The Return of Rhode Island Historic Tax Credits

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On July 3, the Rhode Island budget bill for the 2014 fiscal year was signed into law by Governor Chafee.  A part of this bill relates to historic tax credits and revives a program initially established in 2008 that incentivized the restoration of historic buildings and stimulated economic growth in Rhode Island.  This new law reissues $34.5 million in tax credits for new proposals that had been set aside for previously abandoned projects.  New state regulations for the historic tax credit program will be drafted.

Under the historic tax credit program, either 20 or 25 percent of “qualified rehabilitation expenditures” – i.e, money spent restoring a certified historic structure – may be issued as a tax credit not to exceed $5 million per project.  A certified historic structure must be listed on the National Register of Historic Places, be located within a National Register Historic District and contribute to the district's significance, or be part of a local historic district.  Most historic buildings that are used to produce income will qualify, such as offices, stores, rental apartments, and factories; development of condominiums may qualify also.  Private one- and two- family residences, social clubs, and tax exempt properties like schools, hospitals, and churches do not qualify.  However, nonprofit owners can qualify for the credit and assign or sell it to a tax-paying partner or investor.

To be eligible for the credit, an application must be filed with the Rhode Island Division of Taxation.  An application fee of 3% of anticipated rehabilitation expenditures must be paid to the Rhode Island Division of Taxation at the time a tax credit contract is signed. To qualify for the 20 percent credit, the rehabilitation must be consistent with standards set forth by the Secretary of the United States Department of the Interior. To receive the additional five percent credit, a certain portion of the property must be used for commercial trade or business purposes.  The credit is allowed for the taxable year that the historic structure is placed in service.  If the credit exceeds the taxpayer’s total liability, it may be carried forward for the succeeding ten years or until the full credit is used.  According to the statute, these tax credits may be assigned, transferred or conveyed by sale to any individual or entity.  Additionally, assignees of the tax credits may further transfer the credit to others.  Once issued, these tax credits can potentially offset tax liability for any Rhode Island business corporation tax, franchise tax, public service corporation tax, bank tax, insurance company tax, or personal income tax.

Beginning August 1, 2013, applications for the 2013 Rhode Island Historic Preservation Tax Credit may be submitted to the Rhode Island Division of Taxation.

Topics:  New Legislation, Tax Credits, Tax Reform

Published In: Construction Updates, Finance & Banking Updates, Commercial Real Estate Updates, Residential Real Estate Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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