Other People's Money
Thursday, August 30, 2018
By: Matt Sutter, AIA, LEED AP - CEO*
Other People’s Money
was a film starring Gregory Peck and Danny DeVito that was in theaters in 1991. In 2018, Other People’s Money is a phrase that is used frequently in conjunction with Historic Renovations, Energy Efficient Buildings and Distressed Properties. There are significant tax credits and tax deductions that are available in these situation. Some projects are eligible for millions of dollars through certain tax programs. These tax credits and deductions often make the difference between a building staying vacant or being remodeled and adding vibrancy to the neighborhood.
State of Ohio Historic Tax Credits
allows the owner of a building to receive up to 25% of the construction cost of the project with a cap of $5 million. The building must be historically significant and be approved to be on the National Register of Historic Places. The State of Ohio program is a competitive process that requires an application that is scored, ranked and the top projects are awarded tax credits. The State of Ohio’s program is refundable up to $3 million, which means even if you do not need a credit on your taxes of $3 million, Ohio will send out a check for $3 million, making this a very attractive program.
Federal Historic Tax Credits
can be even more significant in terms of actual dollars put into the project. This program provides a tax credit for 20% of the construction cost of the project. There is no limit on the amount of this credit. The Federal Credit has recently been changed from an immediate credit to be a credit that is spread out over five years. There is no competition for this credit. As long as the requirements are met for this work, the credit is issued to all projects that apply. Like the State of Ohio Historic Tax Credit program, the building in question needs to be on the National Register of Historic Places and work that is done to the project must comply with certain national historic preservation design guidelines.
New Market Tax Credits
were put in place to encourage development in the lowest income areas of the country. These low-income areas are determined by Federal Government census tracts. This credit is 39% of the investment amount in the project and is spread out over seven years. This is not related to Historic Buildings, but is focused on breaking the cycle of non-investment in these low-income areas.
is a Federal program that allows the owner of a renovated or new building to take a deduction on their taxes for up to $1.80 per square foot of the building area. For larger buildings this can have significant cost savings. For example a 100,000 sf building with a full $1.80 per sf tax deduction could save the owner of the building who is in the 35% tax bracket $63,000 in taxes. If the building was put into service in 2015 or later, taxes can be refiled to take advantage of this benefit.
are the Wild, Wild West of tax strategy. These zones are brand new and the rules are still being developed. The premise is that certain low-income geographical area have been designated by each state as Opportunity Zones. As an incentive for those individuals that may wish to diversify their investments (perhaps they own shares in a startup business that has increased in value) but would be required to pay capital gains to move their money to a different place, capital gains are deferred if the money is invested into a fund which invests in the Opportunity Zone. The tax on capital gains from the original investment is deferred for up to 7 years and then reduced by 15%. In addition there is no tax on the capital gains from the investment in the Opportunity Zone.
Renewable Energy Tax Credits
have been part of the Federal incentives for installing solar panels, wind energy, geothermal and solar hot water. The Federal government issues a tax credit of 30% of the cost of the installation of these systems that produce renewable energy. Several States add to the tax credit. Ohio used to match the Federal tax credit so that the government would pay for 60% of the installation. The matching program in Ohio has not been renewed, but it still exists in many states.
There are multiple tax incentives that are related directly to building or renovating buildings with Other People’s Money. We encourage you to discuss how we can help you find avenues to make your project more economically feasible.
To read more about State Tax Credits for Historic Preservation click here.
*Jim Loveman and Curt Dwyer of Amerimar Realty Contributed to this Article.