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Internal Revenue Code · 26 U.S.C.

§ 47. Rehabilitation credit

In force Text current through Public Law 119-121 (October 9, 2026) release point 119-121

Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).

Cite as 26 U.S.C. § 47

At a glance

Read from the text, the source credit and the official notes. Not part of the law.

Status
In force
Added
October 16, 1962 by Pub. L. 87–834
Last amended
December 22, 2017 by Pub. L. 115–97
Amendments
18 dated changes in the source credit
Length
4 subsections · 2,274 words · about 10 min to read
Defines
8 terms
Cross-references
cites 3; cited by 10 Code sections and 24 other regulations
Regulations
7 issued under this section
(a) General rule
(1) In general

For purposes of section 46, for any taxable year during the 5-year period beginning in the taxable year in which a qualified rehabilitated building is placed in service, the rehabilitation credit for such year is an amount equal to the ratable share for such year.

(2) Ratable share

For purposes of paragraph (1), the ratable share for any taxable year during the period described in such paragraph is the amount equal to 20 percent of the qualified rehabilitation expenditures with respect to the qualified rehabilitated building, as allocated ratably to each year during such period.

(b) When expenditures taken into account
(1) In general

Qualified rehabilitation expenditures with respect to any qualified rehabilitated building shall be taken into account for the taxable year in which such qualified rehabilitated building is placed in service.

(2) Coordination with subsection (d)

The amount which would (but for this paragraph) be taken into account under paragraph (1) with respect to any qualified rehabilitated building shall be reduced (but not below zero) by any amount of qualified rehabilitation expenditures taken into account under subsection (d) by the taxpayer or a predecessor of the taxpayer (or, in the case of a sale and leaseback described in section 50(a)(2)(C), by the lessee), to the extent any amount so taken into account has not been required to be recaptured under section 50(a).

(c) Definitions For purposes of this section—
(1) Qualified rehabilitated building
(A) In general The term “qualified rehabilitated building” means any building (and its structural components) if—
(i) such building has been substantially rehabilitated,
(ii) such building was placed in service before the beginning of the rehabilitation,
(iii) such building is a certified historic structure, and
(iv) depreciation (or amortization in lieu of depreciation) is allowable with respect to such building.
(B) Substantially rehabilitated defined
(i) In general For purposes of subparagraph (A)(i), a building shall be treated as having been substantially rehabilitated only if the qualified rehabilitation expenditures during the 24-month period selected by the taxpayer (at the time and in the manner prescribed by regulation) and ending with or within the taxable year exceed the greater of—
(I) the adjusted basis of such building (and its structural components), or
(II) $5,000.
The adjusted basis of the building (and its structural components) shall be determined as of the beginning of the 1st day of such 24-month period, or of the holding period of the building, whichever is later. For purposes of the preceding sentence, the determination of the beginning of the holding period shall be made without regard to any reconstruction by the taxpayer in connection with the rehabilitation.
(ii) Special rule for phased rehabilitation

In the case of any rehabilitation which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the rehabilitation begins, clause (i) shall be applied by substituting “60-month period” for “24-month period”.

(iii) Lessees

The Secretary shall prescribe by regulation rules for applying this subparagraph to lessees.

(C) Reconstruction

Rehabilitation includes reconstruction.

(2) Qualified rehabilitation expenditure defined
(A) In general The term “qualified rehabilitation expenditure” means any amount properly chargeable to capital account—
(i) for property for which depreciation is allowable under section 168 and which is—
(I) nonresidential real property,
(II) residential rental property,
(III) real property which has a class life of more than 12.5 years, or
(IV) an addition or improvement to property described in subclause (I), (II), or (III), and
(ii) in connection with the rehabilitation of a qualified rehabilitated building.
(B) Certain expenditures not included The term “qualified rehabilitation expenditure” does not include—
(i) Straight line depreciation must be used

Any expenditure with respect to which the taxpayer does not use the straight line method over a recovery period determined under subsection (c) or (g) of section 168. The preceding sentence shall not apply to any expenditure to the extent the alternative depreciation system of section 168(g) applies to such expenditure by reason of subparagraph (B) or (C) of section 168(g)(1).

