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New North Carolina Budget Includes Historic Rehabilitation Tax Credit Provisions


Synopsis
On September 18, 2015, North Carolina Governor Pat McCrory signed the state’s new two-year budget into law. The budget contains new historic preservation tax credits through January 1, 2020 for both income-producing and non-incoming producing historic structures.
 
Issue
Highlights of the new North Carolina Historic Preservation Tax Credit are shown below:
 
Credit for rehabilitating income-producing historic structure

1. Base amount: The percentage of qualified rehabilitation expenditures are at the following levels:

Expenses Credit
More than $0/up to $10 million 15%
More than $10 million/up to $20 million 10%

    

 

 

 

2. Development tier bonus: A bonus amount equal to 5% of qualified rehabilitation expenditures not exceeding twenty million dollars ($20,000,000) is available if the certified historic structure is located in a development tier one or two area.
 
3. Targeted investment bonus. A bonus amount equal to 5% of qualified rehabilitation expenditures not exceeding twenty million dollars ($20,000,000) is available if the certified historic structure is located in a an eligible targeted investment site (examples of this include a former manufacturing facility, agricultural warehouse, or utility that has been at least 65% vacant for at least two years).
 
4. Pass-Through Entity: A pass-through entity that qualifies for the credit may allocate the credit among any of its owners at its discretion. An owner's adjusted basis in the pass-through entity, as determined under the tax code, must be at least 40% of the amount of credit allocated to that owner at the end of the taxable year in which the certified historic structure is placed in service.
 
5. Limitations: The amount of credit allowed for qualified rehabilitation expenditures for an income-producing certified historic structure may not exceed four million five hundred thousand dollars ($4,500,000).
 

Credit for rehabilitating non- income-producing historic structure
 

1. Credit: A taxpayer who is not allowed a federal income tax credit under section 47 of the tax code with rehabilitation expenses of at least ten thousand dollars ($10,000) for a state-certified historic structure is allowed a credit equal to 15% of the rehabilitation expenses.
 
2. Limitations: The amount of credit allowed for rehabilitation expenses for a non-income-producing certified historic structure may not exceed twenty-two thousand five hundred dollars ($22,500) per discrete property parcel. If the taxpayer is the transferee of a state-certified historic structure for which rehabilitation expenses were made, the taxpayer is allowed a credit only if the transfer takes place before the structure is placed in service. In this event, no other taxpayer may claim such credit. A taxpayer is allowed to claim a credit under this section no more than once in any five-year period, carryovers notwithstanding.

What does CohnReznick think?
The inclusion of the Historic Preservation Tax Credit in North Carolina’s new budget is a significant victory for North Carolinians seeking to maintain and repurpose the state’s historic structures. We applaud Governor McCrory, Secretary of Natural and Cultural Resources Susan Kluttz, and others who were instrumental in maintaining the credit for at least the next two years.
 
Please note that implementation of the program is subject to further guidance from state agencies.

Contact
For more information on how the new NC Historic Preservation Tax Credit may apply to your business, please contact Marshall Phillips, Principal, at 704-900-2650 or marshall.phillips@cohnreznick.com

To learn more about our Historic Rehabilitation Tax Credit Services, visit our webpage.

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