On May 20, 2024, South Carolina Governor Henry McMaster signed into law S.1021, a new law that extends and increases tax credits available to taxpayers who rehabilitate or renovate an existing, abandoned building. The new law amends the South Carolina Abandoned Buildings Revitalization Act (S.C. Code Section 12-67-100, et. seq.) by:
- Extending the credit through December 31, 2035 (it was previously set to expire on December 31, 2025) and
- Increasing the income tax credit cap to $700,000 per building site (previously, the cap was $500,000 per building site).
The Act has facilitated the redevelopment of numerous abandoned buildings throughout South Carolina. The previous sunset date, however, made underwriting new redevelopment projects difficult. Construction costs have also continued to climb over time, but the $500,000 cap has not been increased since the Act was enacted in 2013. The law addresses these project hurdles by increasing the $500,000 cap to $700,000 and extending the sunset provision to December 31, 2035. The increased cap and time extension provide developers with a valuable incentive to continue redeveloping abandoned buildings for many years to come.
The remaining provisions of the Act remain unchanged and are summarized at a high level below.
General Qualifications
First, the property must qualify as an “abandoned building” under the Act, meaning at least 66% of the freestanding building or structure (typically measured by square footage) must have been nonoperational for more than five years. The property also generally must have been used for business or income-producing purposes prior to abandonment. There are exceptions, and the taxpayer is allowed to apply to the municipality or county where the building site is located for certification that the building or structure qualifies, and the taxpayer can conclusively rely on this certification.
Next, the taxpayer must incur “rehabilitation expenses” exceeding either $75,000, $150,000, or $250,000. The applicable threshold is determined based on the population of the municipality or unincorporated area of the county where the building site is located.
The taxpayer also must file a Notice of Intent to Rehabilitate letter (the Notice Letter) with the South Carolina Department of Revenue before any “rehabilitation expenses” are incurred at the building site and incur at least 80% of those estimated costs in the notice in order to earn any of the credit.
Finally, ownership can become an issue. For example, an owner of the building site prior to it becoming an “abandoned building” does not qualify for the credit, and eligibility can also become problematic if there is a change of ownership after the rehabilitation begins or after the “abandoned building” is completely demolished.
Amount of the Credit
The Act provides an income tax credit equal to 25% of the costs of rehabilitating a qualifying abandoned building (a property tax credit is available in lieu of the income tax credit but rarely utilized), subject to an overall cap of $700,000 per abandoned building site.
The income tax credit must be taken in equal installments over a three-year period beginning with the tax year in which the applicable phase or portion of the “building site” is placed in service. Any unused credit may be carried forward for five years at the individual, partnership, or limited liability company level.
For the property tax credit, the credit is not capped and can be up to 75% of the real property taxes due on the “building site” for each year up to 8 years.
Other Considerations
The increase in the cap on the income tax credit to $700,000 undoubtedly makes the credit more lucrative. The income tax credit, however, can potentially be made even more lucrative because the “abandoned building” and “building site” can be subdivided into separate parcels or units to earn multiple credits, each subject to the $700,000 credit independently, as long as each separate unit or parcel meets the minimum rehabilitation expense threshold, a separate Notice Letter is correctly filed, and all other requirements of the Act are met.
The income tax credit can be monetized through a syndication transaction to provide additional project equity.
Finally, the credit can sometimes be stacked with certain other credits allowing certain taxpayers and properties to enjoy multiple credits.
Summary
The new law is beneficial to developers of properties in South Carolina, but the credit is nuanced, and there is some ambiguity on what projects that meet the Act requirements and are already underway will qualify for the $700,000 increased income tax credit cap. Therefore, taxpayers would be wise to consult a tax professional when determining eligibility and planning to effectively utilize the credit.
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