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Credit for Qualified Rehabilitation Expenditures under the 2017 Tax Cuts and Job Act

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Prior to Tax Cuts and Jobs Act, law provided a two-tier tax credit for qualified rehabilitation expenditures (QREs):

  1. 20% of the QREs with respect to a certified historic structure
  2. 10% of the QREs with respect to a qualified rehabilitated building

A certified historic structure is any building that was listed in the National Register, or that was located in a registered historic district and certified by the Secretary of the Interior to the Secretary of the Treasury as being of historic significance to the district.

A qualified rehabilitated building is defined as a building that was placed in service before 1936 and has approval from Department of Interior for rehabilitation.

The new law repeals the 10% credit for qualified rehabilitation expenditures for a building that was first placed in service before 1936, and modifies the 20% credit for qualified rehabilitation expenditures for a certified historic structure.

Prior to enactment of the new law, the 20% tax credit was taken in the year the improvement was placed in service. For tax years beginning after December 31, 2017, the 20% credit must be taken ratably over a five-year period at 20% of the credit per year, starting with the year the improvement was placed in service.

These tax credits, enacted by the Regan administration, were supposed to encourage the redevelopment of historic and abandoned buildings. Since its enactment in 1981, more than 40,000 structures have been renovated and more than $117 billion have been invested in private investments. The elimination of 10% credit for qualified rehabilitation expenditures, and the modification to the 20% credit for qualified rehabilitation expenditures for a certified historic structure may hinder efforts to rebuild and renovate cities and small towns.

Contact Mariana Moghadam at mariana.moghadam@sobelcollc.com for more information

 

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