Summary
# H.R. 419: Revitalizing Downtowns Act
## WHAT THIS BILL DOES
This bill creates a new tax credit (a reduction in taxes owed) for people or businesses that convert office buildings into residential apartments, retail stores, or other commercial uses. The credit equals 20 percent of the money spent on qualifying conversion projects. (Sec. 2)
## WHO IT AFFECTS
Property owners or businesses converting office buildings to other uses. Taxpayers claiming depreciation (tax deductions for wear and tear on property). Lessees (renters) of office buildings being converted. Eligible educational institutions using converted buildings.
## KEY PROVISIONS
- Owners converting office buildings receive a tax credit equal to 20 percent of qualified conversion spending, taken in the year the converted building opens for use. (Sec. 48F(a))
- A building qualifies if it was previously leased to office tenants, is at least 25 years old, and substantially converts to residential, retail, or other commercial use within a 24-month period (or 60 months if the conversion happens in phases). (Sec. 48F(c)(1))
- If converting to residential use, 20 percent or more of housing units must be restricted to renters earning 80 percent or less of the area's median income, or the building must have a written local agreement about affordable housing. (Sec. 48F(c)(1)(D))
- Qualified conversion spending does not include costs for buying the building, enlarging it, or portions used by tax-exempt organizations, with a 50 percent threshold for educational institutions. (Sec. 48F(c)(2)(B))
- Taxpayers cannot claim this credit for the same spending claimed under other tax credits for affordable housing or renewable energy. (Sec. 48F(e))
## WHAT CHANGES
If this becomes law, property owners will have a financial incentive to convert vacant or underused office buildings into apartments, stores, and other businesses. The 20 percent tax credit reduces the out-of-pocket cost of conversion projects. Conversion projects taking multiple years can claim credits during construction if certain requirements are met. Educational institutions can qualify as users of converted buildings for tax purposes.
## IMPORTANT DEFINITIONS
- **Qualified converted building:** An office building at least 25 years old that substantially converts to residential, retail, or other commercial use. (Sec. 48F(c)(1))
- **Substantially converted:** Conversion spending during a 24-month period (or 60 months for phased conversions) exceeds either the building's adjusted basis (cost minus depreciation) or $15,000, whichever is greater. (Sec. 48F(c)(1)(B))
- **Qualified conversion expenditures:** Money spent on building improvements and equipment used in the conversion that qualifies for depreciation deductions. (Sec. 48F(c)(2))
- **Self-converted building:** A building where the owner expects to spend more than half of conversion costs directly. (Sec. 48F(d)(4))
- **Nonresidential real property:** Property used for office or business purposes (defined elsewhere in tax law). (Sec. 48F(c)(1)(A))
## EFFECTIVE DATE
The credit applies to conversion spending incurred after the date the bill becomes law in tax years ending after that date. (Sec. 2(d))
I
118TH CONGRESS
1ST SESSION
H. R. 419
To amend the Internal Revenue Code of 1986 to provide an investment
credit for the conversion of office buildings into other uses.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 20, 2023
Mr. GOMEZ (for himself, Mr. LARSON of Connecticut, and Mr. KILDEE) intro-
duced the following bill; which was referred to the Committee on Ways
and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
an investment credit for the conversion of office buildings
into other uses.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘Revitalizing Down-
4
towns Act’’.
5
SEC. 2. CREDIT FOR QUALIFIED OFFICE CONVERSION.
6
(a) IN GENERAL.—Section 46 of the Internal Rev-
7
enue Code of 1986 is amended by redesignating paragraph
8
(7) as paragraph (8), by redesignating the paragraph (6)
9
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relating to the advanced manufacturing investment credits
1
as paragraph (7), by striking ‘‘and’’ at the end of para-
2
graph (7) (as so redesignated), by striking the period at
3
the end of paragraph (8) (as so redesginated) and insert-
4
ing ‘‘, and’’, and by adding at the end the following new
5
paragraph:
6
‘‘(9) the qualified office conversion credit.’’.
