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Real Estate Rehabilitation Tax Credit Changes under New Tax Law by Joshua P. Heberling

Posted on December 06, 2018 by Joshua Heberling

The rehabilitation tax credit that provides an incentive for real estate owners to renovate and restore old or historic buildings has been modified under the Tax Cuts and Jobs Act (TCJA) signed into law in December 2017.

Under the new law, taxpayers claiming a 20 percent credit for the qualifying costs they incur to substantially rehabilitate a building must spread out that credit over a five-year period beginning in the year they placed the building into service, which is the date on which construction is completed and all or a portion of the building can be occupied. Excluded from the credit are any expenses that taxpayers incurred to buy the structure.

In addition, the law specifically eliminates the availability of a reduced 10 percent rehabilitation credit for pre-1936 buildings. However, owners of certified historic structures or pre-1936 buildings may qualify for temporary relief under a transition rule when they meet the following conditions:

  • The taxpayer owned or leased the building on Jan. 1, 2018, and he or she continues to own or lease the building after that date.
  • The 24- or 60-month period selected by the taxpayer for the substantial rehabilitation test begins by June 20, 2018.

Qualifying for and claiming the rehabilitation tax credit can be a complicated process for which taxpayers should seek the counsel of professional tax advisors and accountants.

About the Author: Joshua P. Heberling is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he focuses on tax planning and compliance services for high-net-worth individuals and businesses in the commercial real estate, land development and office market industries. He can be reached at the firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.

 

 

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