any item of expenditure described under subsection (a) any portion of which is paid or incurred by a State, the ratio (expressed as a percentage) of— (A) the taxpayer’s expenditure for such item, divided by (B) the sum of the taxpayer’s and such State’s expenditures for such item. (e) Special rules (1) Treatment of expenditures related to marketable timber An expenditure shall not be taken into account for purposes of this section (whether made by the taxpayer or a State) if such expenditure is properly allocable to timber which is sold or exchanged by the taxpayer. The preceding sentence shall not apply to the extent that such amount exceeds the gain on such sale or exchange. (2) Basis reduction For purposes of this subtitle, if the basis of any property would (but for this paragraph) be determined by taking into account any expenditure described under subsection (a), the basis of such property shall be reduced by the amount of the credit allowed under subsection (a) with respect to such expenditure (determined without regard to subsection (c)). (3) Denial of double benefit The amount of any deduction or other credit allowable under this chapter for any expenditure for which a credit is allowable under subsection (a) shall be reduced by the amount of credit allowed under such subsection for such expenditure (determined without regard to subsection (c)). . (b) Conforming amendments (1) Section 38(b) of such Code is amended by striking plus at the end of paragraph (40), by striking the period at the end of paragraph (41) and inserting , plus , and by adding at the end the following new paragraph: (42) the portion of the disaster mitigation expenditures credit to which section 28(c)(1) applies. . (2) Section 1016(a) of such Code is amended by redesignating paragraphs (35) through (38) as paragraphs (36) through (39), respectively, and by inserting after paragraph (34) the following new paragraph: (35) to the extent provided in section 28(e)(2), . (3) The table of sections for subpart B of part IV of subchapter A