7
(b) AMOUNT OF CREDIT.—Subpart E of part IV of
8
subchapter A of chapter 1 of the Internal Revenue Code
9
of 1986 is amended by inserting after section 48E the fol-
10
lowing new section:
11
‘‘SEC. 48F. QUALIFIED OFFICE CONVERSION CREDIT.
12
‘‘(a) IN GENERAL.—For purposes of section 46, the
13
qualified office conversion credit for any taxable year is
14
equal to 20 percent of the qualified conversion expendi-
15
tures with respect to a qualified converted building.
16
‘‘(b) WHEN
EXPENDITURES
TAKEN
INTO
AC-
17
COUNT.—
18
‘‘(1) IN
GENERAL.—Qualified conversion ex-
19
penditures with respect to any qualified converted
20
building shall be taken into account for the taxable
21
year in which such qualified converted building is
22
placed in service.
23
‘‘(2) COORDINATION WITH SUBSECTION (d).—
24
The amount which would (but for this subpara-
25
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•HR 419 IH
graph) be taken into account under subparagraph
1
(A) with respect to any qualified converted building
2
shall be reduced (but not below zero) by any amount
3
of qualified conversion expenditures taken into ac-
4
count under subsection (d) by the taxpayer or a
5
predecessor of the taxpayer (or, in the case of a sale
6
and leaseback described in section 50(a)(2)(C), by
7
the lessee), to the extent any amount so taken into
8
account has not been required to be recaptured
9
under section 50(a).
10
‘‘(c) DEFINITIONS.—
11
‘‘(1) QUALIFIED CONVERTED BUILDING.—
12
‘‘(A) IN
GENERAL.—The term ‘qualified
13
converted building’ means any building (and its
14
structural components) if—
15
‘‘(i) prior to conversion, such building
16
was nonresidential real property (as de-
17
fined in section 168) which was leased, or
18
available for lease, to office tenants,
19
‘‘(ii) such building has been substan-
20
tially converted from an office use to a res-
21
idential, retail, or other commercial use,
22
‘‘(iii) in the case of conversion to a
23
residential use, such converted building
24
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•HR 419 IH
meets the requirements of subparagraph
1
(D),
2
‘‘(iv) such building was initially placed
3
in service at least 25 years before the be-
4
ginning of the conversion, and
5
‘‘(v) depreciation (or amortization in
6
lieu of depreciation) is allowable with re-
7
spect to such building.
8
‘‘(B) SUBSTANTIALLY
CONVERTED
DE-
9
FINED.—
10
‘‘(i) IN
GENERAL.—For purposes of
11
paragraph (1)(A)(ii), a building shall be
12
treated as having been substantially con-
13
verted only if the qualified conversion ex-
14
penditures during the 24-month period se-
15
lected by the taxpayer (at the time and in
16
the manner prescribed by regulation) and
17
ending with or within the taxable year ex-
18
ceed the greater of—
19
‘‘(I) the adjusted basis of such
20
building (and its structural compo-
21
nents), or
22
‘‘(II) $15,000.
23
The adjusted basis of the building (and its
24
structural components) shall be determined
25
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•HR 419 IH
as of the beginning of the 1st day of such
1
24-month period, or of the holding period
2
of the building, whichever is later. For
3
purposes of the preceding sentence, the de-
4
termination of the beginning of the holding
5
period shall be made without regard to any
6
reconstruction by the taxpayer in connec-
7
tion with the conversion.
8
‘‘(ii) SPECIAL
RULE
FOR
PHASED
9
CONVERSION.—In the case of any conver-
10
sion which may reasonably be expected to
11
be completed in phases set forth in archi-
12
tectural plans and specifications completed
13
before the conversion begins, clause (i)
14
shall be applied by substituting ‘60-month
15
period’ for ‘24-month period’.
16
‘‘(iii) LESSEES.—The Secretary shall
17
prescribe by regulation rules for applying
18
this subparagraph to lessees.
19
‘‘(C) RECONSTRUCTION.—Conversion in-
20
cludes reconstruction.
