ternal 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 PRIN-
CIPAL RESIDENCES. 
(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 
amended by inserting after section 25D the following new 
section: 
‘‘SEC. 25E. REHABILITATION OF HISTORIC PRINCIPAL RESI-
DENCES. 
‘‘(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. 
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‘‘(b) 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.—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-
bilitation 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 reha-
bilitation’ has the meaning given such term by sec-
tion 47(c)(2)(C). 
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‘‘(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 Inte-
rior pursuant to section 101(b)(1) of the Na-
tional 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 In-
terior for the rehabilitation of buildings within 
the jurisdiction of such officer (or local govern-
ment) for purposes of this section. 
‘‘(d) 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 
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‘‘(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). 
‘‘(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)) 
and is certified by the Secretary of the In-
terior as being of historic significance to 
the district. 
‘‘(5) REHABILITATION NOT COMPLETE BEFORE 
CERTIFICATION.—A rehabilitation shall not be treat-
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ed as complete before the date of the certification re-
ferred 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 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. 
‘‘(e) CARRYFORWARD OF UNUSED CREDIT.—If the 
credit allowable under subsection (a) exceeds the limita-
tion imposed by section 26(a) for the taxable year reduced 
by the sum of the credits allowable under this subpart 
(other than this section and sections 25D and 1400C), 
such excess shall be carried to each of the 5 succeeding 
taxable years and, subject to rules similar to the rules of 
section 39(a)(2), shall be added to the credit allowable by 
subsection (a) for such succeeding taxable year. 
‘‘(f) WHEN
EXPENDITURES
TAKEN
INTO
AC-
COUNT.—Qualified rehabilitation expenditures shall be 
treated for purposes of this section as made— 
‘‘(1) on the date the rehabilitation is completed, 
or 
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‘‘(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 simi-
lar to the rule under section 50(a)(2) (relating to recap-
ture if property ceases to qualify for progress expendi-
tures). 
‘‘(g) 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— 
‘‘(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 percent-
age of the credit allowed under this section for all 
prior taxable years with respect to such rehabilita-
tion. 
‘‘(2) RECAPTURE PERCENTAGE.—For purposes 
of paragraph (1), the recapture percentage shall be 
determined in accordance with the table under sec-
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tion 50(a)(1)(B), deeming such table to be amend-
ed— 
‘‘(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. 
‘‘(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 sub-
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section) 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 associ-
ated 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) 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(h).’’. 
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(2) 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 sec-
tion 25D the following new item: 
‘‘Sec. 25E. Rehabilitation of historic principal residences.’’. 
(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. 
Æ 
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