Two Types of Rehabilitation Tax Credits Older (pre-1936), non-historic and non-residential buildings: 10 percent of qualified rehabilitated expenditures. – GO Zone Act raises to 13 percent Historic buildings: 20 percent of qualified rehabilitation expenditures. – GO Zone Act raises to 26 percent
The 20% Rehabilitation Tax Credit Fundamentals Tax aspects administered by the IRS. Preservation aspects jointly administered by NPS and State Historic Preservation Offices (SHPOs). Tax Credits = dollar for dollar reduction in tax liability (contrast with deduction). RTC is the most important (in dollar volume) federal preservation program. GO Zone modifications in Notice 2006-38 and the Gulf Opportunity Zone Act of 2005.
What Types of Buildings Qualify? IRS Rule – Depreciable – Building NPS Rule – Certified Historic Structure Listed on the National Register Building is located in a registered historic district and certified by the Secretary of the Interior as being of historic significance to the district
What Types of Rehabilitations Qualify? IRS Rule – Substantial Rehabilitation The QREs incurred during any 24-month period** selected by the taxpayer and ending in the taxable year in which the building is placed in service must exceed the greater of (1) $5,000, or (2) the adjusted basis of the building. -** 60 months in certain instances GO Zone - Measuring period tolled for 12 months. NPS Rule – Certified Rehabilitation Certified by NPS as consistent with the historic character of the structure or of the historic district in which the structure is located.
Historic Tax Credits Calculating and Claiming HTCs
The 20% Rehabilitation Tax Credit Calculating the Allowable Credit Credit equals 20% of all QREs incurred: – Prior to the start of the 24-month period selected; during the 24-month period; and after the last day of the 24- month period (but before the last day of the tax year in which the measuring period ends). – Credits equal 26% in GO Zone.
The 20% Rehabilitation Tax Credit When is the Credit Allowed? Credit is generally allowed in the year in which the building is placed in service (provided substantial rehabilitation test has been met). – Placement in Service means that all or identifiable portions of the building is placed in a condition or state of readiness and available for a specifically assigned function. For GO Zone credit, QREs must be paid or incurred by December 31, 2008.
The 20% Rehabilitation Tax Credit Who Can Claim the Credit? The Credits belong to the taxpayer(s) that owns title to the property when the QREs are placed in service. A landlord that incurs QREs can elect to pass the credit to its long-term tenants. Long-term tenants can claim credits on the QREs they incur themselves. When property owner is a pass through entity, the Credits are allocated in accordance with taxable profits.
The 20% Rehabilitation Tax Credit Limitations on Claiming the Credit Insufficient tax liability. Business Tax Credit limitations ($25K + 75%). Passive Activity Rules. At-risk Rules. Alternative Minimum Tax. Tutorial available at http://trustwork2.nthp.org/ community-partners/taxcreditguide/index.html.
The 20% Rehabilitation Tax Credit Recapture Credit previously allowed is recaptured if any portion of the project which includes QREs is disposed of prior to the fifth anniversary of placement in service. Amount subject to recapture decreases by 20% during each year of the five year period.
The 20% Rehabilitation Tax Credit Recapture Disposition includes any sale, exchange, transfer, gift or casualty. Subsequent rehabs that do not comply with the Secretarys Standards can trigger recapture. – GO Zone – 36-month safe harbor period for rebuilding Reduction of a partners interest can be deemed a disposition (33% rule).
Thank you Merrill Hoopengardner, Esq. 401 9th Street, NW Suite 900 Washington, DC 20004 202.585.8169 202.585.8080 (Fax) firstname.lastname@example.org