Increase in the rehabilitation credit for certain smaller projects

(a)

In general

Section 47 of the Internal Revenue Code of 1986 (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 any qualified rehabilitated building or portion thereof— (A)which is placed in service after the date of the enactment of this subsection, and (B)which is a smaller project,

subsection (a)(2) shall be applied by substituting 30 percent for 20 percent.

(2)

Maximum credit

The credit determined under this subsection with respect to any smaller project for all taxable years shall not exceed $1,500,000. (3)

Smaller project defined

(A)

In general

For purposes of this subsection, the term smaller project means any qualified rehabilitated building or portion thereof if— (i)the qualified rehabilitation expenditures taken into account for purposes of this section (or would have been so taken into account if this subsection had been in effect for all prior periods) with respect to the rehabilitation are not over $7,500,000, and (ii)no credit was allowed under this section for either of the 2 prior taxable years with respect to such building. (B)

Special rules

(i)

Energy efficiency expenditures not taken into account

Amounts that are qualified rehabilitation expenditures solely by reason of subsection (c)(2)(E) shall not be taken into account under subparagraph (A)(i). (ii)

Progress expenditures

Credit allowable by reason of subsection (d) shall not be taken into account under subparagraph (A)(ii).

(b)

Effective date

The amendment made by this section shall apply to periods after the date of the enactment of this Act, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).

Use for lodging not to disqualify for rehabilitation credit property which is not a certified historic structure

(a)

In general

Subparagraph (C) of section 50(b)(2) of the Internal Revenue Code of 1986 (relating to property eligible for the investment credit) is amended by striking certified historic structure and inserting qualified rehabilitated building. (b)

Effective date

The amendment made by this section shall apply to property placed in service after the date of the enactment of this Act.

Date by which building must be first placed in service

(a)

In general

Subparagraph (B) of section 47(c)(1) of the Internal Revenue Code of 1986 (relating to the date by which building must be first placed in service) is amended— (1)by striking

Building must be first placed in service before 1936

and inserting

Date by which building must first be placed in service

, and (2)by striking before 1936 at the end of the subparagraph and inserting no less than 50 years prior to the year in which qualified rehabilitation expenditures are taken into account under subsection (b)(1). (b)

Effective date

The amendment made by this section shall apply to property placed in service after the date of the enactment of this Act.

Modifications regarding certain tax-exempt use property

(a)

In general

Clause (I) of section 47(c)(2)(B)(v) of the Internal Revenue Code of 1986 (relating to tax-exempt use property) is amended by inserting and subclauses (I), (II), and (III) of section 168(h)(1)(B)(ii) shall not apply after thereof. (b)

Effective date

The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.

Rehabilitation credit may be transferred

(a)

In general

Subsection (b) of section 47 of the Internal Revenue Code of 1986 (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, not to exceed $5,000,000, 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 the 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.

(b)

Conforming amendment

The heading for such subsection (b) is amended by inserting

; eligibility for credit may be assigned

after

account

. (c)

Effective Date

The amendments made by this section shall apply with respect to rehabilitations the physical work on which begins after the date of the enactment of this Act.

Credit for moderate rehabilitations

(a)

In general

Subclause (I) of section 47(c)(1)(C)(i) of the Internal Revenue Code of 1986 (defining substantially rehabilitated) is amended by inserting 50 percent of before the adjusted basis. (b)

Effective date

The amendment made by this section shall apply with respect to rehabilitations the physical work on which begins after the date of the enactment of this Act.

Addition of energy efficiency supplement to rehabilitation credit

(a)

In general

Subsection (a) of section 47 of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and, and by adding at the end the following new paragraph:

(3)in the case of a qualified rehabilitated building designed to achieve at least a 30 percent qualified energy use reduction as a result of being substantially rehabilitated (determined under subsection (e)), the energy efficiency supplement with respect to such building.

(b)

Energy efficiency supplement

Section 47 of such Code is amended by adding at the end the following new subsection:

(e)

Energy efficiency supplement

(1)

In general

For purposes of subsection (a)(3), the energy efficiency supplement shall be determined in accordance with the following table. If the achieved qualified energy use reduction is—The energy efficiency supplement per square foot of the building is— At least 30 percent but not over 35 percent$2.00 Over 35 percent but not over 40 percent$2.67 Over 40 percent but not over 45 percent$3.42 Over 45 percent but not over 50 percent$4.18 Over 50 percent$5.00.

