- Understand the rehabilitation tax credit.
- Learn about QREs.
- Find information about the changes made to the credit with the TCJA.
- Learn how your Fiducial representative can help you navigate this tax credit.
Does your business occupy substantial space and need to increase or move from that space in the future? You should keep the rehabilitation tax credit in mind. This is especially true if you favor historic buildings.
The rehabilitation tax credit equals 20% of the qualified rehabilitation expenditures (QREs) for a qualified rehabilitated building that’s also a certified historic structure. A qualified rehabilitated building is a depreciable building placed in service before the beginning of the rehabilitation and used, after rehabilitation, in business or for the production of income (and not held primarily for sale). Additionally, the building must be “substantially” rehabilitated. This generally requires that the QREs for the rehabilitation exceed the greater of $5,000 or the adjusted basis of the existing building.
A QRE is any amount chargeable to capital and incurred in connection with the rehabilitation (including reconstruction) of a qualified rehabilitated building. QREs must be for real property (but not land). They can’t include building enlargement or acquisition costs.
The Rehabilitation Tax Credit
The 20% rehabilitation tax credit is allocated ratably to each year in the five-year period beginning in the tax year in which the qualified rehabilitated building is placed in service. Thus, the credit allowed in each year of the five-year period equals 4% (20% divided by 5) of the QREs with respect to the building. The credit is allowed against both regular federal income tax and alternative minimum tax.
The Tax Cuts and Jobs Act, signed at the end of 2017, made some changes to the credit. Specifically, the law:
- Requires taxpayers to take the 20% credit ratably over five years instead of in the year they placed the building into service
- Eliminated the 10% rehabilitation credit for pre-1936 buildings
How your Fiducial representative can help
Contact your Fiducial representative to discuss the technical aspects of the rehabilitation tax credit. There may also be other federal tax benefits available for the space you’re contemplating. For example, various tax benefits might be available depending on your preferences as to how a building’s energy needs will be met and where the building is located. In addition, there may be state or local tax and non-tax subsidies available.
Getting beyond these preliminary considerations, we can work with you and construction professionals to determine whether a specific available “old” building can be the subject of a rehabilitation that’s both tax-credit-compliant and practical to use. And, if you do find a building that you decide you’ll buy (or lease) and rehabilitate, we can help you monitor project costs and substantiate the compliance of the project with the requirements of the credit and any other tax benefits.
Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
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