§ 47. Rehabilitation credit
(a)
General rule
For purposes of section
46, the rehabilitation credit for any taxable year is the sum of—
(b)
When expenditures taken into account
(1)
In general
Qualified rehabilitation expenditures with respect to any qualified rehabilitated building shall be taken into account for the taxable year in which such qualified rehabilitated building is placed in service.
(2)
Coordination with subsection (d)
The amount which would (but for this paragraph) be taken into account under paragraph (1) with respect to any qualified rehabilitated building shall be reduced (but not below zero) by any amount of qualified rehabilitation 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
For purposes of this section—
(1)
Qualified rehabilitated building
(A)
In general
The term “qualified rehabilitated building” means any building (and its structural components) if—
(iii)
in the case of any building other than a certified historic structure, in the rehabilitation process—
(I)
50 percent or more of the existing external walls of such building are retained in place as external walls,
(B)
Building must be first placed in service before 1936
In the case of a building other than a certified historic structure, a building shall not be a qualified rehabilitated building unless the building was first placed in service before 1936.
(C)
Substantially rehabilitated defined
(i)
In general
For purposes of subparagraph (A)(i), a building shall be treated as having been substantially rehabilitated only if the qualified rehabilitation 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—
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 rehabilitation.
(ii)
Special rule for phased rehabilitation
In the case of any rehabilitation which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the rehabilitation begins, clause (i) shall be applied by substituting “60-month period” for “24-month period”.
(2)
Qualified rehabilitation expenditure defined
(A)
In general
The term “qualified rehabilitation expenditure” means any amount properly chargeable to capital account—
(B)
Certain expenditures not included
The term “qualified rehabilitation expenditure” 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).
(iv)
Certified historic structure, etc.
Any expenditure attributable to the rehabilitation of a certified historic structure or a building in a registered historic district, unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (C)). The preceding sentence shall not apply to a building in a registered historic district if—
(v)
Tax-exempt use property
(I)
In general
Any expenditure in connection with the rehabilitation 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 “50 percent” shall be substituted for “35 percent” in paragraph (1)(B)(iii) thereof).
(C)
Certified rehabilitation
For purposes of subparagraph (B), the term “certified rehabilitation” means any rehabilitation of a certified historic structure which the Secretary of the Interior has certified to the Secretary as being consistent with the historic character of such property or the district in which such property is located.
(D)
Nonresidential real property; residential rental property; class life
For purposes of subparagraph (A), the terms “nonresidential real property,” “residential rental property,” and “class life” have the respective meanings given such terms by section
168.
(3)
Certified historic structure defined
(A)
In general
The term “certified historic structure” means any building (and its structural components) which—
(B)
Registered historic district
The term “registered historic district” means—
(ii)
any district—
(I)
which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and
(d)
Progress expenditures
(1)
In general
In the case of any building to which this subsection applies, except as provided in paragraph (3)—
(2)
Property to which subsection applies
(A)
In general
This subsection shall apply to any building which is being rehabilitated by or for the taxpayer if—
(ii)
it is reasonable to expect that such building will be a qualified rehabilitated 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 rehabilitation begins (or, if later, at the close of the first taxable year to which an election under this subsection applies).
(B)
Normal rehabilitation period
For purposes of subparagraph (A), the term “normal rehabilitation period” means the period reasonably expected to be required for the rehabilitation of the building—
(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 rehabilitating the property for him shall not be treated as an amount expended for such rehabilitation.
(C)
Limitation for buildings which are not self-rehabilitated
(i)
In general
In the case of a building which is not self-rehabilitated, 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 rehabilitation which is properly attributable to the portion of the rehabilitation which is completed during such taxable year.
(ii)
Carryover of certain amounts
In the case of a building which is not a self-rehabilitated building, if for the 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 rehabilitation which is properly attributable to rehabilitation 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 rehabilitation shall be deemed to be completed not more rapidly than ratably over the normal rehabilitation period.
(E)
No progress expenditures for certain prior periods
No qualified rehabilitation 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 rehabilitation expenditures shall be taken into account under this subsection for the earlier of—
(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-rehabilitated building
For purposes of this subsection, the term “self-rehabilitated building” means any building if it is reasonable to believe that more than half of the qualified rehabilitation 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.