Charleston Cigar Factory

The 10% Federal Tax Credit

This tax credit for old buildings is not widely known and produces a worthwhile saving of 10% of the project renovation costs, subject to some conditions. This credit is widely applicable and beneficial in older cities where urban planning is focused on restoring vibrancy to some of their blighted districts.It is aimed at developers and investors and typically involves properties more substantial in size. Cotton mills, old stores, warehouses, Fire stations, railroad buildings etc. There is (2015) a shortage of flexible commercial rental space in downtown Charleston, especially flexible space for technology related companies and start-ups so opportunities abound for this approach to construction and historic renovation.
The building under construction must have been here before 1936 and NOT already be on the National Register of Historic Places.

  • It must not be a residential building or a building built for the primary purpose of residential leasing. Frankly, that rules out most of downtown Charleston south of Calhoun St. except for Broad, King and Meeting Streets. However, always remember that the real investment nuggets ae often not where most people are looking. 
  • The credit must be taken in the year the building was completed or at least when your tax return is submitted for that year.
  • The renovation must be substantial and involve a “depreciable asset ” building a.k.a. not your own home at the time of the claim.
  • At least 50% of existing external, and 75% of internal, walls/structure must stay in place. The overall project costs (not including land), must exceed the adjusted basis of the building.
  • Typically the tax credit can be claimed over a 5-year period at 20% per year.

Still, 10% back for a little planning up front is worthwhile on a substantial project and often greater than the General Contractors actual profit. Have a look HERE for Part 1 in this series. 

Further reading: The National Park Service is a great website for information. Also look at : Tax Reform Act of 1986 (PL 99-514; Internal Revenue Code Section 47 [formerly Section 48(g)]) – The Internal Revenue Service regulations governing the tax credits for rehabilitation are contained in Treasury Regulation Section 1.48-12 http://www.nps.gov/tps/tax-incentives/taxdocs/IRSregs.pdf 

 

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