119-hr537

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 537 Introduced in House

    (IH) ]

<DOC>

119th CONGRESS
 1st Session
 H. R. 537

 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.

_______________________________________________________________________

 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.

 Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 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''.

SEC. 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:

``

SEC. 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.

SEC. 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.
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