On July 12, 2024, a bipartisan bill was introduced in the U.S. House of Representatives titled the "Revitalizing Downtowns and Main Streets Act" (H.R. 9002) (the "Bill"), which, if enacted, will provide an investment tax credit for converting non-residential buildings to housing similar to that of the historic rehabilitation tax credit. The Bill would establish a temporary investment tax credit (available to properties placed in service by December 31, 2027) for the applicable tax year a converted building is placed in service equal to 20% of qualified conversion expenditures attributable to converting an older commercial building (the building must be at least 20 years old when the conversion begins) to housing, as long as at least 20% of the residential units are rent-restricted and reserved for individuals whose income is 80% or less of the area median income.
Conversion expenditures must exceed 50% of the adjusted basis of the building, with qualifying expenditures limited to "hard costs" chargeable to capital accounts and depreciable for tax purposes (unless the building is a qualified brownfield property). Property acquisition costs will be excluded.
Larger credits would be available depending on the location of projects. For example, for projects in low-income census tracts or difficult development areas, the Bill would increase the credit amount from 20% to 30%, provided that 20% of the residential units must be reserved for 30 years for individuals whose income is below 60% of area median income. In addition, the Bill would increase the credit amount from 20% to 35% on the first $2 million of qualifying expenditures for a conversion occurring in a rural area if it is part of an historical preservation project.
The Bill establishes a cap on the credit authority at $12 billion distributable to states based on population plus $3 billion in additional dollars specifically designated for conversions in economically distressed areas; in all cases, the credits must be allocated by state housing finance agencies, whose authority to allocate credits will expire December 31, 2027, and who will need to take into account various factors to develop their specific credit allocation plans, such as: the readiness of the building for a conversion, the level of support the conversion will receive from the local government, the extent to which the conversion results in the creation of affordable, and whether the credit is needed for the financial feasibility of the conversion.
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