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Incentives for Historic Preservation in Detroit Michigan Tax Incentives Part I: Michigan Historic Tax Credits and OPRA Detroit Athletic Club June 5, 2008.

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Presentation on theme: "Incentives for Historic Preservation in Detroit Michigan Tax Incentives Part I: Michigan Historic Tax Credits and OPRA Detroit Athletic Club June 5, 2008."— Presentation transcript:

1 Incentives for Historic Preservation in Detroit Michigan Tax Incentives Part I: Michigan Historic Tax Credits and OPRA Detroit Athletic Club June 5, 2008 Presented by: Gordon Goldie

2 Michigan Tax Incentives 1 Overview of Agenda Michigan Incentives Available Historic Tax Credit Obsolete Property Tax Freeze (OPRA) Brownfield Incentives SBT Credits Tax Increment Financing (TIF) Neighborhood Enterprise Zone (NEZ)

3 Michigan Tax Incentives 2 Incentives: Key Questions What are the benefits? What are the eligibility requirements? What else do you have to do? What are the drawbacks/limitations?

4 Michigan Tax Incentives 3

5 Michigan Tax Incentives 4 What are the benefits? State tax credit Credit = 25% of QRE Must be reduced by available Federal credit Can be used to offset MBT or MI Income Tax Claimed in year completed rehab certificate is issued May be assigned (but not re-assigned): To owners of pass-through entities Can assign pro-rata or 100% to a single owner Typically sold for $.50 to $.85 per $1 of credit Michigan Historic Tax Credits

6 Michigan Tax Incentives 5 What are the eligibility requirements? Eligible property Includes buildings, structures, sites, objects, features and open spaces oIndividually listed on National or State Register of Historic Places, or oLocated in National, State or local historic district Can be non-income-producing (i.e., owner occupied residence) Tax-exempt use property oCan be owned by tax exempt entity if leased to unrelated taxpayer oCan be leased to tax-exempt entity on long-term lease Michigan Historic Tax Credits

7 Michigan Tax Incentives 6 What are the eligibility requirements (continued) ? Eligibility of rehabilitation QRE = same definition as Federal credit QRE must exceed o10% of SEV, or o5% of appraised value, if no SEV Certificate of completed rehabilitation must be issued not more than 5 years after the rehabilitation certified by State QRE must be paid within 5 years of certification of rehab plan for historic resource not eligible for Federal credits Michigan Historic Tax Credits

8 Michigan Tax Incentives 7 What else do you have to do? Secretary of Interiors Standard Guidelines apply for Rehabilitation Plan State Historic Preservation Office (SHPO) reviews federal Historic Preservation Certification Application SHPO issues Verification of Eligibility after Federal Part III approval Fee = $0 to $2,500 Credit claimed on Michigan Form 3581 Credit is assigned by submitting to Michigan Department of Treasury Michigan Tax Credit Assignment Form 3614 and securing approval Michigan Historic Tax Credits

9 Michigan Tax Incentives 8 What else do you have to do (continued) ? Contact Information: Robb McKay Federal historic tax credits Bryan Lijewski State historic tax credits Michigan Historic Tax Credits

10 Michigan Tax Incentives 9 What are the drawbacks/limitations? Credit reduces Federal deduction for state taxes Construction costs to comply with rehab standards Reduced depreciation Must reduce basis of building by amount of Federal credit (if any) Cant claim bonus depreciation on leasehold improvements Recapture 5 year compliance period Prorata vesting Potential taxability of proceeds from sale of credits Michigan Historic Tax Credits

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12 Michigan Tax Incentives 11 Federal Tax Impact of State Tax Credits State credit pricing depends upon federal tax treatment Federal tax treatment depends upon assignment structure Structuring alternatives Credit transferred via sale of certificate Credit transferred via partnership allocation Pricing Certificate = up to $.90 Partnership allocation = $.50 to $.75

13 Michigan Tax Incentives 12 Federal Tax Impact of State Tax Credits ( continued) Assignors treatment - Generally Credit transferred via sale of certificate Ordinary income upon receipt CCA Missouri Credit transferred via partnership allocation Capital gain upon disposal of LLC interest (reversal of difference between inside and outside basis) Mandatory basis reduction could accelerate income and convert income to ordinary

14 Michigan Tax Incentives 13 Federal Tax Impact of State Tax Credits ( continued) Assignees treatment - Generally Credit transferred via sale of certificate Ordinary deduction when credit is used to pay state tax PLR CCA Massachusetts Credit transferred via partnership allocation Capital loss upon put/call exercise

15 Michigan Tax Incentives 14 Federal Tax Impact of State Tax Credits ( continued) Can ordinary income/deduction treatment apply to credits transferred via partnership allocations? Maybe – If substance (vs. form) of transaction is equivalent to the sale of a certificate credit AM CCA and CCA Risk that State could disallow assignment

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17 Michigan Tax Incentives 16 Obsolete Property Tax Freeze (OPRA) What are the benefits? Allows local government units to abate real property taxes on the value of renovations to blighted or obsolete structures in eligible communities.

18 Michigan Tax Incentives 17 How does it work? Up to 12 year exemption from Ad Valorem property taxes on increased value of buildings and improvements Exemption does not apply to: School operating millage and State Education Tax Personal property Freezes value of building shell Land remains subject to regular taxes State Treasurer may exempt up to ½ of school taxes for up to 6 years (limit = 25 per year) Exemption may be transferred with approval Obsolete Property Tax Freeze (OPRA)

19 Michigan Tax Incentives 18 What are the eligibility requirements? Property must be Blighted or Functionally Obsolete Property must be either: Commercial property Residential rental property Must meet but for test (wouldnt occur but for exemption) Rehab must exceed 10% of FMV before rehab Obsolete Property Tax Freeze (OPRA)

20 Michigan Tax Incentives 19 What else do you have to do? Qualified local governmental unit must establish an Obsolete Property Rehabilitation District Owner of obsolete property files application for exemption with local units clerk (Form 3674) Local unit approves application State Tax Commission approves application and issues exemption certificate Obsolete Property Tax Freeze (OPRA)


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