(ii) Cost of acquisition

The cost of acquiring any building or interest therein.

(iii) Enlargements

Any expenditure attributable to the enlargement of an existing building.

(iv) Certified historic structure

Any expenditure attributable to the rehabilitation of a qualified rehabilitated building unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (C)).

(v) Tax-exempt use property
(I) In general

Any expenditure in connection with the rehabilitation of a building which is allocable to the portion of such property which is (or may reasonably be expected to be) tax-exempt use property (within the meaning of section 168(h), except that “50 percent” shall be substituted for “35 percent” in paragraph (1)(B)(iii) thereof).

(II) Clause not to apply for purposes of paragraph (1)(C)

This clause shall not apply for purposes of determining under paragraph (1)(C) whether a building has been substantially rehabilitated.

(vi) Expenditures of lessee

Any expenditure of a lessee of a building if, on the date the rehabilitation is completed, the remaining term of the lease (determined without regard to any renewal periods) is less than the recovery period determined under section 168(c).

(C) Certified rehabilitation

For purposes of subparagraph (B), the term “certified rehabilitation” means any rehabilitation of a certified historic structure which the Secretary of the Interior has certified to the Secretary as being consistent with the historic character of such property or the district in which such property is located.

(D) Nonresidential real property; residential rental property; class life

For purposes of subparagraph (A), the terms “nonresidential real property,” “residential rental property,” and “class life” have the respective meanings given such terms by section 168.

(3) Certified historic structure defined
(A) In general The term “certified historic structure” means any building (and its structural components) which—
(i) is listed in the National Register, or
(ii) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.
(B) Registered historic district The term “registered historic district” means—
(i) any district listed in the National Register, and
(ii) any district—
(I) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and
(II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register.
(d) Progress expenditures
(1) In general In the case of any building to which this subsection applies, except as provided in paragraph (3)—
(A) if such building is self-rehabilitated property, any qualified rehabilitation expenditure with respect to such building shall be taken into account for the taxable year for which such expenditure is properly chargeable to capital account with respect to such building, and
(B) if such building is not self-rehabilitated property, any qualified rehabilitation expenditure with respect to such building shall be taken into account for the taxable year in which paid.
(2) Property to which subsection applies
(A) In general This subsection shall apply to any building which is being rehabilitated by or for the taxpayer if—
(i) the normal rehabilitation period for such building is 2 years or more, and
(ii) it is reasonable to expect that such building will be a qualified rehabilitated building in the hands of the taxpayer when it is placed in service.
Clauses (i) and (ii) shall be applied on the basis of facts known as of the close of the taxable year of the taxpayer in which the rehabilitation begins (or, if later, at the close of the first taxable year to which an election under this subsection applies).
(B) Normal rehabilitation period For purposes of subparagraph (A), the term “normal rehabilitation period” means the period reasonably expected to be required for the rehabilitation of the building—
(i) beginning with the date on which physical work on the rehabilitation begins (or, if later, the first day of the first taxable year to which an election under this subsection applies), and
(ii) ending on the date on which it is expected that the property will be available for placing in service.
(3) Special rules for applying paragraph (1) For purposes of paragraph (1)—
(A) Component parts, etc. Property which is to be a component part of, or is otherwise to be included in, any building to which this subsection applies shall be taken into account—
(i) at a time not earlier than the time at which it becomes irrevocably devoted to use in the building, and
(ii) as if (at the time referred to in clause (i)) the taxpayer had expended an amount equal to that portion of the cost to the taxpayer of such component or other property which, for purposes of this subpart, is properly chargeable (during such taxable year) to capital account with respect to such building.
(B) Certain borrowing disregarded

Any amount borrowed directly or indirectly by the taxpayer from the person rehabilitating the property for him shall not be treated as an amount expended for such rehabilitation.

