This bill adds a new federal income-tax credit to encourage converting underused commercial buildings—primarily older office stock—into housing, and sets up a HUD advisory board to give technical assistance to state and local housing agencies. The credit is tied to capital expenditures made as part of the conversion and is designed to be layered with affordability incentives and a prevailing-wage bonus.
For practitioners: the measure combines a direct federal subsidy for developers with a federal initiative to reduce local regulatory friction. That pairing makes it relevant to owners and tenants of office buildings, multifamily developers, municipal permitting and planning departments, construction contractors, and tax compliance teams tracking credit eligibility and recapture risk.
At a Glance
What It Does
Creates a new Section 48F commercial-to-residential tax credit based on conversion-related capital expenditures and establishes a HUD Commercial-to-Residential Conversion Advisory Board to provide technical support to state and local agencies.
Who It Affects
Owners and developers of underutilized commercial/office buildings, lessees that perform conversions, state and local housing agencies and planners, construction contractors and unions, and the Treasury (through forgone revenue and recapture rules).
Why It Matters
The bill targets adaptive reuse as a housing-supply lever and pairs fiscal incentives with technical/regulatory support—potentially accelerating some projects that are technically feasible but financially marginal while creating new compliance and reporting obligations.
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What This Bill Actually Does
The bill adds a new, nonrefundable tax credit to the Internal Revenue Code that rewards capital spending directly tied to converting a qualifying nonresidential building—primarily older office buildings—into residential or mixed residential-retail use. Taxpayers claim the credit in the year the converted building is placed in service; there are rules to prevent double-dipping with other federal credits and to coordinate credit timing when conversions are completed over multiple years.
Not every conversion qualifies. A building must have been nonresidential and leased or available for lease to office tenants before conversion, allow depreciation, and have been placed in service at least 15 years earlier.
The bill treats a conversion as “substantial” only if qualified conversion expenditures in a taxpayer-selected measurement period meet a numerical test tied to basis or a fixed threshold; it provides a longer measurement window for phased projects and contemplates special rules for lessees.The statutory definition of qualified conversion expenditures is narrow: capitalizable amounts for depreciable property used in the conversion. The bill excludes acquisition costs, enlargements, expenditures not using straight-line depreciation, and certain tax-exempt use portions.
For long projects, taxpayers can elect rules to treat progress expenditures in the year charged to capital, with carryover mechanics and percentage-of-completion guidance to allocate costs across taxable years.To push affordable outcomes and labor standards, the bill layers bonus boosts on top of the base credit when specific conditions are met. One bonus increases the credit (and the statutory caps) when a specified share of units is rent-restricted and occupied by households at defined area-median-income thresholds; a separate bonus increases the credit when the conversion pays prevailing wages to laborers and mechanics.
The statute also denies the commercial-to-residential credit for any conversion expenditure that already generated a credit under section 42 (Low-Income Housing Tax Credit) or section 47.
The Five Things You Need to Know
The base credit equals 15 percent of qualified conversion expenditures with respect to a qualified converted building.
The law caps the credit at $200,000 per new residential unit and $10,000,000 per converted building.
Affordable-housing bonuses raise the credit (and the caps) by 10%/15%/20% when at least 25% of units are rent-restricted and occupied at 100%/80%/60% of AMI, respectively.
A prevailing-wage bonus increases the credit (and caps) by 15% if the taxpayer certifies all laborers and mechanics were paid locally determined prevailing rates.
Eligibility requires the building to have been placed in service at least 15 years earlier and to be ‘substantially converted’ under a 24-month (or 60-month phased) expenditure test; HUD must also create a 20+ member advisory board and $5 million per year is authorized for 2025–2029.
Section-by-Section Breakdown
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Creates the commercial-to-residential tax credit
This is the core statutory change inserted into Subpart E: a defined ‘‘commercial-to-residential credit’’ that flows through section 46. Practically, the provision creates a line-item tax credit against income tax equal to a percentage of capital expenditures properly chargeable to the conversion. The provision sets the calculation location (Section 48F) and ties the credit into existing credit mechanics and recapture rules elsewhere in the Code.
Credit calculation, timing, and per-unit/building caps
Subsection (a) sets the statutory percentage rate applied to ‘qualified conversion expenditures.’ Subsection (b) establishes hard caps—one cap measured per new residential unit and a separate aggregate cap per building—which bound the credit a taxpayer can claim. Subsection (c) fixes the tax year in which expenditures are taken into account (generally the year the converted building is placed in service) and includes coordination language to avoid credit duplication from prior claims or recapture-triggering transfers.
Bonus credits for affordability and prevailing wage
This part adds two separate upward adjustments. The affordability bonus increases the base credit rate and the statutory caps when a conversion dedicates at least 25% of units to rent restrictions and tenant income limits tied to AMI tiers, applying a graduated bonus for 100%/80%/60% AMI thresholds. The prevailing-wage bonus requires a certification that all laborers and mechanics on the conversion were paid at or above locally determined prevailing rates; if certified, the credit and caps increase by a set percentage. The bill borrows rules from existing affordable-housing programs to define rent limits and tenant-income treatment.
