CREJ - page 18

Page 18 —
COLORADO REAL ESTATE JOURNAL
— August 19-September 1, 2015
Law & Accounting
I
f you’re in the business
of redeveloping older
buildings and aren’t
aware of federal and state
incentive programs surround-
ing the rehabilitation of his-
toric structures, you could be
missing out on key financing
opportunities for your project.
By combining both the Fed-
eral Historic Tax Credit and the
newly authorized State Reha-
bilitation Credit, a developer
has the potential to help fund
as much as 45 percent of his
project’s cost through income
tax credit incentives.
While the 10 percent and 20
percent Federal Historic Tax
Credits have been available
for a number of years, Colo-
rado House Bill 14-1311, oth-
erwise known as the Colorado
Job Creation and Main Street
Revitalization Act, has recently
authorized an increased state
income tax credit for expendi-
tures related to the rehabilita-
tion and preservation of histor-
ic buildings. Supporters of the
new bill, including Reps. Leroy
Garcia and Tim Dore, as well as
state and private preservation
offices, saw a unique oppor-
tunity to create more jobs here
in Colorado, while also pro-
moting local development of
projects that might otherwise
be invested in other states with
larger incentive programs.
Previously, the state tax cred-
it was capped at $50,000 per
project, but the new act autho-
rized up to a $1 million credit
for rehabilitation projects. In
total, the new act authorized
$35 million of tax credits over
the next four years, with the
intention that these projects
will not only help to bring new
life to historic structures and
landmarks, but also will create
jobs in towns and cities across
the state.
In order to prevent a small
number of projects from taking
all of the credits, safeguards
were put into place to ensure
that projects both big and small
are given the same opportunity
to receive the state income tax
credits. First, the $35 million
of tax credits are broken down
to specific tax years. The total
allocation of these credits for
2016 is $5 million, with $10 mil-
lion being allocated to each tax
year 2017 to 2019. From there,
the tax cred-
its are further
divided into
two
pools
based
on
project size.
The first pool
is for smaller
r e h a b i l i t a -
tion projects
with project-
ed qualified
r e h a b i l i t a -
tion expen-
ditures, or
QREs, of less than $2 million.
The second pool is for larger
projects, which would have
projected QREs over $2 million.
The amount of state tax credits
that are allocated to each pool
are split 50-50 based on the
authorized credits for the year.
In 2016, each pool has $2.5 mil-
lion of credits available, and in
2017 to 2019 each pool has $5
million of credits available.
As with many government-
regulated initiatives, there
are of course hoops to jump
through and guidelines to fol-
low. The building being reha-
bilitated must be at least 50
years old and must be desig-
nated as a historic structure
by the National Park Service,
History Colorado or a local
landmark preservation com-
mission. In an effort to help
streamline the application pro-
cess, the state has created an
application that is completed
and submitted online. This
application can be found on
the
com website, along with up-
to-date information about the
credit, such as the amount of
credits that have been applied
for and the amounts already
reserved. It’s important to note
that even if the total amount of
state credits for the year have
already been applied for or
reserved, it is still beneficial to
apply as soon as possible. Once
all of the yearly credits are
reserved, the remaining appli-
cants go on a waiting list for
the next year’s credits. Appli-
cations can stay on the waiting
list for up to two years, after
which point their application
expires and they must reapply
if the credit is still available.
As for the calculation of the
state tax credit, it works similar
to the federal historic tax credit
program; the
credit is the
product of
the amount
of QREs put
into a project times the credit
percentage. The amount of the
Colorado income tax credit is
equal to 25 percent of QREs
spent up to $2 million, plus
20 percent of QREs spent over
$2 million, with a maximum
credit of $1 million that can be
claimed by any one project. For
projects that are in an area that
has been declared a state and/
or federal disaster area within
the last six years, an additional
credit of 5 percent is available,
increasing the percentages to
30 percent of QREs spent up
to $2 million, plus 25 percent
of QREs spent over $2 million.
Generally speaking, QREs
are expenses that are direct-
ly related to the repair or
improvement of the historic
structure, including architec-
tural features. In addition to
the hard costs of rehabilitation,
soft costs such as construction
period interest and taxes, pro-
fessional fees for engineers and
architects, and even developer
fees are all considered QREs
eligible for the credit. Another
important note is that if apply-
ing for a credit of $250,000 or
more, an audit of the project’s
QREs is required by a certified
accountant.
If project costs are incurred
before the credits are applied
for or reserved, they may still
qualify as eligible QREs. As
long as the costs are incurred
after July 1, 2015, and meet the
definition of a QRE, the status
of the credit application isn’t a
factor in determining whether
an expense is eligible for the
credit.
If excess QREs are spent dur-
ing the rehabilitation project,
the state will only issue a cer-
tificate for the amount of cred-
its previously applied for and
reserved. The applicant must
apply again for the additional
expenses, and if funds are still
available for the year, the cred-
its are automatically approved
and the applicant is issued a
second credit certificate for the
excess costs. If the applicant
does not spend as much on the
Kerry Roets
Tax manager, Anton
Collins Mitchell LLP,
Denver
Joseph Saldibar
Architectural services
manager, History
Colorado, Denver
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