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.
`(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.
`(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.
END
