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| Internal Revenue Code § 47 (rehabilitation tax credit) | |
|---|---|
| Name | Internal Revenue Code § 47 (rehabilitation tax credit) |
| Enacted by | United States Congress |
| Year enacted | 1976 |
| Code sections | Internal Revenue Code |
| Purpose | Historic preservation, economic development, tax incentives |
Internal Revenue Code § 47 (rehabilitation tax credit) is a United States federal income tax provision that provides a tax credit for the certified rehabilitation of historic structures and certain historic residences. The credit incentivizes preservation of properties designated under programs such as the National Register of Historic Places, linking fiscal policy to the objectives of the National Park Service and state historic preservation offices like the Texas Historical Commission and the California Office of Historic Preservation. The provision has been central to redevelopment projects in cities including New York City, Chicago, Philadelphia, and New Orleans.
Internal Revenue Code § 47 establishes a nonrefundable tax credit for the rehabilitation of certified historic structures and qualified rehabilitated buildings, administered through coordination among the Internal Revenue Service, the National Park Service, and state historic preservation officers (SHPOs) under frameworks such as the Historic Preservation Tax Incentives Program. The credit distinguishes between the 20% credit for certified historic structures and the 10% rehabilitation credit for nonhistoric, pre‑1936 buildings, affecting investment decisions in Manhattan, Boston, Baltimore, and other urban neighborhoods. Programmatic oversight draws on precedents from federal initiatives like the Tax Reform Act of 1986 and interacts with federal agencies including the General Services Administration in adaptive reuse projects.
Eligibility under § 47 requires that the property be a certified historic structure—listed in the National Register of Historic Places or located in a registered historic district and certified by the National Park Service as contributing—and that rehabilitation work meet the Secretary of the Interior's Standards for Rehabilitation, promulgated by the United States Secretary of the Interior. Qualified rehabilitation expenditures (QREs) generally include capitalized costs allocable to the rehabilitation of a building's structure and systems but exclude land acquisition, building enlargement, and certain personal property. Eligible applicants have included developers associated with projects by firms and institutions like Related Companies, Hines Interests, Hunter College, and nonprofit owners working with National Trust for Historic Preservation affiliates. Landmark projects invoking § 47 credits have involved properties such as the Ferry Building (San Francisco), Union Station (Washington, D.C.), and adaptive reuse projects in Pittsburgh.
The credit amount is typically 20% of QREs for certified historic structures and 10% for qualified rehabilitations of nonhistoric, pre‑1936 nonresidential buildings, computed under rules coordinated with Form 3468 (Investment Credit). Taxpayers claim the credit on returns filed with the Internal Revenue Service and must attach certifications from the National Park Service and pertinent SHPOs. Syndication structures often involve tax credit investors such as Goldman Sachs, JP Morgan Chase, and community development entities partnering with syndicators used in transactions similar to those by Enterprise Community Partners and LIHTC practitioners. Special rules apply for phased rehabilitations, leased property, and basis reduction when credits are claimed in conjunction with programs like the Low-Income Housing Tax Credit.
Compliance obligations include maintaining certified rehabilitations in accordance with the Secretary of the Interior's Standards and providing documentation for IRS examination procedures derived from guidance issued by the Internal Revenue Service and the National Park Service. Recapture provisions may apply if property ceases to be used as certified within a specified recapture period, producing adjustments enforced under statutes similar to recapture rules in the Investment Tax Credit context. Penalties and interest for misstatements can involve actions by the Department of Justice or civil enforcement under the False Claims Act in extreme cases; criminal referrals for fraud can involve coordination with the Federal Bureau of Investigation.
Section 47 interacts with other federal tax statutes and incentives, including the Low-Income Housing Tax Credit administered by the Department of Housing and Urban Development in practice, the rehabilitation investment rules tied to the Modified Accelerated Cost Recovery System, and limitations under the Alternative Minimum Tax. When combined with state historic tax credits offered by jurisdictions such as New Jersey, Maryland, and Georgia, projects often layer federal § 47 credits with state incentives to achieve feasible financing, mirroring structures used in major redevelopment efforts like those in Cincinnati and Cleveland.
The rehabilitation tax credit originated in the mid‑1970s as part of policy responses to urban decline and historic preservation movements shaped by advocacy from organizations like the National Trust for Historic Preservation and legislative actors in the United States Congress. Major amendments took place in the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1993, and subsequent extensions and technical corrections enacted by Congress, reflecting shifting priorities in sessions of the United States Senate and the United States House of Representatives. Legislative adjustments have addressed credit rates, eligibility rules, and interactions with other tax credits in statute revisions and budget reconciliation measures.
Administrative guidance for § 47 is provided through IRS revenue rulings, notices, and procedures, as well as determinations and certification processes administered by the National Park Service and SHPOs. Key interpretive authorities include pronouncements from the Internal Revenue Service and determinations referencing the Secretary of the Interior's Standards; court interpretations have arisen in cases before the United States Tax Court, the United States Court of Appeals for the Federal Circuit, and other federal appellate venues. Practitioners often consult IRS forms, revenue procedures, and National Park Service bulletins to align transactions with precedent set in matters involving institutions such as the Smithsonian Institution and major preservation projects in cities like Savannah.
Category:United States federal taxation