H.R. 537

119 HR 537 IH: Incentivizing New Conversions to Residential Entities to Accelerate Supply and Expand Housing Affordability Act
 U.S. House of Representatives
 2025-01-16
 text/xml
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 Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
 I  119th CONGRESS  1st Session  H. R. 537  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.
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  .
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:
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.
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.