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Business Tax

IRS Issues Rehabilitation Credit FAQs

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has issued a series of FAQs regarding the rehabilitation credit, i.e., the credit available for rehabilitating historic structures. Among other subjects, the FAQs focus on: eligibility and definitions related to the credit; what expenditures are used in calculating the credit; and buying and selling rehabilitation credits.

Background.

For any tax year during the five-year period beginning in the tax year in which a qualified rehabilitated building (QRB) is placed in service, a taxpayer is allowed a rehabilitation credit for that year in an amount equal to the ratable share for the tax year. (Code Sec. 47(a)(1)) The credit is also sometimes referred to as the rehabilitation credit for certified historic structures.

A QRB includes any building (and its structural components) if: the building has been “substantially rehabilitated”; the building was placed in service as a “building” before the beginning of the rehabilitation; the building is a certified historic structure; and depreciation (or amortization in lieu of depreciation) is allowable with respect to the building. (Code Sec. 47(c)(1))

The ratable share for any tax year is the amount equal to 20% of the qualified rehabilitation expenditures (QRE) with respect to the QRB, as allocated ratably to each year during such period. (Code Sec. 47(a)(2))

FAQs.

The IRS has issued a series of FAQs regarding the rehabilitation credit.

Observarion.

The FAQs provide plain English explanations of the credit and don’t appear to provide any information that hasn’t previously been published.

The FAQs discuss, among other things:

  • Eligibility and definitions related to the credit
  • What expenditures are QREs
  • Basis issues
  • Determining when a property is placed in service
  • Buying and selling rehabilitation credits
  • Tax exempt and lessee issues
  • Accounting issues
  • Recapture (The rehabilitation credit is recaptured if the property is disposed of or otherwise ceases to be investment credit property during the 5-year recapture period)
  • Carry back/foward, passive activities, and other credit limitations

To continue your research on the rehabilitation credit, see FTC 2d/FIN ¶L-16100.

 

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