I 
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. ROTH-
MAN, 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 Representa-
tives 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’’. 
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SEC. 2. EXPANSION OF INCENTIVES FOR BUILDING REHA-
BILITATION. 
(a) INCREASED CREDIT FOR CERTIFIED HISTORIC 
STRUCTURES.—Paragraph (2) of section 47(a) of the In-
ternal 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 CRED-
IT.—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
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 reha-
bilitation.’’. 
(c) USE AS LODGING NOT TO DISQUALIFY CERTAIN 
PROPERTY
FOR
REHABILITATION
CREDIT.—Subpara-
graph (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 ‘‘quali-
fied rehabilitated building’’. 
(d) ONLY
50-PERCENT
BASIS
REDUCTION
FOR 
BUILDINGS FOR WHICH BOTH THE LOW-INCOME HOUS-
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ING CREDIT AND THE REHABILITATION CREDIT ARE AL-
LOWED.—Paragraph (3) of section 50(c) of such Code (re-
lating 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 rehabili-
tation 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 sec-
tion 42(d)(5)C), the qualified rehabilitation ex-
penditures taken into account under this section 
shall be 130 percent of such expenditures deter-
mined without regard to this subparagraph.’’. 
(f) INCREASE IN REHABILITATION CREDIT FOR CER-
TAIN SMALLER PROJECTS.—Section 47 of such Code (re-
lating to rehabilitation credit) is amended by adding at 
the end the following new subsection: 
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‘‘(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 ap-
plicable 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 expendi-
tures 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 sec-
tion during any of the 2 preceding taxable years 
(determined without regard to subsection (d)) 
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with respect to the building to which such ex-
penditures relate.’’. 
(g) REHABILITATION CREDIT FOR CERTIFIED HIS-
TORIC
STRUCTURE
EXEMPT
FROM
PASSIVE
LOSS 
RULES.—Subsection (d) of section 469 of such Code (re-
lating to passive activity losses and credits limited) is 
amended by adding at the end the following new para-
graph: 
‘‘(3) SECTION NOT TO APPLY TO CREDIT FOR 
REHABILITATION OF HISTORIC STRUCTURES.—The 
amount of the passive activity credit shall be deter-
mined without regard to the amount of credit deter-
mined under section 47 with respect to any certified 
historic structure (as defined in section 47(c)(3)).’’. 
(h) REHABILITATION
CREDIT
MAY
BE
TRANS-
FERRED.— 
(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 
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(hereafter in this paragraph referred to as the ‘ini-
tial taxpayer’)— 
‘‘(A) may be taken into account by any 
other person to whom such expenditures are as-
signed by the initial taxpayer, and 
‘‘(B) shall not be taken to account by ini-
tial taxpayer. 
Any person to whom such expenditures are assigned 
under subparagraph (A) shall be treated for pur-
poses 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 sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to nonrefundable personal credits) is 
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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. 
‘‘(b) DOLLAR LIMITATION.— 
‘‘(1) IN GENERAL.—The credit allowed by sub-
section (a) with respect to any residence of a tax-
payer 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
LIABIL-
ITY.—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 suc-
ceeding taxable year. 
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‘‘(c) QUALIFIED REHABILITATION EXPENDITURE.— 
For purposes of this section: 
‘‘(1) IN GENERAL.—The term ‘qualified reha-
bilitation expenditure’ means any amount properly 
chargeable to capital account— 
‘‘(A) in connection with the certified reha-
bilitation 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
IN-
CLUDED.— 
‘‘(A) EXTERIOR.—Such term shall not in-
clude any expenditure in connection with the re-
habilitation of a building unless at least 5 per-
cent of the total expenditures made in the reha-
bilitation process are allocable to the rehabilita-
tion 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 prin-
cipal residence of the taxpayer, only qualified reha-
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bilitation 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 pro-
vided in this subsection, the term ‘certified rehabili-
tation’ 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 ap-
plying 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 exist-
ing 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 
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‘‘(iii) the effects of such deterioration 
or demolition on neighboring historic prop-
erties. 
‘‘(B) BUILDINGS
TO
WHICH
THIS
PARA-
GRAPH APPLIES.—This paragraph shall apply 
with respect to any building— 
‘‘(i) any part of which is a targeted 
area residence within the meaning of sec-
tion 143(j)(1), or 
‘‘(ii) which is located within an enter-
prise community or empowerment zone as 
designated under section 1391, or a re-
newal 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 Inte-
rior pursuant to section 101(b)(1) of the Na-
tional Historic Preservation Act, or 
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‘‘(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 In-
terior for the rehabilitation of buildings within 
the jurisdiction of such officer (or local govern-
ment) for purposes of this section. 
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) QUALIFIED
HISTORIC
HOME.—The term 
‘qualified historic home’ means a certified historic 
structure— 
‘‘(A) which has been substantially rehabili-
tated, and 
‘‘(B) which (or any portion of which)— 
‘‘(i) is owned by the taxpayer, and 
‘‘(ii) is used (or will, within a reason-
able 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, 
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in the case of any building described in subsection 
(d)(2), clause (i)(I) thereof shall not apply. 
