Availability of the Rehabilitation Tax Credit to Transferees

• Author: William F. Machen
• Pages: 17-21

3.1. Transferee Rules

The Code provides that the cost of acquiring a building or an inter‑

est therein is specically excluded from the denition of “qualied

rehabilitation expenditure.”

34

However, where qualied rehabili‑

tation expenditures are incurred by an owner of property, and a

taxpayer acquires the property attributable to such expenditures

(or an interest therein) before such property is placed in service,

the taxpayer is treated as having incurred the expenditures (and,

therefore, is entitled to the Rehabilitation Tax Credit with respect

to such expenditures) at the time that they were incurred by the

prior owner, subject to certain limitations.35

34. I.R.C. §47(c)(2)(B)(ii).

35. Treas. Reg. §1.48‑12(c)(3) provides:

(3) Incurred by the taxpayer—(i) In general. Qualied rehabilita‑

tion expenditures are incurred by the taxpayer for purposes of this

section on the date such expenditures would be considered incurred

under an accrual method of accounting, regardless of the method of

accounting used by the taxpayer with respect to other items of income

and expense. If qualied rehabilitation expenditures are treated as

having been incurred by a taxpayer under paragraph (c)(3)(ii) of this

section, the taxpayer shall be treated as having incurred the expendi‑

tures on the date such expenditures were incurred by the transferor.

(ii) Qualied rehabilitation expenditures treated as incurred by

the taxpayer—(A) Where rehabilitation expenditures are incurred

17

Availability of the Rehabilitation

Tax Credit to Transferees 3

Machen_RehabTaxCr_20150513_08-49_ConfirmationPass.indd 17 5/14/15 8:56 AM