The Massachusetts Legislature recently voted to override Governor Mitt Romney's veto of an amendment to the historic rehabilitation tax credit. The legislation authorizes a substantial increase in the total amount of available credits against corporate excise and personal income tax under the program.
Effective June 24, 2006, for the six-year period beginning on January 1, 2006 and ending on December 31, 2011, the Department of Revenue in consultation with the Massachusetts Historical Commission ("the Commission") is authorized to make available up to $50 million a year in historic rehabilitation tax credits. The prior annual limit on available credits was $15 million.
Tax Credit Application Process
Taxpayers may apply for a credit under the historic rehabilitation tax credit program of up to 20 percent of qualified rehabilitation expenditures made with respect to qualified historic structures that receive initial, second and final certifications from the Commission. Eligible taxpayers include corporations subject to the Massachusetts corporate excise tax and other persons or entities subject to Massachusetts personal income tax.
"Qualified rehabilitation expenditures" include any amount properly chargeable to a capital account for which federal depreciation is allowable, incurred in connection with the certified rehabilitation of a qualified historic structure, but do not include personal property, personal use property or the cost of acquiring any building or interest therein.
In the application process, the Commission must first certify that the structure meets the definition of a qualified historic structure. A "qualified historic structure" includes any building or structure owned (in whole or in part) by the taxpayer that is located in Massachusetts and that (i) is individually listed on the National Register of Historic Places, (ii) is a contributing building within a district that is listed on the National Register of Historic Places, or (iii) has been determined by the Massachusetts Historical Commission to be eligible for listing on the National Register of Historic Places.
Each initially certified project is assessed by the Commission according to the project's contribution to the significance of the area and the relative public benefit of its proposed rehabilitation to the Commonwealth, taking into account the requirement that at least 25 percent of the credits will be awarded to projects that contain affordable housing. In addition, the Commission will consider:
- the extent of historic preservation,
- the potential loss or destruction of the historic structure(s) but for the credit,
- an assessment and demonstration of need, the project's potential for enhancing the geographic distribution of credit allocations throughout the Commonwealth,
- the relative soundness and feasibility of the proposal,
- the extent of public support for the project
- the extent to which the project will transform a structure that currently lacks practical use, and
- the project's impact on the surrounding community and the Commonwealth as a whole.
A second certification is issued by the Commission prior to construction, certifying that if completed as proposed, the rehabilitation work will meet the standards required for a "certified rehabilitation," i.e., that work is consistent with the standards established by the Secretary of the U.S. Department of the Interior for rehabilitation of historic properties. Projects that receive the second certification are deemed "chosen projects." A final certification is issued by the Commission when the construction is completed, certifying that the work was completed as proposed and that the costs are consistent with the work completed.
Applying the Credit Against Massachusetts Tax
Taxpayers may apply the credit against corporate excise or personal income tax, beginning with the tax year a chosen project becomes a completed project. In determining the amount of the credit allowable for the taxable year, for corporate taxpayers, the 50 percent of excise limitation on maximum credits rule does not apply.
A "completed project" means, for this purpose, a chosen project that has received final certification and has been substantially rehabilitated and placed in service. A project will be considered "substantially rehabilitated" if the qualified rehabilitation expenditures of the building during the 24-month period selected by the taxpayer ending with or within the taxable year exceed 25 percent of the taxpayer's adjusted basis in the building and its structural components as of the beginning of such period.
Unused portions of the credit may be carried forward for a maximum of five years, and the credit may be transferred or sold to another taxpayer. If the taxpayer disposes of the property generating the credit before the end of the five-year period beginning on the date that the rehabilitation is completed, however, a portion of the credit will be subject to recapture.
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