Eligibility, substantial-conversion test, and exclusions
This subsection defines a ‘qualified converted building’ and the test for ‘substantially converted.’ It requires prior office (or nonresidential) use and allowable depreciation, a 15-year age floor, and a measurement window for qualified conversion expenditures (generally a taxpayer-selected 24-month period, extended to 60 months for clearly phased projects). It also defines ‘qualified conversion expenditures’ narrowly and lists exclusions—acquisition costs, enlargements, expenditures using non-straight-line methods, tax-exempt-use portions, and certain lessee expenditures if the lease term is too short—reducing opportunities for creative recharacterizations.
Progress-expenditure election and allocation rules
For longer projects the statute allows an election to treat progress expenditures in the year capitalized (self-converted vs third-party converted distinctions apply). The provision sets rules for component accounting, borrowing disregarded as expenditures, percentage-of-completion measurement, carryover of allocations across taxable years, and an election that applies to the current and subsequent years unless revoked with Treasury consent. These mechanics determine when credits are claimable across multi-year construction schedules.
Creates a HUD Commercial-to-Residential Conversion Advisory Board and funds it
HUD must stand up an advisory board within a year of enactment, appointing at least 20 members. The board’s duties are practical and implementation-focused: it delivers technical assistance, feasibility and floor-plan analysis guidance, best practices for streamlining permitting, zoning reform advice, and identifies federal/state funding sources localities can tap. The statute authorizes $5 million per fiscal year for 2025–2029 to support these activities.
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Explore Housing in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Owners and developers of underutilized commercial (especially older office) buildings — The credit reduces the after-tax cost of capital improvements needed to convert offices to housing and can materially improve project feasibility for marginal deals.
- Low- and moderate-income renters (where affordability bonuses are deployed) — When developers elect the rent restrictions tied to the bonus, a share of units is preserved for households at specified AMI levels, increasing affordable inventory.
- Construction labor and unions (conditional) — Projects that meet the prevailing-wage certification create higher-paid construction work and expand demand for union-scale labor if developers seek the prevailing-wage bonus.
- State and local housing agencies and planners — HUD’s advisory board provides technical assistance, feasibility frameworks, and best practices that these agencies can use to accelerate conversions and unlock funding sources.
- Architects and adaptive-reuse specialists — The demand for feasibility studies, retrofit design, and code-compliance plans will rise as conversions become more financially attractive.
Who Bears the Cost
- Federal Treasury (revenue cost) — The credit, plus the affordability and prevailing-wage bonuses, will reduce federal receipts; projected fiscal cost depends on uptake and the extent to which the credit subsidizes projects that would have proceeded anyway.
- Developers and owners (compliance and documentation) — To claim the credit and any bonus, taxpayers must track eligible expenditures, satisfy certification requirements, and navigate the substantial-conversion test and progress-expenditure elections, increasing tax and administrative costs.
- Small contractors and nonunion subcontractors — Complying with prevailing-wage requirements may impose higher labor costs and additional payroll documentation burdens, which can be disproportionately onerous for small firms.
- Localities (planning and permitting workloads) — Accelerated permitting and zoning reform expectations could shift workload and political pressure to local planning departments; implementing reforms may require staff resources and policy changes.
- Tax professionals and counsel — Advising on eligibility, election timing, basis adjustments, and recapture exposure will create new demand for specialized tax compliance services.
Key Issues
The Core Tension
The central dilemma is practical: how to steer federal dollars to unlock real additional housing supply without simply subsidizing conversions that would have happened anyway or disproportionately favoring expensive projects. The bill balances a supply-side subsidy against affordability and labor conditions, but each added requirement (rent restrictions, prevailing-wage certification, documentation) raises compliance costs that can blunt developer appetite—so the policy must choose between maximizing take-up (lower barriers) and maximizing public benefits per project (higher conditions).
The bill is targeted but technically complex, and that complexity creates multiple implementation pinch points. The ‘substantial conversion’ test relies on an expenditure threshold measured over a taxpayer-selected period; that invites strategic timing choices (or disputes) about when a project truly began, what counts as a component, and how to treat phased projects.
The exclusion of acquisition costs and enlargements narrows the subsidy, but taxpayers will still need clear IRS guidance on apportioning mixed expenditures and on interactions with existing credits such as the Low-Income Housing Tax Credit (section 42). The denial of double benefit is explicit, but practical coordination—especially when projects layer multiple federal, state, or local subsidies—will be administratively heavy.
The affordability bonus ties larger credits to rent-restricted units at set AMI bands, but the statute borrows section 42 mechanics without mirroring all LIHTC oversight. That creates a gap: federal tax incentives push for affordability, yet enforcement and long-term monitoring of rent restrictions remain largely local.
The prevailing-wage bonus strengthens labor standards, but verifying compliance and certifying payroll data across multi-contractor jobsites will add cost and could deter some smaller developers or lead to higher project bids. Finally, the HUD advisory board can help with feasibility and permitting guidance, but it cannot override local land-use authority; the bill assumes that technical assistance and best practices will translate into zoning changes, which is a political and administrative hurdle not solved by federal guidance alone.
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