26 USC 47 - Rehabilitation credit

View all text of Subpart E [§ 46 - § 50B]

§ 47. Rehabilitation credit

(a) General rule

(1) In general

(2) Ratable share

(b) When expenditures taken into account

(1) In general

(2) Coordination with subsection (d)

(1) Qualified rehabilitated building

(A) In generalThe term “qualified rehabilitated building” means any building (and its structural components) if—

(i) such building has been substantially rehabilitated,

(ii) such building was placed in service before the beginning of the rehabilitation,

(iii) such building is a certified historic structure, and

(iv) depreciation (or amortization in lieu of depreciation) is allowable with respect to such building.

(B) Substantially rehabilitated defined

(i) In generalFor 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—(I) the adjusted basis of such building (and its structural components), or(II) $5,000.

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 rehabilitation.

(ii) Special rule for phased rehabilitation

(iii) Lessees

(2) Qualified rehabilitation expenditure defined

(A) In generalThe term “qualified rehabilitation expenditure” 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,(II) residential rental property,(III) real property which has a class life of more than 12.5 years, or(IV) an addition or improvement to property described in subclause (I), (II), or (III), and

(ii) in connection with the rehabilitation of a qualified rehabilitated building.

(B) Certain expenditures not includedThe term “qualified rehabilitation expenditure” does not include—

(i) Straight line depreciation must be used

(ii) Cost of acquisition

(iii) Enlargements

(iv) Certified historic structure

(v) Tax-exempt use property(I) In general(II) Clause not to apply for purposes of paragraph (1)(C)

(vi) Expenditures of lessee

(D) Nonresidential real property; residential rental property; class life

(3) Certified historic structure defined

(A) In generalThe term “certified historic structure” means any building (and its structural components) which—

(i) is listed in the National Register, or

(ii) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.

(B) Registered historic districtThe term “registered historic district” means—

(i) any district listed in the National Register, and

(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(II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register.

(d) Progress expenditures

(1) In generalIn the case of any building to which this subsection applies, except as provided in paragraph (3)—

(A) if such building is self-rehabilitated property, any qualified rehabilitation 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-rehabilitated property, any qualified rehabilitation 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 generalThis subsection shall apply to any building which is being rehabilitated by or for the taxpayer if—

(i) the normal rehabilitation period for such building is 2 years or more, and

(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 periodFor purposes of subparagraph (A), the term “normal rehabilitation period” means the period reasonably expected to be required for the rehabilitation of the building—

(i) beginning with the date on which physical work on the rehabilitation 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

(i) In general

(ii) Carryover of certain amountsIn the case of a building which is not a self-rehabilitated 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

(E) No progress expenditures for certain prior periods

(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—

(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-rehabilitated building

(5) Election

(Added Pub. L. 87–834, § 2(b), Oct. 16, 1962, 76 Stat. 966; amended Pub. L. 91–172, title VII, § 703(c), Dec. 30, 1969, 83 Stat. 666; Pub. L. 91–676, § 1, Jan. 12, 1971, 84 Stat. 2060; Pub. L. 92–178, title I, §§ 102(c), 107(a)(1), (b)(1), Dec. 10, 1971, 85 Stat. 500, 507; Mar. 29, 1975, Pub. L. 94–12, title III, § 302(b)(2)(A), (c)(1), (2), 89 Stat. 43, 44; Pub. L. 94–455, title VIII, § 804(b), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1594, 1834; Pub. L. 95–600, title III, § 317(a), Nov. 6, 1978, 92 Stat. 2830; Pub. L. 95–618, title II, § 241(b), Nov. 9, 1978, 92 Stat. 3193; Pub. L. 97–34, title II, § 211(f)(2), (g), Aug. 13, 1981, 95 Stat. 231, 233; Pub. L. 97–248, title II, § 208(a)(2)(B), Sept. 3, 1982, 96 Stat. 435; Pub. L. 97–448, title I, § 102(e)(3), Jan. 12, 1983, 96 Stat. 2371; Pub. L. 98–369, div. A, title IV, §§ 421(b)(7), 431(b)(2), (d)(4), (5), 474(o)(8), (9), July 18, 1984, 98 Stat. 794, 807, 810, 836; Pub. L. 98–443, § 9(p), Oct. 4, 1984, 98 Stat. 1708; Pub. L. 99–121, title I, § 103(b)(6), Oct. 11, 1985, 99 Stat. 510; Pub. L. 99–514, title XV, § 1511(c)(2), title XVIII, §§ 1802(a)(5)(A), 1844(b)(1), (2), (4), Oct. 22, 1986, 100 Stat. 2744, 2788, 2855; Pub. L. 100–647, title I, §§ 1002(a)(18), (26)–(28), 1007(g)(3)(A), Nov. 10, 1988, 102 Stat. 3356, 3357, 3435; Pub. L. 101–508, title XI, § 11801(c)(8)(A), 11813(a), Nov. 5, 1990, 104 Stat. 1388–524, 1388–536; Pub. L. 110–289, div. C, title I, § 3025(a), July 30, 2008, 122 Stat. 2897; Pub. L. 115–97, title I, § 13402(a), (b)(1), Dec. 22, 2017, 131 Stat. 2134.)