(C) Limitation for buildings which are not self-rehabilitated
(i) In general

In the case of a building which is not self-rehabilitated, the amount taken into account under paragraph (1)(B) for any taxable year shall not exceed the amount which represents the portion of the overall cost to the taxpayer of the rehabilitation which is properly attributable to the portion of the rehabilitation which is completed during such taxable year.

(ii) Carryover of certain amounts In the case of a building which is not a self-rehabilitated building, if for the taxable year—
(I) the amount which (but for clause (i)) would have been taken into account under paragraph (1)(B) exceeds the limitation of clause (i), then the amount of such excess shall be taken into account under paragraph (1)(B) for the succeeding taxable year, or
(II) the limitation of clause (i) exceeds the amount taken into account under paragraph (1)(B), then the amount of such excess shall increase the limitation of clause (i) for the succeeding taxable year.
(D) Determination of percentage of completion

The determination under subparagraph (C)(i) of the portion of the overall cost to the taxpayer of the rehabilitation which is properly attributable to rehabilitation completed during any taxable year shall be made, under regulations prescribed by the Secretary, on the basis of engineering or architectural estimates or on the basis of cost accounting records. Unless the taxpayer establishes otherwise by clear and convincing evidence, the rehabilitation shall be deemed to be completed not more rapidly than ratably over the normal rehabilitation period.

(E) No progress expenditures for certain prior periods

No qualified rehabilitation expenditures shall be taken into account under this subsection for any period before the first day of the first taxable year to which an election under this subsection applies.

(F) No progress expenditures for property for year it is placed in service, etc. In the case of any building, no qualified rehabilitation expenditures shall be taken into account under this subsection for the earlier of—
(i) the taxable year in which the building is placed in service, or
(ii) the first taxable year for which recapture is required under section 50(a)(2) with respect to such property,
or for any taxable year thereafter.
(4) Self-rehabilitated building

For purposes of this subsection, the term “self-rehabilitated building” means any building if it is reasonable to believe that more than half of the qualified rehabilitation expenditures for such building will be made directly by the taxpayer.

(5) Election

This subsection shall apply to any taxpayer only if such taxpayer has made an election under this paragraph. Such an election shall apply to the taxable year for which made and all subsequent taxable years. Such an election, once made, may be revoked only with the consent of the Secretary.

(Added Pub. L. 87–834, § 2(b), Oct. 16, 1962, 76 Stat. 966; amended Pub. L. 91–172, title VII, § 703(c), Dec. 30, 1969, 83 Stat. 666; Pub. L. 91–676, § 1, Jan. 12, 1971, 84 Stat. 2060; Pub. L. 92–178, title I, §§ 102(c), 107(a)(1), (b)(1), Dec. 10, 1971, 85 Stat. 500, 507; Mar. 29, 1975, Pub. L. 94–12, title III, § 302(b)(2)(A), (c)(1), (2), 89 Stat. 43, 44; Pub. L. 94–455, title VIII, § 804(b), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1594, 1834; Pub. L. 95–600, title III, § 317(a), Nov. 6, 1978, 92 Stat. 2830; Pub. L. 95–618, title II, § 241(b), Nov. 9, 1978, 92 Stat. 3193; Pub. L. 97–34, title II, § 211(f)(2), (g), Aug. 13, 1981, 95 Stat. 231, 233; Pub. L. 97–248, title II, § 208(a)(2)(B), Sept. 3, 1982, 96 Stat. 435; Pub. L. 97–448, title I, § 102(e)(3), Jan. 12, 1983, 96 Stat. 2371; Pub. L. 98–369, div. A, title IV, §§ 421(b)(7), 431(b)(2), (d)(4), (5), 474(o)(8), (9), July 18, 1984, 98 Stat. 794, 807, 810, 836; Pub. L. 98–443, § 9(p), Oct. 4, 1984, 98 Stat. 1708; Pub. L. 99–121, title I, § 103(b)(6), Oct. 11, 1985, 99 Stat. 510; Pub. L. 99–514, title XV, § 1511(c)(2), title XVIII, §§ 1802(a)(5)(A), 1844(b)(1), (2), (4), Oct. 22, 1986, 100 Stat. 2744, 2788, 2855; Pub. L. 100–647, title I, §§ 1002(a)(18), (26)–(28), 1007(g)(3)(A), Nov. 10, 1988, 102 Stat. 3356, 3357, 3435; Pub. L. 101–508, title XI, § 11801(c)(8)(A), 11813(a), Nov. 5, 1990, 104 Stat. 1388–524, 1388–536; Pub. L. 110–289, div. C, title I, § 3025(a), July 30, 2008, 122 Stat. 2897; Pub. L. 115–97, title I, § 13402(a), (b)(1), Dec. 22, 2017, 131 Stat. 2134.)

