Rehab Tax Credit Basics
Federal 20 and 10 Percent Rehabilitation Tax Credits
NTCIC
brought historic and New Markets Tax Credit equity to the rehabilitation of the Fox Tucson Theatre in Tucson, AZ. What are Rehabilitation Tax Credits?
Through Section 47 of the Internal Revenue Code, the federal government offers rehabilitation tax credits (RTCs) to encourage the preservation and adaptive reuse of certified historic and older buildings. RTCs are a dollar-for-dollar reduction of federal income tax liability.
The dollar value of the credit is calculated as a percentage of the qualified rehabilitation expenditures (QREs) incurred during the course of construction. For the rehabilitation of certified historic buildings, the percentage is equal to 20 percent of QREs; for the rehabilitation of non-historic, non-residential buildings built before 1936, the percentage is 10 percent of QREs. The credits become available to the building owner when the completed project is placed-in-service.
Why Use Tax Credits?
Tax credit equity investments can be an extremely valuable part of a historic or older building rehabilitation financing plan. For profit developers can use the subsidies from tax credits as part of a “gap” financing strategy. In the case of a nonprofit developer, such as a community development corporation, the availability of tax credit equity can help a nonprofit with fundraising by showing prospective donors that tax credit equity will reduce the amount of charitable funds that have to be raised.