Revitalizing Downtowns Act

To amend the Internal Revenue Code of 1986 to provide an investment credit for the conversion of office buildings into other uses. 1. Short title This Act may be cited as the Revitalizing Downtowns Act 2. Credit for qualified office conversion (a) In general Section 46 and , and (7) the qualified office conversion credit. . (b) Amount of credit Subpart E of part IV of subchapter A of chapter 1 48D. Qualified office conversion credit (a) In general For purposes of section 46, the qualified office conversion credit for any taxable year is equal to 20 percent of the qualified conversion expenditures with respect to a qualified converted building. (b) 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 (d) 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 (d) 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). (c) Definitions (1) Qualified converted building (A) In general The term qualified converted building (i) prior to conversion, such building was nonresidential real property (as defined in section 168) which was leased, or available for lease, to office tenants, (ii) such building has been substantially converted from an office use to a residential, retail, or other commercial use, (iii) in the case of conversion to a residential use, such converted building meets the requirements of subparagraph (D), (iv) such building was initially placed in service at least 25 years before the beginning of the conversion, and (v) depreciation (or amortization in lieu of depreciation) is allowable with respect to such building. (B) Substantially converted defined (i) In general For purposes of paragraph (1)(A)(ii), a building shall be treated as having been substantially converted only if the qualified conversion expenditures during the 24-month period selected by the taxpayer (at the time and in the manner prescribed by regulation) and ending with or within the taxable year exceed the greater of— (I) the adjusted basis of such building (and its structural components), or (II) $15,000. The adjusted basis of the building (and its structural components) shall be determined as of the beginning of the 1st day of such 24-month period, or of the holding period of the building, whichever is later. For purposes of the preceding sentence, the determination of the beginning of the holding period shall be made without regard to any reconstruction by the taxpayer in connection with the conversion. (ii) Special rule for phased conversion In the case of any conversion which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the conversion begins, clause (i) shall be applied by substituting 60-month period 24-month period (iii) Lessees The Secretary shall prescribe by regulation rules for applying this subparagraph to lessees. (C) Reconstruction Conversion includes reconstruction. (D) Residential conversion requirements (i) In general A building meets the requirements of this subparagraph if— (I) 20 percent or more of the residential units are both rent-restricted and occupied by individuals whose income is 80 percent or less of area median gross income, or (II) such building is subject to a written binding State or local agreement with respect to the provision or financing of affordable housing and such agreement is documented in such form and manner as the Secretary may provide. (ii) Rent and income limitation For purposes of this subparagraph, rules similar to the rules of subsection (g) of section 42 shall apply to determine whether a unit is rent-restricted, treatment of units occupied by individuals whose incomes rise above the limit, and the treatment of units where Federal rental assistance is reduced as tenant’s income increases. (2) Qualified conversion expenditures defined (A) In general For purposes of subsection (a), the term qualified conversion expenditures (i) for property for which depreciation is allowable under section 168 and which is— (I) nonresidential real property (as defined in section 168), (II) residential rental property (as defined in section 168), or (III) an addition or improvement to property described in clause (i) or (ii), and (ii) in connection with the conversion of a qualified converted building. (B) Certain expenditures not included The term qualified conversion expenditures (i) Straight line depreciation must be used Any expenditure with respect to which the taxpayer does not use the straight line method over a recovery period determined under subsection (c) or (g) of section 168. The preceding sentence shall not apply to any expenditure to the extent the alternative depreciation system of section 168(g) applies to such expenditure by reason of subparagraph (B) or (C) of section 168(g)(1). (ii) Cost of acquisition The cost of acquiring any building or interest therein. (iii) Enlargements Any expenditure attributable to the enlargement of an existing building. (iv) Tax-exempt use property Any expenditure in connection with the conversion of a building which is allocable to the portion of such property which is (or may reasonably be expected to be) tax-exempt use property (within the meaning of section 168(h)), except that— (I) 50 percent 35 percent (II) an eligible educational institution (as defined in section 529(e)(5)) shall not be treated as a tax-exempt entity. This clause shall not apply for purposes of determining whether a building has been substantially converted. (v) Expenditures of lessee Any expenditure of a lessee of a building if, on the date the conversion is completed, the remaining term of the lease (determined without regard to any renewal periods) is less than the recovery period determined under section 168(c). (d) Progress expenditures (1) In general In the case of any building to which this subsection applies, except as provided in paragraph (3)— (A) 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 (B) 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 (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 general 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) Carryover of certain amounts In the case of a building which is not a self-converted building, if for the taxable year— (I) 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 (II) 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 (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. (e) 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. . (c) Conforming amendments (1) Section 49(a)(1)(C) and , and (vi) the portion of the basis of any qualified converted property attributable to qualified conversion expenditures under section 48D. . (2) Section 50(a)(2)(E) of such Code is amended by striking or 48C(b)(2) 48C(b)(2), or 48D(d) (3) Section 50(b)(2) of such Code is amended by striking and ; and (E) a qualified converted building to the extent of that portion of the basis which is attributable to qualified conversion expenditures. . (4) Section 50(b)(3) is amended by inserting , or, solely with respect to the qualified office conversion credit, an eligible educational institution (as defined in section 529(e)(5)) section 521 (5) The table of sections for subpart E of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 48C the following new item: Sec. 48D. Qualified office conversion credit. . (d) Effective date The amendments made by this section shall apply to qualified conversion expenditures incurred after the date of enactment in taxable years ending after such date.

Summary: Revitalizing Downtowns Act This bill expands the investment tax credit to add a qualified office conversion credit. The amount of such credit is 20% of the qualified conversion expenditures with respect to a qualified converted building. The bill defines qualified converted building as any building if (1) prior to conversion, the building was nonresidential real property which was leased, or available for lease, to office tenants; (2) the building has been substantially converted from an office use to a residential, retail, or other commercial use; (3) the building was initially placed in service at least 25 years prior to the beginning of the conversion, and (4) straight line depreciation is allowable with respect to the building.