Terms defined here

Where the text says “the term … means”. Select a term to jump to its definition.

Regulations under this section

Treasury regulations (26 CFR) issued under § 47

Cross-references

Computed from the citations in the text of Title 26 and 26 CFR.

This section cites 3 other sections

Cited by 10 Code sections

Cited in 24 regulations not issued under it

Amendment history

From the source credit and the official notes, newest first.

  1. Amended by Pub. L. 115–97Parts changed in 2017: (a) (c)(1)(A)(iii) (c)(1)(B) (c)(2)(B)(iv)
  2. Amended by Pub. L. 110–289Parts changed in 2008: (c)(2)(B)(v)(I)
  3. Amended by Pub. L. 101–508Parts changed in 1990: (b)(1)
  4. Amended by Pub. L. 100–647Parts changed in 1988: (a)(5)(D) (a)(5)(E)(iii) (a)(5)(E)(v) (a)(9)(A) (c) (d)(1) (d)(3)(C)(i)
  5. Amended by Pub. L. 99–514Parts changed in 1986: (a)(9) (d)(1) (d)(3)(E)(i) (d)(3)(F) (d)(3)(G)
  6. Amended by Pub. L. 99–121Parts changed in 1985: (a)(5)(B)
  7. Amended by Pub. L. 98–443Parts changed in 1984: (a)(5)(D) (a)(7)(C) (c) (d) (d)(1) (d)(2) (d)(3)(A) (d)(3)(B)(i) (e)
  8. Amended by Pub. L. 98–369
  9. Amended by Pub. L. 97–448Parts changed in 1983: (d)(2) (d)(3)(A)
  10. Amended by Pub. L. 97–248Parts changed in 1982: (a)(5)(D)
  11. Amended by Pub. L. 97–34Parts changed in 1981: (a)(3)(D) (a)(5) (a)(7) (d)
  12. Amended by Pub. L. 95–618Parts changed in 1978: (a)(4) (a)(6)(B) (b)(3)
  13. Amended by Pub. L. 95–600
  14. Amended by Pub. L. 94–12, Pub. L. 94–455Parts changed in 1976: (a) (a)(7)
  15. AmendedParts changed in 1975: (a)(3) (a)(5)
  16. Amended by Pub. L. 92–178Parts changed in 1971: (a)(4) (a)(5) (a)(6)(A) (a)(6)
  17. Amended by Pub. L. 91–676
  18. Amended by Pub. L. 91–172Parts changed in 1969: (a)(5) (a)(4)
  19. Added by Pub. L. 87–834

Where it sits in the Code

  1. Subtitle A Income Taxes
  2. Chapter 1 NORMAL TAXES AND SURTAXES
  3. Subchapter A Determination of Tax Liability
  4. Part IV CREDITS AGAINST TAX
  5. Subpart E Rules for Computing Investment Credit

Nearby sections

Official notes

The Law Revision Counsel's notes for this section (amendments, effective dates and related laws) are long, so they have their own page.