‘‘In the case of property that qualifies for both the 
energy credit and the rehabilitation credit, the pre-
ceding sentence shall be applied by substituting 
‘none’ for ‘only 50 percent’ each place it appears.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
the date of the enactment of this Act. 
SEC. 11. SPECIAL RULES FOR DISPOSITIONS OF STATE HIS-
TORIC TAX CREDITS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
items specifically excluded from gross income) is amended 
by inserting after section 139C the following new section: 
‘‘SEC. 139D. DISPOSITIONS OF STATE HISTORIC TAX CRED-
ITS. 
‘‘(a) EXCLUSION FROM INCOME; BASIS REDUC-
TION.— 
‘‘(1) IN GENERAL.—In the case of a taxpayer 
who receives a State historic tax credit and transfers 
or disposes of such credit, or receives a refund of all 
or a portion of such credit— 
‘‘(A) no portion of the net proceeds of such 
transfer or disposition or of such refund shall 
constitute income to such taxpayer under sec-
tion 61(a), and 
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‘‘(B) the taxpayer’s adjusted basis in the 
property with respect to which the State his-
toric tax credit is allowed shall be reduced by 
an amount equal to such net proceeds or refund 
received by such taxpayer, 
unless the taxpayer makes an election under sub-
section (b). 
‘‘(2) 
DETERMINATION
OF
REDUCTION
IN 
BASIS.—The reduction in basis under paragraph (1) 
shall be applied— 
‘‘(A) first, against the basis in the land, 
‘‘(B) second, against so much of the basis 
of any building or interest therein as was not 
treated as a qualified rehabilitation expenditure 
by reason of clause (ii) or (iii) of section 
47(c)(2)(B), and 
‘‘(C) third, against the remaining basis in 
the property. 
‘‘(D) ADJUSTMENT IN BASIS OF INTEREST 
IN PARTNERSHIP OR S CORPORATION.—The ad-
justed basis of— 
‘‘(i) a partner’s interest in a partner-
ship, or 
‘‘(ii) stock in an S corporation (as de-
fined in section 1361(a)(1)), 
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shall be appropriately adjusted to take into ac-
count adjustments made under this subsection 
in the basis of property held by the partnership 
or S corporation (if any). 
‘‘(b) ELECTION TO INCLUDE IN INCOME.— 
‘‘(1) IN GENERAL.—In the case of a taxpayer 
who elects to have this subsection apply, the net pro-
ceeds of the transfer or disposition or the refund de-
scribed in subsection (a) received by such taxpayer 
shall constitute income to such taxpayer under sec-
tion 61(a). 
‘‘(2) MAKING OF ELECTION.—An election under 
this subsection shall be made at such time and in 
such manner as the Secretary of the Treasury may 
by regulation prescribe. Such election shall apply for 
the taxable year for which it is made and for all sub-
sequent taxable years and may be revoked only with 
the consent of the Secretary of the Treasury. 
‘‘(c) EFFECT ON QUALIFIED REHABILITATION EX-
PENDITURES AND REHABILITATION CREDITS.—For pur-
poses of determining the rehabilitation credit allowable to 
a taxpayer under section 47, the transfer or disposition 
of State historic tax credits with respect to any property 
by a taxpayer shall not affect or reduce the amount of 
qualified rehabilitation expenditures (as defined in section 
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47(c)(2)) incurred in connection with such property, nor 
shall such transfer or disposition, nor any basis adjust-
ments under subsection (a), be treated as an early disposi-
tion of investment credit property for purposes of the re-
capture provisions of section 50. 
‘‘(d) STATE HISTORIC TAX CREDITS DEFINED.—For 
purposes of this section, the term ‘State historic tax credit’ 
means any credit against State or local tax liabilities 
which— 
‘‘(1) is allowable under the laws of any State or 
political subdivision thereof to a taxpayer with re-
spect to expenditures made for the rehabilitation of 
property identified by such laws, and 
‘‘(2) is transferable or refundable under such 
laws.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for such part III is amended by inserting after the item 
relating to section 139C the following new item: 
‘‘Sec. 139D. Dispositions of State historic tax credits.’’. 
(c) EFFECTIVE DATE.—This section shall apply to 
transfers or dispositions made, or refunds received, after 
the date of the enactment of this Act. 
Æ 
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