Historic Preservation Tax Credit

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Historic Preservation Tax Credit

• IPED HTC Developers Conference
• February 7, 2008
• Don Nimey

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Credits vs. DeductionsA Credit Offsets Tax
Liability Dollar for Dollar
Deduction Credit
Income 100 100
Less Deductions (20) -
Taxable Income 80 100
Gross tax Due _at_ 35 28 35
Less Credits - (20)
Net Tax Due _at_ 35 28 15
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Calculating the CreditEligible BasisQualified
Rehabilitation Expenditures (QREs)

• The term qualified rehabilitation expenditure
  means any amount properly chargeable to capital
  account
• (i) for property for which depreciation is
  allowable under section 168 and which is
• (I) nonresidential real property,
• (II) residential rental property,
• (III) real property which has a class life of
  more than 12.5 years, or
• (IV) an addition or improvement to property
  described in subclause (I), (II), or (III), and
• (ii) in connection with the rehabilitation of a
  qualified rehabilitated building.
• Hard Costs for construction related activity in
  the historic building
• Soft Costs related to rehabilitation, if such
  costs are added to the property's basis and are
  determined to be reasonable and related to the
  services performed, e.g., architectural and
  engineering fees, site survey fees, legal
  expenses, and development fees

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Calculating the CreditWhat is Not a QRE?

• Land Interest Carry on Land
• Building Acquisition Interest Carry on
  Acquisition
• Acquisition-Related Costs
• Site Improvements Landscaping
• Enlargements Demolition
• Personal Property
• Tax Exempt Use Property

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Sample Development Budget
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Calculating the Credit
QREs 500,000 Credit Rate
20 Credits 100,000 Calculate the equity
amount 1.15 per credit multiplied by 100,000
credits 115,000 Credit Rate is sometimes 10.
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Test Periods
24 Month Test Period
60 Month Test Period

• Qualified Expenditures during a 24-month period
  selected by the taxpayer must exceed the greater
  of 5,000 or the adjusted basis of the building
  as the beginning of the 24-month period

• Owner can substitute 60 months for 24 in
  substantial rehab test rules if
• Can document that the Rehab is expected to take
  longer than 24 months, and will be completed in
  stages, and
• Documentation must be dated prior to date of
  start of physical construction

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Who Can Claim the Credit?
Timing of Ownership Relative to Placed in Service
is Critical
Owned during rehab sold prior to placed in
service
? No Credit to old owner
Bought into ownership just prior to and owned the
day placed in service
? Credit to owner
Bought into ownership after placed in service
? No Credit to new owner