(2)

Limitation

In no event shall the energy efficiency supplement exceed 50 percent of the qualified rehabilitation expenditures with respect to the qualified rehabilitated building. (3)

Partial allowance

(A)

In general

In order to encourage implementation of building retrofits, the Secretary shall prescribe by regulations the conditions under which a taxpayer may receive a partial energy efficiency supplement corresponding to the actual qualified energy use reduction achieved. (B)

Taxpayer eligibility

This paragraph shall apply to a taxpayer only if— (i)the taxpayer certifies to the Secretary that the rehabilitation was undertaken as part of a plan to achieve a qualified energy use reduction of at least 30 percent, and (ii)such reduction is not substantiated under any certification process prescribed by the Secretary, but a qualified energy use reduction of at least 25 percent is so substantiated. (C)

Maximum partial allowance

The energy efficiency supplement allowable by reason of this paragraph shall not exceed the product of— (i)$2.00, and (ii)a fraction— (I)the numerator of which is the number of percentage points of the achieved qualified energy use reduction, and (II)the denominator of which is 30. (4)

Qualified energy use reduction

For purposes of this subsection, the term qualified energy use reduction means, for buildings or aggregation of buildings, improvement in energy performance with reference to the energy consumption during the previous year of the building or aggregation of buildings being rehabilitated, while adjusting for other relevant factors including prior vacancy, introduction of modern technologies and systems, and changes in use and occupancy loads. (5)

Regulations

The Secretary, after consultation with the Administrator of the Environmental Protection Agency and the Secretary of the Interior, shall promulgate such regulations as may be necessary or appropriate to carry out the purposes of the energy efficiency supplement, including prescribing the manner and method for calculating, verifying, and certifying qualified energy use reductions. Such regulations shall provide that a qualified energy use reduction shall be determined by using an established energy benchmarking tool which shall, to the maximum extent feasible, take into account the requirements necessary to become a certified rehabilitation and shall include an approach that determines success in energy efficiency based on actual measured savings after a retrofit is complete. (6)

Coordination

The Secretary shall designate processes for tracking the numbers and locations of buildings claiming the energy efficiency supplement, with information on projected and actual savings of energy and its value over time in coordination with the Department of Energy.

(c)

Substantial rehabilitation requirement not To apply to energy efficiency supplement

Subparagraph (A) of section 47(c)(1) (defining qualified rehabilitated building) is amended by adding at the end the following new flush sentence:

Clause (i) shall not apply to so much of the rehabilitation credit as is attributable to the energy efficiency supplement under subsection (a)(3).

(d)

Effective dates

(1)

In general

Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after the date of the enactment of this Act. (2)

Waiver of substantial rehabilitation requirement

The amendment made by subsection (c) shall apply with respect to rehabilitations the physical work on which begins after the date of the enactment of this Act.

Modification to definition of qualified rehabilitation expenditure

(a)

In general

Clause (i) of section 47(c)(2)(A) of the Internal Revenue Code of 1986 (relating to the definition of qualified rehabilitation expenditures) is amended by striking or at the end of subclause (III), by striking subclause (IV), and by inserting after subclause (III) the following new subclauses:

(IV)rehabilitated building energy efficiency property, or (V)an addition or improvement to property described in subclause (I), (II), (III), or (IV), and

(b)

Rehabilitated building energy efficiency property

Section 47(c)(2) of such Code is amended by adding at the end the following new subparagraph:

(E)

Rehabilitated building energy efficiency property

(i)

In general

For purposes of subparagraph (A), the term rehabilitated building energy efficiency property means property which is certified as being— (I)affixed to, adjacent to, or integral to the provision of renewable energy to a qualified rehabilitated building, or (II)installed as part of a plan designed to achieve any qualified energy use reduction (as defined in subsection (e)(4)) or a reduction in water use.

Subparagraph (B)(i) shall not apply to rehabilitated building energy efficiency property.

(ii)

Certification

The Secretary shall prescribe the manner and method for the making of certifications under clause (i).

(c)

Enlargements

Clause (iii) of section 47(c)(2)(B) of such Code is amended by adding at the end the following new sentence: The preceding sentence shall not apply to any rehabilitated building energy efficiency property which is an addition or improvement to a building. (d)

Effective date

The amendments made by this section shall apply to qualified rehabilitated buildings placed in service after the date of the enactment of this Act.

Coordination of energy credit with rehabilitation credit

(a)

In general

Paragraph (2) of section 48(a) of the Internal Revenue Code of 1986 is amended by striking subparagraph (B). (b)

Basis reduction

Paragraph (3) of section 50(c) of such Code is amended by adding at the end the following new flush sentence:

In the case of property that qualifies for both the energy credit and the rehabilitation credit, the preceding sentence shall be applied by substituting none for only 50 percent each place it appears.

(c)

Effective date

The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.

10.

Special rules for dispositions of State historic tax credits

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by inserting after section 139C the following new section:

139D.

Dispositions of state historic tax credits

(a)

Exclusion from income; basis reduction

(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), 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 land, (B)second, against so much of the basis of any building or interest therein as was not treated as a qualified rehabilitation expenditure by reason of clause (ii) or (iii) of section 47(c)(2)(B), and (C)third, against the remaining basis in the property. (D)

Adjustment in basis of interest in partnership or s corporation

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

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). (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, 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)) 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. (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.

(b)

Clerical amendment

The table of sections for such part III is amended by inserting after the item relating to section 139C the following new item:

Sec. 139D. Dispositions of state historic tax credits..

(c)

Effective date

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