[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 537 Introduced in House (IH)]
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119th CONGRESS
1st Session
H. R. 537
To amend the Internal Revenue Code of 1986 to provide tax credits for
the conversion of commercial buildings to residential units, to provide
support and technical assistance to State and local housing agencies to
identify and advance housing conversion opportunities for underutilized
commercial buildings, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 16, 2025
Ms. Sherrill introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on
Financial Services, for a period to be subsequently determined by the
Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide tax credits for
the conversion of commercial buildings to residential units, to provide
support and technical assistance to State and local housing agencies to
identify and advance housing conversion opportunities for underutilized
commercial buildings, and for other purposes.
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 ``Incentivizing New Conversions to
Residential Entities to Accelerate Supply and Expand Housing
Affordability Act'' or the ``INCREASE Housing Affordability Act''.
SEC. 2. COMMERCIAL-TO-RESIDENTIAL CREDIT.
(a) In General.--Section 46 of the Internal Revenue Code of 1986 is
amended by redesignating paragraph (7) as paragraph (8), by
redesignating the paragraph (6) relating to the advanced manufacturing
investment credits as paragraph (7), by striking ``and'' at the end of
paragraph (7) (as so redesignated), by striking the period at the end
of paragraph (8) (as so redesignated) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(9) the commercial-to-residential 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 48E the following new section:
``SEC. 48F. COMMERCIAL-TO-RESIDENTIAL CREDIT.
``(a) In General.--For purposes of section 46, the commercial-to-
residential credit for any taxable year is equal to 15 percent of the
qualified conversion expenditures with respect to a qualified converted
building.
``(b) Limitation on Credit Amount.--The credit determined under
subsection (a) may not exceed--
``(1) $200,000 per new residential housing unit, and
``(2) $10,000,000 per qualified converted building.
``(c) 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 (e).--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 (e) 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).
``(d) Bonus Credits.--
``(1) Affordable housing bonus credit.--
``(A) In general.--In the case of a qualified
converted building which has been converted to a
majority rental residential use and which satisfies the
requirements under subparagraph (B), the amount of the
credit determined under subsection (a) (determined
without regard to this subsection) and the limitation
on credit amount described in subsection (b)
(determined without regard to this subsection) with
respect to such building shall each be increased by an
amount equal to--
``(i) in the case of a qualified converted
building 25 percent or more of the residential
units of which are both rent-restricted and
occupied by individuals whose income does not
exceed 100 percent of area median income, 10
percent of such amounts,
``(ii) in the case of a qualified converted
building 25 percent or more of the residential
units of which are both rent-restricted and
occupied by individuals whose income does not
exceed 80 percent of area median income, 15
percent of such amounts, and
``(iii) in the case of a qualified
converted building 25 percent or more of the
residential units of which are both rent-
restricted and occupied by individuals whose
income does not exceed 60 percent of area
median income, 20 percent of such amounts.
``(B) Rent and income limitation.--For purposes of
subparagraph (A), rules similar to the rules of section
42(g) shall apply to determine whether a unit is rent-
restricted, treatment of units occupied by individuals
whose incomes rise above the limit, and treatment of
units where Federal rental assistance is reduced as
tenant's income increases.
``(2) Prevailing wage bonus credit.--
``(A) In general.--In the case of any qualified
converted building with respect to which the taxpayer
certifies to the Secretary that the taxpayer satisfied
the requirement of subparagraph (B) with respect to the
conversion process, the amount of the credit determined
under subsection (a) (determined without regard to this
subsection) and the limitation on the credit amount
described in subsection (b) (determined without regard
to this subsection) with respect to such building shall
each be increased by an amount equal to 15 percent of
such amounts.
``(B) Prevailing wage requirement.--The requirement
described in this subparagraph is satisfied with
respect to any conversion if all laborers or mechanics
employed by the taxpayer or any contractor or
subcontractor of the taxpayer to carry out the
conversion were paid wages at rates not less than the
prevailing rates for construction, alteration, or
repair of a similar character in the locality in which
such project is located as most recently determined by
the Secretary of Labor, in accordance with subchapter
IV of chapter 31 of title 40, United States Code.
``(e) 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
or residential-retail mixed use,
``(iii) such building was initially placed
in service at least 15 years before the
beginning of the conversion, and
``(iv) 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.
``(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).
``(f) 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.
``(g) 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 (vii),
by striking the period at the end of clause (viii) and
inserting ``, and'', and by adding after clause (viii) the
following new clause:
``(ix) the portion of the basis of any
qualified converted property attributable to
qualified conversion expenditures under section
48F.''.
(2) Section 50(a)(2)(E) of such Code is amended by striking
``or 48E(e)'' and inserting ``48E(e), or 48F(e)''.
(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 commercial-to-residential 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 48E the following new item:
``Sec. 48F. Commercial-to-residential 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.
SEC. 3. COMMERCIAL TO RESIDENTIAL CONVERSION ADVISORY BOARD.
(a) Establishment.--Not later than 1 year after the date of the
enactment of this Act, the Secretary of Housing and Urban Development
shall establish an advisory board to carry out the duties described in
subsection (c).
(b) Membership.--The advisory board shall be composed of not less
than 20 members, appointed by the Secretary.
(c) Duties.--The advisory board shall provide logistical support,
technical assistance, best practices, and training to State and local
housing agencies with respect to--
(1) identifying the best candidates for commercial to
residential conversions that are financially and logistically
feasible and meet demonstrated housing demand in localities
within the State or locality;
(2) conducting floor plan and feasibility analyses for
prospective commercial to residential conversions;
(3) expediting State or local regulatory processes and
permitting processes to allow for faster approval and
construction of commercial to residential conversions;
(4) reforming of local regulatory and zoning barriers to
allow for more commercial to residential conversions; and
(5) identifying Federal and State funding sources that can
be used by localities to provide financial assistance on
commercial to residential conversion projects.
(d) Authorization of Appropriations.--There is authorized to be
appropriated to carry out this section $5,000,000 for each of fiscal
years 2025 through 2029.
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