[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5420 Introduced in House (IH)]








109th CONGRESS
  2d Session
                                H. R. 5420

To amend the Internal Revenue Code of 1986 to expand the incentives for 
    the rehabilitation of older buildings, including owner-occupied 
                              residences.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 18, 2006

Mr. Carnahan (for himself, Mr. Rangel, Mr. Souder, Mrs. Jones of Ohio, 
 Ms. Carson, Mr. Clay, Mr. Cleaver, Mr. Gordon, Ms. Harris, Mr. Holt, 
Mr. Jenkins, Mr. Lewis of Georgia, Mrs. Maloney, Mr. Michaud, Mr. Moore 
    of Kansas, Mr. Nadler, Mr. Payne, Mr. Rothman, and Mr. Skelton) 
 introduced the following bill; which was referred to the Committee on 
                             Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to expand the incentives for 
    the rehabilitation of older buildings, including owner-occupied 
                              residences.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Preserve Historic America Act of 
2006''.

SEC. 2. EXPANSION OF INCENTIVES FOR BUILDING REHABILITATION.

    (a) Increased Credit for Certified Historic Structures.--Paragraph 
(2) of section 47(a) of the Internal Revenue Code of 1986 (relating to 
rehabilitation credit) is amended by striking ``20 percent'' and 
inserting ``25 percent''.
    (b) 50-Year Old Buildings Eligible for Credit.--Subparagraph (B) of 
section 47(c)(1) of such Code (relating to building must be first 
placed in service before 1936) is amended to read as follows:
                    ``(B) Building must be at least 50 years old.--In 
                the case of a building other than a certified historic 
                structure, a building shall not be a qualified 
                rehabilitated building unless the building was first 
                placed in service at least 50 years before the 
                beginning of the rehabilitation.''.
    (c) Use as Lodging Not to Disqualify Certain Property for 
Rehabilitation Credit.--Subparagraph (C) of section 50(b)(2) of such 
Code (relating to property eligible for the investment credit) is 
amended by striking ``certified historic structure'' and inserting 
``qualified rehabilitated building''.
    (d)  Only 50-Percent Basis Reduction for Buildings for Which Both 
the Low-Income Housing Credit and the Rehabilitation Credit Are 
Allowed.--Paragraph (3) of section 50(c) of such Code (relating to 
special rules for determining basis) is amended by inserting ``and in 
the case of the credits under sections 42 and 47 which are allowed for 
the same taxable year with respect to the same building'' after 
``energy credit''.
    (e) Increase in Rehabilitation Credit for Buildings in High Cost 
Areas.--Paragraph (2) of subsection 47(c) of such Code (defining 
qualified rehabilitation expenditures) is amended by adding at the end 
the following new subparagraph:
                    ``(E) Increase in credit for buildings in high cost 
                areas.--In the case of any qualified rehabilitated 
                building located in a qualified census tract, or 
                difficult development area, which is designated for 
                purposes of section 42(d)(5)C), the qualified 
                rehabilitation expenditures taken into account under 
                this section shall be 130 percent of such expenditures 
                determined without regard to this subparagraph.''.
    (f) Increase in Rehabilitation Credit for Certain Smaller 
Projects.--Section 47 of such Code (relating to rehabilitation credit) 
is amended by adding at the end the following new subsection:
    ``(e) Special Rule Regarding Certain Smaller Projects.--
            ``(1) In general.--In the case of an eligible small 
        rehabilitation of nonresidential real property or residential 
        rental property--
                    ``(A) subsection (a) shall be applied by 
                substituting `35 percent' for the otherwise applicable 
                percentage, and
                    ``(B) clause (i) of subsection (c)(1)(C) shall be 
                applied--
                            ``(i) by substituting `50 percent of the 
                        adjusted basis' for `the adjusted basis', and
                            ``(ii) by substituting `$3,000' for 
                        `$5,000'.
            ``(2) Eligible small rehabilitation.--For purposes of this 
        subsection, the term `eligible small rehabilitation' means any 
        rehabilitation if--
                    ``(A) the qualified rehabilitation expenditures 
                taken into account for purposes of this section with 
                respect to such rehabilitation are not over $2,000,000, 
                and
                    ``(B) no credit was allowed under this section 
                during any of the 2 preceding taxable years (determined 
                without regard to subsection (d)) with respect to the 
                building to which such expenditures relate.''.
    (g) Rehabilitation Credit for Certified Historic Structure Exempt 
From Passive Loss Rules.--Subsection (d) of section 469 of such Code 
(relating to passive activity losses and credits limited) is amended by 
adding at the end the following new paragraph:
            ``(3) Section not to apply to credit for rehabilitation of 
        historic structures.--The amount of the passive activity credit 
        shall be determined without regard to the amount of credit 
        determined under section 47 with respect to any certified 
        historic structure (as defined in section 47(c)(3)).''.
    (h) Rehabilitation Credit May Be Transferred.--
            (1) In general.--Subsection (b) of section 47 of such Code 
        (relating to when expenditures taken into account) is amended 
        by adding at the end the following new paragraph:
            ``(3) Credit may be assigned.--The amount of qualified 
        rehabilitation expenditures which would (but for this 
        paragraph) be taken into account under subsection (a) for any 
        taxable year by any person (hereafter in this paragraph 
        referred to as the `initial taxpayer')--
                    ``(A) may be taken into account by any other person 
                to whom such expenditures are assigned by the initial 
                taxpayer, and
                    ``(B) shall not be taken to account by initial 
                taxpayer.
        Any person to whom such expenditures are assigned under 
        subparagraph (A) shall be treated for purposes of this title as 
        the taxpayer with respect to such expenditures.''.
            (2) Conforming amendment.--The heading for such subsection 
        (b) is amended by inserting ``Eligibility for Credit May Be 
        Assigned'' after ``Account''.
    (i) Effective Date.--The amendments made by this section shall 
apply with respect to rehabilitations the physical work on which begins 
after the date of enactment of this Act.

