Revitalizing Downtowns Act
Bill: S.2511 | Sponsor: Sen. Stabenow, Debbie (D-MI)
Policy area: Taxation

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.

To amend the Internal Revenue Code of 1986 to provide an investment 
     credit for the conversion of office buildings into other uses.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Revitalizing Downtowns Act''.

SEC. 2. CREDIT FOR QUALIFIED OFFICE CONVERSION.

    (a) In General.--Section 46 of the Internal Revenue Code of 1986 is 
amended by striking ``and'' at the end of paragraph (5), by striking 
the period at the end of paragraph (6) and inserting ``, and'', and by 
adding at the end the following new paragraph:
            ``(7) the qualified office conversion credit.''.
    (b) Amount of Credit.--Subpart E of part IV of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986 is amended by inserting 
after section 48C the following new section:

``SEC. 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' means any building (and its structural 
                components) if--
                            ``(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' for `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' means any 
                amount properly chargeable to capital account--
                            ``(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' does not include--
                            ``(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' shall be 
                                substituted for `35 percent' in 
                                paragraph (1)(B)(iii) thereof, and
                                    ``(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' 
                means the period reasonably expected to be required for 
                the conversion of the building--
                            ``(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' means any 
        building if it is reasonable to believe that more than half of 
        the qualified conversion expenditures for such building will be 
        made directly by the taxpayer.
            ``(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) of the Internal Revenue Code of 
        1986 is amended by striking ``and'' at the end of clause (iv), 
        by striking the period at the end of clause (v) and inserting 
        ``, and'', and by adding after clause (v) the following new 
        clause:
                            ``(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)'' and inserting ``48C(b)(2), or 48D(d)''.
            (3) Section 50(b)(2) of such Code is amended by striking 
        ``and'' at the end of subparagraph (C), by striking the period 
        at the end of subparagraph (D) and inserting ``; and'', and by 
        adding after subparagraph (D) the following new subparagraph:
                    ``(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))'' after ``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.
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