H.R. 537

119th CONGRESS 1st Session

To amend the Internal Revenue Code of 1986 to provide tax credits for the conversion of commercial buildings to residential units, to provide support and technical assistance to State and local housing agencies to identify and advance housing conversion opportunities for underutilized commercial buildings, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES · January 16, 2025 · Sponsor: Ms. Sherrill

Table of contents

• H.R. 537
  • Sec. 48F. Commercial-to-residential credit.

Sec. 48F. Commercial-to-residential credit.

• (a) In general
  • For purposes of section 46, the commercial-to-residential credit for any taxable year is equal to 15 percent of the qualified conversion expenditures with respect to a qualified converted building.
• (b) Limitation on credit amount
  • The credit determined under subsection (a) may not exceed—
    • $200,000 per new residential housing unit, and
    • $10,000,000 per qualified converted building.
• (c) When expenditures taken into account
  • (1) In general
    • Qualified conversion expenditures with respect to any qualified converted building shall be taken into account for the taxable year in which such qualified converted building is placed in service.
  • (2) Coordination with subsection
    • The amount which would (but for this subparagraph) be taken into account under subparagraph (A) with respect to any qualified converted building shall be reduced (but not below zero) by any amount of qualified conversion expenditures taken into account under subsection (e) by the taxpayer or a predecessor of the taxpayer (or, in the case of a sale and leaseback described in section 50(a)(2)(C), by the lessee), to the extent any amount so taken into account has not been required to be recaptured under section 50(a).
    • Coordination with subsection
• (d) Bonus credits
  • (1) Affordable housing bonus credit
    • (A) In general
      • In the case of a qualified converted building which has been converted to a majority rental residential use and which satisfies the requirements under subparagraph (B), the amount of the credit determined under subsection (a) (determined without regard to this subsection) and the limitation on credit amount described in subsection (b) (determined without regard to this subsection) with respect to such building shall each be increased by an amount equal to—
        • (i) in the case of a qualified converted building 25 percent or more of the residential units of which are both rent-restricted and occupied by individuals whose income does not exceed 100 percent of area median income, 10 percent of such amounts,
        • (ii) in the case of a qualified converted building 25 percent or more of the residential units of which are both rent-restricted and occupied by individuals whose income does not exceed 80 percent of area median income, 15 percent of such amounts, and
        • (iii) in the case of a qualified converted building 25 percent or more of the residential units of which are both rent-restricted and occupied by individuals whose income does not exceed 60 percent of area median income, 20 percent of such amounts.
    • (B) Rent and income limitation
      • For purposes of subparagraph (A), rules similar to the rules of section 42(g) shall apply to determine whether a unit is rent-restricted, treatment of units occupied by individuals whose incomes rise above the limit, and treatment of units where Federal rental assistance is reduced as tenant’s income increases.
  • (2) Prevailing wage bonus credit
    • (A) In general
      • In the case of any qualified converted building with respect to which the taxpayer certifies to the Secretary that the taxpayer satisfied the requirement of subparagraph (B) with respect to the conversion process, the amount of the credit determined under subsection (a) (determined without regard to this subsection) and the limitation on the credit amount described in subsection (b) (determined without regard to this subsection) with respect to such building shall each be increased by an amount equal to 15 percent of such amounts.
    • (B) Prevailing wage requirement
      • The requirement described in this subparagraph is satisfied with respect to any conversion if all laborers or mechanics employed by the taxpayer or any contractor or subcontractor of the taxpayer to carry out the conversion were paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of of title 40, United States Code. chapter 31
• (e) Definitions
• (f) Progress expenditures
  • (1) In general
    • In the case of any building to which this subsection applies, except as provided in paragraph (3)—
      • if such building is self-converted property, any qualified conversion expenditure with respect to such building shall be taken into account for the taxable year for which such expenditure is properly chargeable to capital account with respect to such building, and
      • if such building is not self-converted property, any qualified conversion expenditure with respect to such building shall be taken into account for the taxable year in which paid.
  • (2) Property to which subsection applies