SEC. 3. HISTORIC HOMEOWNERSHIP REHABILITATION CREDIT.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25D the 
following new section:

``SEC. 25E. HISTORIC HOMEOWNERSHIP REHABILITATION CREDIT.

    ``(a) General Rule.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 20 percent of the qualified 
rehabilitation expenditures made by the taxpayer with respect to a 
qualified historic home.
    ``(b) Dollar Limitation.--
            ``(1) In general.--The credit allowed by subsection (a) 
        with respect to any residence of a taxpayer shall not exceed 
        $40,000 ($20,000 in the case of a married individual filing a 
        separate return).
            ``(2) Carryforward of credit unused by reason of limitation 
        based on tax liability.--If the credit allowable under 
        subsection (a) for any taxable year exceeds the limitation 
        imposed by section 26(a) for such taxable year reduced by the 
        sum of the credits allowable under this subpart (other than 
        this section), such excess shall be carried to the succeeding 
        taxable year and added to the credit allowable under subsection 
        (a) for such succeeding taxable year.
    ``(c) Qualified Rehabilitation Expenditure.--For purposes of this 
section:
            ``(1) In general.--The term `qualified rehabilitation 
        expenditure' means any amount properly chargeable to capital 
        account--
                    ``(A) in connection with the certified 
                rehabilitation of a qualified historic home, and
                    ``(B) for property for which depreciation would be 
                allowable under section 168 if the qualified historic 
                home were used in a trade or business.
            ``(2) Certain expenditures not included.--
                    ``(A) Exterior.--Such term shall not include any 
                expenditure in connection with the rehabilitation of a 
                building unless at least 5 percent of the total 
                expenditures made in the rehabilitation process are 
                allocable to the rehabilitation of the exterior of such 
                building.
                    ``(B) Other rules to apply.--Rules similar to the 
                rules of clauses (ii) and (iii) of section 47(c)(2)(B) 
                shall apply.
            ``(3) Mixed use or multifamily building.--If only a portion 
        of a building is used as the principal residence of the 
        taxpayer, only qualified rehabilitation expenditures which are 
        properly allocable to such portion shall be taken into account 
        under this section.
    ``(d) Certified Rehabilitation.--For purposes of this section:
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `certified rehabilitation' has the meaning 
        given such term by section 47(c)(2)(C).
            ``(2) Factors to be considered in the case of targeted area 
        residences, etc.--
                    ``(A) In general.--For purposes of applying section 
                47(c)(2)(C) under this section with respect to the 
                rehabilitation of a building to which this paragraph 
                applies, consideration shall be given to--
                            ``(i) the feasibility of preserving 
                        existing architectural and design elements of 
                        the interior of such building,
                            ``(ii) the risk of further deterioration or 
                        demolition of such building in the event that 
                        certification is denied because of the failure 
                        to preserve such interior elements, and
                            ``(iii) the effects of such deterioration 
                        or demolition on neighboring historic 
                        properties.
                    ``(B) Buildings to which this paragraph applies.--
                This paragraph shall apply with respect to any 
                building--
                            ``(i) any part of which is a targeted area 
                        residence within the meaning of section 
                        143(j)(1), or
                            ``(ii) which is located within an 
                        enterprise community or empowerment zone as 
                        designated under section 1391, or a renewal 
                        community designated under section 1400(e),
                but shall not apply with respect to any building which 
                is listed in the National Register.
            ``(3) Approved state program.--The term `certified 
        rehabilitation' includes a certification made by--
                    ``(A) a State Historic Preservation Officer who 
                administers a State Historic Preservation Program 
                approved by the Secretary of the Interior pursuant to 
                section 101(b)(1) of the National Historic Preservation 
                Act, or
                    ``(B) a local government, certified pursuant to 
                section 101(c)(1) of the National Historic Preservation 
                Act and authorized by a State Historic Preservation 
                Officer, or the Secretary of the Interior where there 
