H.R. 1454 — Rural Historic Tax Credit Improvement Act

This section establishes the short title as the “Rural Historic Tax Credit Improvement Act.”

This section enhances the rehabilitation credit for qualified rehabilitated buildings located in rural areas by creating a new rural-project credit regime under section 47 of the Internal Revenue Code of 1986. For an applicable rural project, the general rehabilitation credit under section 47(a)(1) does not apply, and the credit is instead equal to 40 percent of qualified rehabilitation expenditures for an affordable housing project or 30 percent for a non-affordable housing project, with a cap of $5 million in qualified rehabilitation expenditures per project. As background, the rehabilitation credit generally supports the rehabilitation of certified historic structures and other qualified rehabilitated buildings. This section defines a rural area as any area other than a city or town with more than 50,000 inhabitants or the contiguous urbanized area adjacent to such a city or town, based on the latest decennial census. It defines an affordable housing project as a project in which at least 50 percent of the completed project is housing and at least 50 percent of that housing is new or continuing affordable housing, or a project in which at least 33 percent of the completed project is new or continuing affordable housing. Affordable housing is defined as a decent, safe, and sanitary dwelling for a household with income at or below 80 percent of area median income under section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f). This section also allows taxpayers to transfer all or part of the rural-project credit, subject to certification and reporting requirements. The transfer certificate must include the taxpayer’s and transferee’s identifying information, the project completion date, and the amount transferred, and the transferred credit is treated as allowable to the transferee and not to the transferor. Gross income does not include amounts received in connection with the transfer, and the transferee may not deduct the consideration paid for the credit. The Secretary of the Treasury is directed to issue regulations or other guidance consistent with the credit-transfer rules under section 6418. This section further adds a recapture rule under section 50 for rural affordable housing projects that fail to comply with the affordable housing requirements before the end of the recapture period.

This section eliminates the basis reduction requirement for the rehabilitation credit for any applicable rural project, so that the credit does not reduce the taxpayer’s basis in the property under section 50(c)(1) and, in the case of leased property, the related basis adjustment rule under section 48(d)(5)(B) does not apply. (Thus, taxpayers claiming the rehabilitation credit for an applicable rural project placed in service after December 31, 2025, may also claim the full basis of the property for depreciation and other tax purposes.)