How to Develop a Downtown Plan

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Rebuilding Communities after Hurricane Katrina
Historic Tax Credits
1000 AM 1100 AM Friday, March 30, 2007
By Merrill Hoopengardner, Esq.
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Historic Tax CreditsThe Basics
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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

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The 20 Rehabilitation Tax CreditFundamentals

• 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.

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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

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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.

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Historic Tax CreditsCalculating and Claiming HTCs
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The 20 Rehabilitation Tax CreditCalculating 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.

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The 20 Rehabilitation Tax CreditWhen 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.

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The 20 Rehabilitation Tax CreditWho 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.

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The 20 Rehabilitation Tax CreditLimitations 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.

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The 20 Rehabilitation Tax CreditRecapture

• 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.

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The 20 Rehabilitation Tax CreditRecapture

• 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).

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Thank you

• Merrill Hoopengardner, Esq.
• 401 9th Street, NWSuite 900Washington, DC
  20004202.585.8169
• 202.585.8080 (Fax)
• mhoopengardner_at_nixonpeabody.com

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