                is no approved State program, subject to such terms and 
                conditions as may be specified by the Secretary of the 
                Interior for the rehabilitation of buildings within the 
                jurisdiction of such officer (or local government) for 
                purposes of this section.
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified historic home.--The term `qualified 
        historic home' means a certified historic structure--
                    ``(A) which has been substantially rehabilitated, 
                and
                    ``(B) which (or any portion of which)--
                            ``(i) is owned by the taxpayer, and
                            ``(ii) is used (or will, within a 
                        reasonable period, be used) by such taxpayer as 
                        his principal residence.
            ``(2) Substantially rehabilitated.--The term `substantially 
        rehabilitated' has the meaning given such term by section 
        47(c)(1)(C); except that, in the case of any building described 
        in subsection (d)(2), clause (i)(I) thereof shall not apply.
            ``(3) Principal residence.--The term `principal residence' 
        has the same meaning as when used in section 121.
            ``(4) Certified historic structure.--
                    ``(A) In general.--The term `certified historic 
                structure' means any building (and its structural 
                components) which--
                            ``(i) is listed in the National Register, 
                        or
                            ``(ii) is located in a registered historic 
                        district (as defined in section 47(c)(3)(B)) 
                        within which only qualified census tracts (or 
                        portions thereof) are located, and is certified 
                        by the Secretary of the Interior as being of 
                        historic significance to the district.
                    ``(B) Certain structures included.--Such term 
                includes any building (and its structural components) 
                which is designated as being of historic significance 
                under a statute of a State or local government, if such 
                statute is certified by the Secretary of the Interior 
                to the Secretary as containing criteria which will 
                substantially achieve the purpose of preserving and 
                rehabilitating buildings of historic significance.
                    ``(C) Qualified census tracts.--For purposes of 
                subparagraph (A)(ii)--
                            ``(i) In general.--The term `qualified 
                        census tract' means a census tract in which the 
                        median income is less than twice the statewide 
                        median family income.
                            ``(ii) Data used.--The determination under 
                        clause (i) shall be made on the basis of the 
                        most recent decennial census for which data are 
                        available.
            ``(5) Rehabilitation not complete before certification.--A 
        rehabilitation shall not be treated as complete before the date 
        of the certification referred to in subsection (d).
            ``(6) Lessees.--A taxpayer who leases his principal 
        residence shall, for purposes of this section, be treated as 
        the owner thereof if the remaining term of the lease (as of the 
        date determined under regulations prescribed by the Secretary) 
        is not less than such minimum period as the regulations 
        require.
            ``(7) Tenant-stockholder in cooperative housing 
        corporation.--If the taxpayer holds stock as a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        stockholder shall be treated as owning the house or apartment 
        which the taxpayer is entitled to occupy as such stockholder.
            ``(8) Allocation of expenditures relating to exterior of 
        building containing cooperative or condominium units.--The 
        percentage of the total expenditures made in the rehabilitation 
        of a building containing cooperative or condominium residential 
        units allocated to the rehabilitation of the exterior of the 
        building shall be attributed proportionately to each 
        cooperative or condominium residential unit in such building 
        for which a credit under this section is claimed.
    ``(f) When Expenditures Taken Into Account.--In the case of a 
building other than a building to which subsection (g) applies, 
qualified rehabilitation expenditures shall be treated for purposes of 
this section as made--
            ``(1) on the date the rehabilitation is completed, or
            ``(2) to the extent provided by the Secretary by 
        regulation, when such expenditures are properly chargeable to 
        capital account.
Regulations under paragraph (2) shall include a rule similar to the 
rule under section 50(a)(2) (relating to recapture if property ceases 
to qualify for progress expenditures).
    ``(g) Allowance of Credit for Purchase of Rehabilitated Historic 
Home.--
            ``(1) In general.--In the case of a qualified purchased 
