Maintaining the nation’s historical landmarks, parks and historical sites has been an important goal of the government for years.
See also Tax Services
However, many building owners are surprised to learn that this dedication to historical preservation includes many more “common buildings” as well. In fact, the state of Colorado in conjunction with the federal government offers a tax credit for those building owners who rehabilitate qualifying buildings and real estate. Formally known as the Commercial Historic Preservation Tax Credit, it provides tax incentives for certified rehabilitation of qualifying property. Although offered in part by the federal government, the credit applies only to Colorado income tax. To help clients, prospects and others understand the credit and its benefits, we have provided a summary of key points below.
The Colorado Historical Rehabilitation Tax Credit is available to owners who conduct a certified rehabilitation of a certified historic building or structure. In order to qualify, the owner must meet one of the following four criteria:
Hold title to a qualified building
Hold prospective title in the form of a purchase agreement
Hold a prospective title with the option to purchase
Hold a leasehold interest in a building for 39 years or more
The program defines a “certified building or structure” as one that is located in Colorado and has been certified by History Colorado, the state-based certification agency. In addition, “certified rehabilitation” includes only changes that have been certified by History Colorado and meet federal standards for historic rehabilitation.
The total amount of the credit is determined as a percentage of qualifying expenses. The two variables that determine the total benefit include the actual amount of expenses incurred and whether the building or structure is located within a recognized disaster zone or not. The regulations permit a 25% credit for qualifying expenses under $2M USD in a standard zone and a 30% credit for buildings in disaster zones. For expenses exceeding $2M USD, taxpayers in a standard zone can receive a 20% credit while for those in a disaster zone, the percentage increases to 25%.
The good news is that if a project has more than $2M in qualifying expenses, the benefits can be combined for an increased tax savings opportunity. For example, a property not in a disaster area with $3M in actual rehab expenditures would be eligible for a tax credit of $700,000 ($500,000 for the first $2M – 25% of $2M – plus $200,000 for the amount over $2M – 20% of the remaining $1M). It’s important to note that the maximum benefit a taxpayer can receive in a single year is $1M.
The taxpayer may use the credit for their own tax liability or sell it to a third party.
The application process follows a particular order with multiple steps. First, the owner of a historic structure must fill out an initial qualifying questionnaire to make a preliminary determination of eligibility for their property. They can then submit an application and detailed rehabilitation plan for the structure to request a tax credit on the rehabilitation. A tax credit will be reserved for the owner if the application and plan are substantially complete. After the application and rehab plan are processed and a determination is made, rehabilitation must commence in 12 months if it has not already begun. The owner is required to submit ongoing proof of construction during the process.
Upon completion of construction, the owner must submit documentation for final review before approval of the credit is issued.
Investing in real estate can be an expensive proposition, especially when repairs or other changes are needed. If your company recently purchased or has an agreement to purchase a historical property, then it may be a good idea to consider this tax credit. For additional information, please call us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon.