Real Estate Industry Urges Lawmakers to Consider Tax Incentive for Property Conversions
October 14, 2022
A Roundtable-led coalition of 16 national real estate organizations on Oct. 12 recommended certain enhancements and expansions to the Revitalizing Downtowns Act (S. 2511, H.R. 4759). The bill was introduced by Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA) to encourage the conversion of older buildings into new uses. (Coalition letter)
Qualified Property Conversions Credit
The coalition noted that many buildings are being reimagined and repurposed to address a severe shortage of housing and meet other post-pandemic business needs. Where appropriate, property conversions can be a cost-effective means to develop new housing supply, create jobs, and generate critical sources of local property tax revenue while saving energy and reinvigorating communities.
The Revitalizing Downtowns Act would provide a 20 percent tax credit for qualified property conversion expenditures. The credit is modeled on the historic rehabilitation tax credit and could be used for office buildings that are at least 25 years old at the time of the conversion.
An office-to-residential conversion project may qualify for the credit if the project provides at least 20 percent affordable housing—or is subject to an alternative affordable housing arrangement under state or local policy, ordinance, or agreement.
(a) expanding the category of properties eligible for the credit to include other types of commercial buildings, such as shopping centers and hotels;
(b) extending the incentive to real estate investment trusts (REITs); and
(c) reducing the conversion expenditure requirement from 100 percent of the building’s basis to 50 percent—along with half-a-dozen other suggestions.
The coalition letter is the work product of a property conversions working group created by The Real Estate Roundtable’s Tax Policy Advisory Committee. The working group has reviewed and considered the challenges and impediments confronting potential property conversion activities.