On February 14, legislation proposing to improve the Federal Rehabilitation Tax Credit was introduced in both the House of Representatives and the Senate. Representative Stephanie Tubbs Jones (D-OH) introduced the House bill (H.R.1043) with Representative Phil English (R-PA) as the minority party lead. Senator Blanche Lincoln (D-AR) introduced the Senate bill with Senator Gordon Smith (R-OR) as the minority party lead. The bills are a set of amendments to the FRTC based on insights from those who have used the credit. Provisions within the bills will:
1. Improve the coupling of the Low Income Housing Tax Credit (LIHTC) and the Federal Rehabilitation Tax Credit (FRTC).
2. Reduce the basis reduction required for a property using the FRTC.
3. Increase the FRTC for smaller projects. The tax credit would be increased from 20% to 40% on the first $1,000,000 of qualified expenditures for projects under $2,000,000. This would be a huge gain for Main Street-type projects.
4. Allow rental housing in "qualified rehabilitated buildings." Currently, the 10% credit for "non-historic" buildings cannot be used for dwellings -- the law would be amended to allow the credit's use for residential rental property.
5. Change the qualifying date for non-historic rehabilitation projects (10% credit projects) from "placed in service before 1936" to placed in service "no less than 50 years prior to the year in which qualified rehabilitation expenditures are taken into account."
6. Fine tune the leasing rules laid out in the current FRTC to reduce the number of community-oriented projects currently adversely impacted without weakening the anti-abuse function designed into the current law. The types of leasing arrangements allowed in the current tax credit program limit community revitalization-oriented projects.
7. Increase the FRTC in "high cost areas" to 130% of qualified rehabilitation expenditures. High cost areas are difficult to develop and officially recognized by the Department of Housing and Urban Development (HUD). A difficult to develop area (DDA) has high construction and land costs relative to the average local income (Area Median Gross Income or AMGI). Incomes and housing costs are compared in HUD's formula. The 130% increase would also apply to Qualified Census Tracts (QCTs), that is, any census tract in which at least 50% of households have an income less than 60% of the area median or where the poverty rate is at least 25%.
8. Removes a provision within the current law that prevents condominium developments in FRTC projects. The current law requires a developer pay back their credit if the property is sold within five years of a given project's completion.
The Community Restoration and Revitalization Act was first introduced by Representatives Rob Portman (R-OH) and William Jefferson (D-LA) in late 2004. It was reintroduced by Representatives English and Jefferson in 2005.
