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.

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:

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 (1) of section 23(c) of such Code is amended by inserting , 25E, after 25D. (2)Subparagraph (C) of section 25(e)(1) of such Code is amended by inserting 25E, after sections 25D,. (3)Paragraph (2) of section 1400C(d) of such Code is amended by striking and 25D and inserting 25D, 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.