For real estate investors, tax credits can be tricky. Most investors can save more by classifying fix-ups as deductible repairs rather than depreciable improvements. But in the case of rehabilitation and renovation expenses this may not be the case since you would be eligible to tax either the rehabilitation tax credit or the disabled access credit.
First, the rehabilitation tax credit, you may claim for costs of rehabilitation certified historic structures and non residential buildings built before 1936. The minimum expense to qualify is $5,000 or your basis in the building, whichever is greater. The credit is 10% of what you pay to rehab industrial and commercial buildings placed in service before 1936 and 20% of what you pay to rehab certified historic structures. This will come in handy in downtown Savannah, where a hefty portion of properties qualify for this credit. You may also use the credit to offset up to $25,000 of non-passive income. There is a phase out and it is also subject to a recapture if you sell the property within five years. The rehabilitation credit is a federal credit but most states offer tax credits in addition to the federal credit for historic preservation.
The other option is the disabled access credit which eligible small businesses can claim up to $5,000 in credits for expenses to improved access for the disabled. The “small business” requirements are those with $1 million or less in gross receipts or 30 or fewer full time employees in the prior year. The expenses which are eligible to be offset by this credit include, removing barriers, providing interpreters, or providing or modifying equipment for facilities placed in service before November of 1990. The credit equals 50% of eligible expenses between $250 and $10,250 per year. The credit may be carried back or forward to benefit each business that is eligible for the credit.
One last tidbit, any business can deduct, rather than depreciate, up to $15,000 in “qualified architectural and transportation barrier removal” expenses.
If you have any questions regarding how these tax credits can benefit you or your business, please do not hesitate to contact us.