Proposed Invoice Offers a New Federal Tax Credit score for the Conversion of Workplace Buildings

On the finish of July 2021, a invoice was launched within the Home and Senate, which, if enacted, would create a federal tax credit score to fund the conversion of unused workplace buildings into residential, business, or mixed-use properties. The Revitalizing Downtowns Act (S. 2511), which is modeled after the federal historic rehabilitation tax credit score, would supply a federal tax credit score equal to twenty p.c of “certified conversion expenditures” with respect to a “certified transformed constructing.”

A “certified transformed constructing” means any constructing that (i) was nonresidential actual property for lease to workplace tenants, (ii) has been “considerably transformed” from an workplace use to a residential, retail, or different business use, (iii) within the case of conversion to residential items, is topic to a state or native inexpensive housing settlement or has no less than 20 p.c of the items hire restricted and put aside for tenants whose revenue is 80 p.c or much less of space median gross revenue, (iv) was initially positioned in service no less than 25 years earlier than the start of conversion, and (v) could also be depreciated or amortized.

Usually, “certified conversion expenditures” embrace capitalized and depreciable prices, however exclude (i) any expenditures not depreciated on a straight line foundation, (ii) the prices of buying or enlarging an present constructing, (iii) expenditures allocable to sure tax-exempt use property, (iv) sure tenant expenditures, and (v) expenditures for which a federal low-income housing tax credit score or a federal historic rehabilitation tax credit score is allowed (i.e., no double credit).

A constructing shall be “considerably transformed” if the certified conversion expenditures incurred throughout a particular 24-month interval exceed the better of $15,000 or the adjusted foundation of the constructing on the start date of such interval (or if later, the acquisition date).

The proposed Revitalizing Downtowns Act comes at a time the place the demand for standard workplace area is at report lows. Even previous to the onset of the COVID-19 pandemic, many corporations have been experimenting with “hoteling,” which gave workers extra flexibility to work remotely and decreased everlasting workplace area calls for. Within the wake of the pandemic shutdown, conventional places of work throughout the nation have turn into a ghost city, with telecommuting changing into the usual apply for a lot of workplace employees. Though places of work have began to reopen, many corporations have needed to reevaluate their “new regular,” as workers demand continued versatile work environments. Because of this, workplace vacancy rates are anticipated to proceed to climb to virtually 20 p.c by 2022.

As a result of changing workplace area into residential or mixed-use developments might be fairly costly, builders and property homeowners have remained reluctant to interact in conversion efforts. Because of this, workplace buildings proceed to stay vacant, leaving many central enterprise districts abandoned. If enacted, the Revitalizing Downtowns Act will present a much-needed monetary incentive for builders by permitting them to draw tax credit score traders to assist offset a portion of the excessive price ticket on prices related to a conversion which, in flip, will in the end develop inexpensive housing alternatives and revive metropolis facilities.

In help of the invoice, David Downey, the president and CEO of the Worldwide Downtown Affiliation and member of the Revitalize Our Cities Coalition states that “[w]hile the economics of conversions is difficult and requires vital personal funding, supportive tax coverage can create incentives and makes it financially possible.”

We’ll proceed to observe this invoice and supply updates as they turn into out there.

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