Rehab Tax Credit Basics
Federal 20 and 10 Percent Rehabilitation Tax Credits
NTCIC
invested in both historic and New Markets tax credit equity for the Masonic
Temple in Baltimore, Maryland. 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) to be 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 after the completed project is placed-in-service and taxes are filed with the Internal Revenue Service.
Why Use Tax Credits?
Tax credit equity investments can be an extremely valuable part of a historic rehabilitation financing plan. In the case of a nonprofit developer, such as a historic theatre foundation, the presence of tax credit equity can help with fundraising by leveraging additional revenue for the project. In many cases, tax credits have made the difference between a historic property being rehabilitated and being demolished.