    • (A) In general
      • This subsection shall apply to any building which is being converted by or for the taxpayer if—
        • (i) the normal conversion period for such building is 2 years or more, and
        • (ii) it is reasonable to expect that such building will be a qualified converted building in the hands of the taxpayer when it is placed in service.
      • Clauses (i) and (ii) shall be applied on the basis of facts known as of the close of the taxable year of the taxpayer in which the conversion begins (or, if later, at the close of the first taxable year to which an election under this subsection applies).
    • (B) Normal conversion period
      • For purposes of subparagraph (A), the term normal conversion period means the period reasonably expected to be required for the conversion of the building—
        • (i) beginning with the date on which physical work on the conversion begins (or, if later, the first day of the first taxable year to which an election under this subsection applies), and
        • (ii) ending on the date on which it is expected that the property will be available for placing in service.
  • (3) Special rules for applying paragraph (1)
    • For purposes of paragraph (1)—
    • (A) Component parts, etc
      • Property which is to be a component part of, or is otherwise to be included in, any building to which this subsection applies shall be taken into account—
        • (i) at a time not earlier than the time at which it becomes irrevocably devoted to use in the building, and
        • (ii) as if (at the time referred to in clause (i)) the taxpayer had expended an amount equal to that portion of the cost to the taxpayer of such component or other property which, for purposes of this subpart, is properly chargeable (during such taxable year) to capital account with respect to such building.
    • (B) Certain borrowing disregarded
      • Any amount borrowed directly or indirectly by the taxpayer from the person converting the property for him shall not be treated as an amount expended for such conversion.
    • (C) Limitation for buildings which are not self-converted
      • (i) In the case of a building which is not self-converted, the amount taken into account under paragraph (1)(B) for any taxable year shall not exceed the amount which represents the portion of the overall cost to the taxpayer of the conversion which is properly attributable to the portion of the conversion which is completed during such taxable year.
      • (ii) In the case of a building which is not a self-converted building, if for the taxable year—
      • the amount which (but for clause (i)) would have been taken into account under paragraph (1)(B) exceeds the limitation of clause (i), then the amount of such excess shall be taken into account under paragraph (1)(B) for the succeeding taxable year, or
      • the limitation of clause (i) exceeds the amount taken into account under paragraph (1)(B), then the amount of such excess shall increase the limitation of clause (i) for the succeeding taxable year.
    • (D) Determination of percentage of completion
      • The determination under subparagraph (C)(i) of the portion of the overall cost to the taxpayer of the conversion which is properly attributable to conversion completed during any taxable year shall be made, under regulations prescribed by the Secretary, on the basis of engineering or architectural estimates or on the basis of cost accounting records. Unless the taxpayer establishes otherwise by clear and convincing evidence, the conversion shall be deemed to be completed not more rapidly than ratably over the normal conversion period.
    • (E) No progress expenditures for certain prior periods
      • No qualified conversion expenditures shall be taken into account under this subsection for any period before the first day of the first taxable year to which an election under this subsection applies.
    • (F) No progress expenditures for property for year it is placed in service, etc
      • In the case of any building, no qualified conversion expenditures shall be taken into account under this subsection for the earlier of—
        • (i) the taxable year in which the building is placed in service, or
        • (ii) the first taxable year for which recapture is required under section 50(a)(2) with respect to such property,
      • or for any taxable year thereafter.
  • (4) Self-converted building
    • For purposes of this subsection, the term self-converted building means any building if it is reasonable to believe that more than half of the qualified conversion expenditures for such building will be made directly by the taxpayer.
  • (5) Election
    • This subsection shall apply to any taxpayer only if such taxpayer has made an election under this paragraph. Such an election shall apply to the taxable year for which made and all subsequent taxable years. Such an election, once made, may be revoked only with the consent of the Secretary.
• (g) Denial of double benefit
  • A credit shall not be allowed under this section for any qualified conversion expenditure for which a credit is allowed under section 42 or 47.