        historic home, the taxpayer shall be treated as having made (on 
        the date of purchase) the expenditures made by the seller of 
        such home. For purposes of the preceding sentence, expenditures 
        made by the seller shall be deemed to be qualified 
        rehabilitation expenditures if such expenditures, if made by 
        the purchaser, would be qualified rehabilitation expenditures.
            ``(2) Qualified purchased historic home.--For purposes of 
        this subsection, the term `qualified purchased historic home' 
        means any substantially rehabilitated certified historic 
        structure purchased by the taxpayer if--
                    ``(A) the taxpayer is the first purchaser of such 
                structure after the date rehabilitation is completed, 
                and the purchase occurs within 5 years after such date,
                    ``(B) the structure (or a portion thereof) will, 
                within a reasonable period, be the principal residence 
                of the taxpayer,
                    ``(C) no credit was allowed to the seller under 
                this section or section 47 with respect to such 
                rehabilitation, and
                    ``(D) the taxpayer is furnished with such 
                information as the Secretary determines is necessary to 
                determine the credit under this subsection.
    ``(h) Historic Rehabilitation Mortgage Credit Certificate.--
            ``(1) In general.--The taxpayer may elect, in lieu of the 
        credit otherwise allowable under this section, to receive a 
        historic rehabilitation mortgage credit certificate. An 
        election under this paragraph shall be made--
                    ``(A) in the case of a building to which subsection 
                (g) applies, at the time of purchase, or
                    ``(B) in any other case, at the time rehabilitation 
                is completed.
            ``(2) Historic rehabilitation mortgage credit 
        certificate.--For purposes of this subsection, the term 
        `historic rehabilitation mortgage credit certificate' means a 
        certificate--
                    ``(A) issued to the taxpayer, in accordance with 
                procedures prescribed by the Secretary, with respect to 
                a certified rehabilitation,
                    ``(B) the face amount of which shall be equal to 
                the credit which would (but for this subsection) be 
                allowable under subsection (a) to the taxpayer with 
                respect to such rehabilitation,
                    ``(C) which may only be transferred by the taxpayer 
                to a lending institution (including a nondepository 
                institution) in connection with a loan--
                            ``(i) that is secured by the building with 
                        respect to which the credit relates, and
                            ``(ii) the proceeds of which may not be 
                        used for any purpose other than the acquisition 
                        or rehabilitation of such building, and
                    ``(D) in exchange for which such lending 
                institution provides to the taxpayer--
                            ``(i) a reduction in the rate of interest 
                        on the loan which results in interest payment 
                        reductions which are substantially equivalent 
                        on a present value basis to the face amount of 
                        such certificate, or
                            ``(ii) if the taxpayer so elects with 
                        respect to a specified amount of the face 
                        amount of such a certificate relating to a 
                        building--
                                    ``(I) which is a targeted area 
                                residence (within the meaning of 
                                section 143(j)(1)), or
                                    ``(II) which is located in an 
                                enterprise community or empowerment 
                                zone as designated under section 1391, 
                                or a renewal community as designated 
                                under section 1400(e), a payment which 
                                is substantially equivalent to such 
                                specified amount to be used to reduce 
                                the taxpayer's cost of purchasing the 
                                building (and only the remainder of 
                                such face amount shall be taken into 
                                account under clause (i)).
            ``(3) Method of discounting.--The present value under 
        paragraph (2)(D)(i) shall be determined--
                    ``(A) for a period equal to the term of the loan 
                referred to in subparagraph (D)(i),
                    ``(B) by using the convention that any payment on 
                such loan in any taxable year within such period is 
                deemed to have been made on the last day of such 
                taxable year,
                    ``(C) by using a discount rate equal to 65 percent 
