Special rules for dispositions of State historic tax credits

(a)

Proceeds not income; reduction in basis

(1)

In general

In the case of a taxpayer who receives a State historic tax credit and transfers or disposes of such credit, or receives a refund of all or a portion of such credit— (A)no portion of the net proceeds of such transfer or disposition or of such refund shall constitute income to such taxpayer under section 61(a) of the Internal Revenue Code of 1986, and (B)the taxpayer’s adjusted basis in the property with respect to which the State historic tax credit is allowed shall be reduced by an amount equal to such net proceeds or refund received by such taxpayer,

unless the taxpayer makes an election under subsection (b).

(2)

Determination of reduction in basis

The reduction in basis under paragraph (1) shall be applied— (A)first, against the basis in the underlying real property, (B)second, against the adjusted cost of acquisition, exclusive of land, as defined in section 47(c)(2)(B)(ii) of the Internal Revenue Code of 1986, and (C)third, against the remaining basis in the property. (3)

Adjustment in basis of interest in partnership or s corporation

The adjusted basis of— (A)a partner’s interest in a partnership, or (B)stock in an S corporation (as defined in section 1361(a)(1) of such Code),

shall be appropriately adjusted to take into account adjustments made under this subsection in the basis of property held by the partnership or S corporation (if any).

(b)

Election to include in income

(1)

In general

In the case of a taxpayer who elects to have this subsection apply, the net proceeds of the transfer or disposition or the refund described in subsection (a) received by such taxpayer shall constitute income to such taxpayer under section 61(a) of the Internal Revenue Code of 1986. (2)

Making of election

An election under this subsection shall be made at such time and in such manner as the Secretary of the Treasury may by regulation prescribe. Such election shall apply for the taxable year for which it is made and for all subsequent taxable years and may be revoked only with the consent of the Secretary of the Treasury. (c)

Effect on qualified rehabilitation expenditures and rehabilitation credits

For purposes of determining the rehabilitation credit allowable to a taxpayer under section 47 of the Internal Revenue Code of 1986, the transfer or disposition of State historic tax credits with respect to any property by a taxpayer shall not affect or reduce the amount of qualified rehabilitation expenditures (as defined in section 47(c)(2) of such Code) incurred in connection with such property, nor shall such transfer or disposition, nor any basis adjustments under subsection (a), be treated as an early disposition of investment credit property for purposes of the recapture provisions of section 50 of such Code. (d)

State historic tax credits defined

For purposes of this section, the term State historic tax credit means any credit against State or local tax liabilities which— (1)is allowable under the laws of any State or political subdivision thereof to a taxpayer with respect to expenditures made for the rehabilitation of property identified by such laws, and (2)is transferable or refundable under such laws. (e)

Effective date

This section shall apply to transfers or dispositions made, or refunds received, after the date of the enactment of this Act.