21
‘‘(D) RESIDENTIAL CONVERSION REQUIRE-
22
MENTS.—
23
‘‘(i) IN GENERAL.—A building meets
24
the requirements of this subparagraph if—
25
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•HR 419 IH
‘‘(I) 20 percent or more of the
1
residential units are both rent-re-
2
stricted and occupied by individuals
3
whose income is 80 percent or less of
4
area median gross income, or
5
‘‘(II) such building is subject to a
6
written binding State or local agree-
7
ment with respect to the provision or
8
financing of affordable housing and
9
such agreement is documented in such
10
form and manner as the Secretary
11
may provide.
12
‘‘(ii) RENT
AND
INCOME
LIMITA-
13
TION.—For purposes of this subparagraph,
14
rules similar to the rules of subsection (g)
15
of section 42 shall apply to determine
16
whether a unit is rent-restricted, treatment
17
of units occupied by individuals whose in-
18
comes rise above the limit, and the treat-
19
ment of units where Federal rental assist-
20
ance is reduced as tenant’s income in-
21
creases.
22
‘‘(2) QUALIFIED
CONVERSION
EXPENDITURES
23
DEFINED.—
24
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‘‘(A) IN GENERAL.—For purposes of sub-
1
section (a), the term ‘qualified conversion ex-
2
penditures’ means any amount properly charge-
3
able to capital account—
4
‘‘(i) for property for which deprecia-
5
tion is allowable under section 168 and
6
which is—
7
‘‘(I) nonresidential real property
8
(as defined in section 168),
9
‘‘(II) residential rental property
10
(as defined in section 168), or
11
‘‘(III) an addition or improve-
12
ment to property described in clause
13
(i) or (ii), and
14
‘‘(ii) in connection with the conversion
15
of a qualified converted building.
16
‘‘(B) CERTAIN
EXPENDITURES
NOT
IN-
17
CLUDED.—The term ‘qualified conversion ex-
18
penditures’ does not include—
19
‘‘(i) STRAIGHT
LINE
DEPRECIATION
20
MUST BE USED.—Any expenditure with re-
21
spect to which the taxpayer does not use
22
the straight line method over a recovery
23
period determined under subsection (c) or
24
(g) of section 168. The preceding sentence
25
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•HR 419 IH
shall not apply to any expenditure to the
1
extent the alternative depreciation system
2
of section 168(g) applies to such expendi-
3
ture by reason of subparagraph (B) or (C)
4
of section 168(g)(1).
5
‘‘(ii) COST
OF
ACQUISITION.—The
6
cost of acquiring any building or interest
7
therein.
8
‘‘(iii) ENLARGEMENTS.—Any expendi-
9
ture attributable to the enlargement of an
10
existing building.
11
‘‘(iv) TAX-EXEMPT USE PROPERTY.—
12
Any expenditure in connection with the
13
conversion of a building which is allocable
14
to the portion of such property which is (or
15
may reasonably be expected to be) tax-ex-
16
empt use property (within the meaning of
17
section 168(h)), except that—
18
‘‘(I) ‘50 percent’ shall be sub-
19
stituted for ‘35 percent’ in paragraph
20
(1)(B)(iii) thereof, and
21
‘‘(II) an eligible educational insti-
22
tution
(as
defined
in
section
23
529(e)(5)) shall not be treated as a
24
tax-exempt entity.
25
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•HR 419 IH
This clause shall not apply for purposes of
1
determining whether a building has been
2
substantially converted.
3
‘‘(v) EXPENDITURES
OF
LESSEE.—
4
Any expenditure of a lessee of a building
5
if, on the date the conversion is completed,
6
the remaining term of the lease (deter-
7
mined without regard to any renewal peri-
8
ods) is less than the recovery period deter-
9
mined under section 168(c).
10
‘‘(d) PROGRESS EXPENDITURES.—
11
‘‘(1) IN GENERAL.—In the case of any building
12
to which this subsection applies, except as provided
13
in paragraph (3)—
14
‘‘(A) if such building is self-converted
15
property, any qualified conversion expenditure
16
with respect to such building shall be taken into
17
account for the taxable year for which such ex-
18
penditure is properly chargeable to capital ac-
19
count with respect to such building, and
20
‘‘(B) if such building is not self-converted
21
property, any qualified conversion expenditure
22
with respect to such building shall be taken into
23
account for the taxable year in which paid.
