To amend the Internal Revenue Code of 1986 to increase the rehabilitation credit for commercial buildings and to provide a rehabilitation credit for principal residences.

Summary: Preserving America's Downtowns and Heritage Act of 2012 - Amends the Internal Revenue Code to: (1) increase the rate of the rehabilitation tax credit for commercial buildings and for certified historic structures, and (2) allow a new 20% rehabilitation tax credit for certified historic buildings used by a taxpayer as a principal residence.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Preserving America's Downtowns and 
Heritage Act of 2012''.

SEC. 2. INCREASED REHABILITATION CREDIT FOR COMMERCIAL BUILDINGS.

    (a) Buildings Other Than Certified Historic Structures.--Paragraph 
(1) of section 47(a) of the Internal Revenue Code of 1986 (relating to 
rehabilitation credit) is amended by striking ``10 percent'' and 
inserting ``12.5 percent''.
    (b) Certified Historic Structures.--Paragraph (2) of such section 
is amended by striking ``20 percent'' and inserting ``25 percent''.
    (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 enactment of this Act.

SEC. 3. REHABILITATION CREDIT FOR HISTORIC PRINCIPAL RESIDENCES.

    (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. REHABILITATION OF HISTORIC PRINCIPAL RESIDENCES.

    ``(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) 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.--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.
    ``(c) Certified Rehabilitation.--For purposes of this section--
            ``(1) In general.--The term `certified rehabilitation' has 
        the meaning given such term by section 47(c)(2)(C).
            ``(2) 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.
    ``(d) 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).
            ``(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)) 
                        and is certified by the Secretary of the 
                        Interior as being of historic significance to 
                        the district.
            ``(5) Rehabilitation not complete before certification.--A 
        rehabilitation shall not be treated as complete before the date 
        of the certification referred to in subsection (c).
            ``(6) 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.
    ``(e) Limitation Based on Amount of Tax.--
            ``(1) In general.--In the case of a taxable year to which 
        section 26(a)(2) does not apply, the credit allowed under 
        subsection (a) for the taxable year shall not exceed the excess 
        of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under 
                subpart A (other than this section and section 25D) and 
                section 27 for the taxable year.
            ``(2) Carryforward of unused credit.--
                    ``(A) In general.--If the credit allowable under 
                subsection (a) for any taxable year exceeds the 
                applicable tax limit for such taxable year, such excess 
                shall be a carryforward to each of the 5 succeeding 
                taxable years and, subject to the limitations of 
                subparagraph (B), shall be added to the credit 
                allowable by subsection (a) for such succeeding taxable 
                year.
                    ``(B) Amount carried to each year.--Rules similar 
                to the rules of section 39(a)(2) shall apply for 
                purposes of this paragraph.
                    ``(C) Limitation.--The amount of the unused credit 
                which may be taken into account under subparagraph (A) 
                for any taxable year shall not exceed the amount (if 
                any) by which the applicable tax limit for such taxable 
                year exceeds the sum of--
                            ``(i) the credit allowable under subsection 
                        (a) for such taxable year determined without 
                        regard to this paragraph, and
                            ``(ii) the amounts which, by reason of this 
                        paragraph, are carried to such taxable year and 
                        are attributable to taxable years before the 
                        unused credit year.
            ``(3) Applicable tax limit.--For purposes of this 
        paragraph, the term `applicable tax limit' means--
                    ``(A) in the case of a taxable year to which 
                section 26(a)(2) applies, the limitation imposed by 
                section 26(a)(2) for the taxable year reduced by the 
                sum of the credits allowable under this subpart (other 
                than this section and section 25D), and
                    ``(B) in the case of a taxable year to which 
                section 26(a)(2) does not apply, the limitation imposed 
                by section 26(a)(1) for the taxable year reduced by the 
                sum of the credits allowable under this subpart (other 
                than this section and sections 24, 25A(i), 25B, 25D, 
                30, 30B, 30D).
    ``(f) When Expenditures Taken Into Account.--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) 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--
                    ``(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.
    ``(h) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, 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.
    ``(i) 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.
    ``(j) Denial of Double Benefit.--No credit shall be allowed under 
this section for any amount for which credit is allowed under section 
47.
    ``(k) 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) Sections 24(b)(3)(C), 25(e)(1)(C), 25B(g)(2), 26(a)(1), 
        30B(g)(2)(B)(ii), and 1400C(d)(2) of such Code are each amended 
        by inserting ``25E,'' after ``25D,''.
            (2) Sections 25A(i)(5)(A) and 30(c)(2)(B) of such Code are 
        each amended by inserting ``, 25E,'' after ``25D''.
            (3) Sections 30D(c)(2)(B)(ii) and 1400C(d)(1) of such Code 
        are each amended by striking ``section 25D'' and inserting 
        ``sections 25D and 25E''.
            (4) Paragraph (1) of section 1400C(d) of such Code is 
        amended by striking ``section 25D'' and inserting ``sections 
        25D and 25E''.
            (5) 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(h).''.
    (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. Rehabilitation of historic principal residences.''.
    (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.