                of the average of the annual Federal mid-term rate and 
                the annual Federal long-term rate applicable under 
                section 1274(d)(1) to the month in which the taxpayer 
                makes an election under paragraph (1) and compounded 
                annually, and
                    ``(D) by assuming that the credit allowable under 
                this section for any year is received on the last day 
                of such year.
            ``(4) Use of certificate by lender.--The amount of the 
        credit specified in the certificate shall be allowed to the 
        lender only to offset the regular tax (as defined in section 
        55(c)) of such lender. The lender may carry forward all unused 
        amounts under this subsection until exhausted.
            ``(5) Historic rehabilitation mortgage credit certificate 
        not treated as taxable income.--Notwithstanding any other 
        provision of law, no benefit accruing to the taxpayer through 
        the use of a historic rehabilitation mortgage credit 
        certificate shall be included in gross income for purposes of 
        this title.
    ``(i) Recapture.--
            ``(1) In general.--If, before the end of the 5-year period 
        beginning on the date on which the rehabilitation of the 
        building is completed (or, if subsection (g) applies, the date 
        of purchase of such building by the taxpayer)--
                    ``(A) the taxpayer disposes of such taxpayer's 
                interest in such building, or
                    ``(B) such building ceases to be used as the 
                principal residence of the taxpayer or ceases to be a 
                certified historic structure, the taxpayer's tax 
                imposed by this chapter for the taxable year in which 
                such disposition or cessation occurs shall be increased 
                by the recapture percentage of the credit allowed under 
                this section for all prior taxable years with respect 
                to such rehabilitation.
            ``(2) Recapture percentage.--For purposes of paragraph (1), 
        the recapture percentage shall be determined in accordance with 
        the table under section 50(a)(1)(B), deeming such table to be 
        amended--
                    ``(A) by striking `If the property ceases to be 
                investment credit property within--' and inserting `If 
                the disposition or cessation occurs within--', and
                    ``(B) in clause (i) by striking `One full year 
                after placed in service' and inserting `One full year 
                after the taxpayer becomes entitled to the credit'.
            ``(3) Transfer between spouses or incident to divorce.--In 
        the case of any transfer described in subsection (a) of section 
        1041 (relating to transfers between spouses or incident to 
        divorce)--
                    ``(A) the foregoing provisions of this subsection 
                shall not apply, and
                    ``(B) the same tax treatment under this subsection 
                with respect to the transferred property shall apply to 
                the transferee as would have applied to the transferor.
    ``(j) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property (including any purchase under subsection (g) and any 
transfer under subsection (h)), the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the credit so allowed.
    ``(k) Processing Fees.--Any State may impose a fee for the 
processing of applications for the certification of any rehabilitation 
under this section provided that the amount of such fee is used only to 
defray expenses associated with the processing of such applications.
    ``(l) Denial of Double Benefit.--No credit shall be allowed under 
this section for any amount for which credit is allowed under section 
47.
    ``(m) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section, 
including regulations where less than all of a building is used as a 
principal residence and where more than 1 taxpayer use the same 
dwelling unit as their principal residence.''
    (b) Conforming Amendments.--
            (1) Paragraph (4) of section 23(c) of such Code is amended 
        by inserting ``and section 25E'' after ``this section 1400C''.
            (2) Subparagraph (C) of section 25(e)(1) of such Code is 
        amended by inserting ``, 25E,'' after ``sections 25D''.
            (3) Subsection (d) of section 1400C of such Code is amended 
        by striking ``and 25B'' and inserting ``25B, and 25E)''.
            (4) Subsection (a) of section 1016 of such Code is amended 
        by striking ``and'' at the end of paragraph (36), by striking 
        the period at the end of paragraph (37) and inserting ``, 
        and'', and by adding at the end the following new item:
            ``(38) to the extent provided in section 25E(j).''
    (c) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 25D the following new 
item:

``Sec. 25E. Historic homeownership rehabilitation credit.''
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to rehabilitations the physical work on which begins 
after the date of enactment of this Act.
                                 <all>