If your business occupies substantial space and could eventually move or expand, keep the rehabilitation tax credit in mind – even more so if there’s a historical building involved.
The credit is equal to 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 that has been placed in service before the beginning of the rehabilitation and, after rehabilitation, is used in business or for the production of income (and not held primarily for sale). Additionally, the building must be “substantially” rehabilitated, which 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) and can’t include building enlargement or acquisition costs.
The 20% credit is allocated ratably to each year in the five-year period starting with 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 is 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, which was signed at the end of 2017, made 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 buildings constructed before 1936
Other federal tax benefits could be available in a move or expansion, including credits based on certain energy plans and location of the site. In addition, state or local tax and non-tax subsidies might be available. A member of our tax services team can help you explore the options.
© 2023 KraftCPAs PLLC
Talk With Us
Find out how this could affect you. Complete the form below, and we’ll get in touch to answer your questions and discuss your specific situation.