24
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•HR 419 IH
‘‘(2) PROPERTY
TO
WHICH
SUBSECTION
AP-
1
PLIES.—
2
‘‘(A) IN GENERAL.—This subsection shall
3
apply to any building which is being converted
4
by or for the taxpayer if—
5
‘‘(i) the normal conversion period for
6
such building is 2 years or more, and
7
‘‘(ii) it is reasonable to expect that
8
such building will be a qualified converted
9
building in the hands of the taxpayer when
10
it is placed in service.
11
Clauses (i) and (ii) shall be applied on the basis
12
of facts known as of the close of the taxable
13
year of the taxpayer in which the conversion be-
14
gins (or, if later, at the close of the first taxable
15
year to which an election under this subsection
16
applies).
17
‘‘(B) NORMAL CONVERSION PERIOD.—For
18
purposes of subparagraph (A), the term ‘normal
19
conversion period’ means the period reasonably
20
expected to be required for the conversion of
21
the building—
22
‘‘(i) beginning with the date on which
23
physical work on the conversion begins (or,
24
if later, the first day of the first taxable
25
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•HR 419 IH
year to which an election under this sub-
1
section applies), and
2
‘‘(ii) ending on the date on which it is
3
expected that the property will be available
4
for placing in service.
5
‘‘(3) SPECIAL
RULES
FOR
APPLYING
PARA-
6
GRAPH (1).—For purposes of paragraph (1)—
7
‘‘(A) COMPONENT PARTS, ETC.—Property
8
which is to be a component part of, or is other-
9
wise to be included in, any building to which
10
this subsection applies shall be taken into ac-
11
count—
12
‘‘(i) at a time not earlier than the
13
time at which it becomes irrevocably de-
14
voted to use in the building, and
15
‘‘(ii) as if (at the time referred to in
16
clause (i)) the taxpayer had expended an
17
amount equal to that portion of the cost to
18
the taxpayer of such component or other
19
property which, for purposes of this sub-
20
part, is properly chargeable (during such
21
taxable year) to capital account with re-
22
spect to such building.
23
‘‘(B)
CERTAIN
BORROWING
DIS-
24
REGARDED.—Any amount borrowed directly or
25
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•HR 419 IH
indirectly by the taxpayer from the person con-
1
verting the property for him shall not be treat-
2
ed as an amount expended for such conversion.
3
‘‘(C) LIMITATION FOR BUILDINGS WHICH
4
ARE NOT SELF-CONVERTED.—
5
‘‘(i) IN GENERAL.—In the case of a
6
building which is not self-converted, the
7
amount taken into account under para-
8
graph (1)(B) for any taxable year shall not
9
exceed the amount which represents the
10
portion of the overall cost to the taxpayer
11
of the conversion which is properly attrib-
12
utable to the portion of the conversion
13
which is completed during such taxable
14
year.
15
‘‘(ii)
CARRYOVER
OF
CERTAIN
16
AMOUNTS.—In the case of a building which
17
is not a self-converted building, if for the
18
taxable year—
19
‘‘(I) the amount which (but for
20
clause (i)) would have been taken into
21
account under paragraph (1)(B) ex-
22
ceeds the limitation of clause (i), then
23
the amount of such excess shall be
24
taken into account under paragraph
25
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•HR 419 IH
(1)(B) for the succeeding taxable
1
year, or
2
‘‘(II) the limitation of clause (i)
3
exceeds the amount taken into ac-
4
count under paragraph (1)(B), then
5
the amount of such excess shall in-
6
crease the limitation of clause (i) for
7
the succeeding taxable year.
8
‘‘(D) DETERMINATION OF PERCENTAGE OF
9
COMPLETION.—The determination under sub-
10
paragraph (C)(i) of the portion of the overall
11
cost to the taxpayer of the conversion which is
12
properly attributable to conversion completed
13
during any taxable year shall be made, under
14
regulations prescribed by the Secretary, on the
15
basis of engineering or architectural estimates
16
or on the basis of cost accounting records. Un-
17
less the taxpayer establishes otherwise by clear
18
and convincing evidence, the conversion sha
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