENTS.—

"(A) IN GENERAL.—Except as otherwise provided in this
paragraph, a building shall be treated as a qualified low-
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 12-month period beginning on the date
the building is placed in service.

"(B) BUILDINGS WHICH RELY ON LATER BUILDINGS FOR

QUALIFICATION.—

"(i) IN GENERAL.—In determining whether a building
(hereinafter in this subparagraph referred to as the