‘‘(3) PRINCIPAL RESIDENCE.—The term ‘prin-
cipal 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 dis-
trict. 
‘‘(B) CERTAIN STRUCTURES INCLUDED.— 
Such term includes any building (and its struc-
tural 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 sub-
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stantially 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 ‘quali-
fied 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 treat-
ed as complete before the date of the certification re-
ferred 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 re-
quire. 
‘‘(7) TENANT-STOCKHOLDER IN COOPERATIVE 
HOUSING
CORPORATION.—If the taxpayer holds 
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stock as a tenant-stockholder (as defined in section 
216) in a cooperative housing corporation (as de-
fined 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 RELAT-
ING TO EXTERIOR OF BUILDING CONTAINING COOP-
ERATIVE 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 propor-
tionately to each cooperative or condominium resi-
dential unit in such building for which a credit 
under this section is claimed. 
‘‘(f) WHEN
EXPENDITURES
TAKEN
INTO
AC-
COUNT.—In the case of a building other than a building 
to which subsection (g) applies, qualified rehabilitation ex-
penditures 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. 
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Regulations under paragraph (2) shall include a rule simi-
lar to the rule under section 50(a)(2) (relating to recap-
ture if property ceases to qualify for progress expendi-
tures). 
‘‘(g) ALLOWANCE OF CREDIT FOR PURCHASE OF RE-
HABILITATED HISTORIC HOME.— 
‘‘(1) IN GENERAL.—In the case of a qualified 
purchased historic home, the taxpayer shall be treat-
ed as having made (on the date of purchase) the ex-
penditures 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 rehabili-
tation expenditures. 
‘‘(2) 
QUALIFIED
PURCHASED
HISTORIC 
HOME.—For purposes of this subsection, the term 
‘qualified purchased historic home’ means any sub-
stantially 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, 
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‘‘(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 nec-
essary to determine the credit under this sub-
section. 
‘‘(h) HISTORIC REHABILITATION MORTGAGE CREDIT 
CERTIFICATE.— 
‘‘(1) IN GENERAL.—The taxpayer may elect, in 
lieu of the credit otherwise allowable under this sec-
tion, 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 reha-
bilitation is completed. 
‘‘(2) HISTORIC
REHABILITATION
MORTGAGE 
CREDIT
CERTIFICATE.—For purposes of this sub-
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section, 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 acqui-
sition 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 pay-
ment reductions which are substantially 
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equivalent on a present value basis to the 
face amount of such certificate, or 
‘‘(ii) if the taxpayer so elects with re-
spect to a specified amount of the face 
amount of such a certificate relating to a 
building— 
‘‘(I) which is a targeted area res-
idence (within the meaning of section 
143(j)(1)), or 
‘‘(II) which is located in an en-
terprise community or empowerment 
zone as designated under section 
1391, or a renewal community as des-
ignated under section 1400(e), a pay-
ment which is substantially equivalent 
to such specified amount to be used to 
reduce the taxpayer’s cost of pur-
chasing the building (and only the re-
mainder 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 deter-
mined— 
‘‘(A) for a period equal to the term of the 
loan referred to in subparagraph (D)(i), 
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‘‘(B) by using the convention that any pay-
ment 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 IN-
COME.—Notwithstanding any other provision of law, 
no benefit accruing to the taxpayer through the use 
of a historic rehabilitation mortgage credit certifi-
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cate shall be included in gross income for purposes 
of this title. 
‘‘(i) RECAPTURE.— 
‘‘(1) IN GENERAL.—If, before the end of the 5- 
year period beginning on the date on which the reha-
bilitation of the building is completed (or, if sub-
section (g) applies, the date of purchase of such 
building by the taxpayer)— 
‘‘(A) the taxpayer disposes of such tax-
payer’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 reha-
bilitation. 
‘‘(2) RECAPTURE PERCENTAGE.—For purposes 
of paragraph (1), the recapture percentage shall be 
determined in accordance with the table under sec-
tion 50(a)(1)(B), deeming such table to be amend-
ed— 
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‘‘(A) by striking ‘If the property ceases to 
be investment credit property within—’ and in-
serting ‘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 INCI-
DENT TO DIVORCE.—In the case of any transfer de-
scribed in subsection (a) of section 1041 (relating to 
transfers between spouses or incident to divorce)— 
‘‘(A) the foregoing provisions of this sub-
section shall not apply, and 
‘‘(B) the same tax treatment under this 
subsection with respect to the transferred prop-
erty 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 sub-
section (h)), the increase in the basis of such property 
which would (but for this subsection) result from such ex-
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penditure 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 associ-
ated 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’’. 
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(3) Subsection (d) of section 1400C of such 
Code is amended by striking ‘‘and 25B’’ and insert-
ing ‘‘25B, and 25E)’’. 
(4) Subsection (a) of section 1016 of such Code 
is amended by striking ‘‘and’’ at the end of para-
graph (36), by striking the period at the end of 
paragraph (37) and inserting ‘‘, and’’, and by add-
ing 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 relat-
ing 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. 
Æ 
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