incentives for historic preservation in detroit michigan tax incentives part i: michigan historic...
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Incentives for Historic Preservation in Detroit
Michigan Tax Incentives Part I:Michigan Historic Tax Credits and OPRA
Detroit Athletic ClubJune 5, 2008
Presented by:Gordon [email protected]
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Michigan Tax Incentives
Overview of Agenda
Michigan Incentives Available Historic Tax Credit Obsolete Property Tax Freeze (OPRA) Brownfield Incentives
• SBT Credits
• Tax Increment Financing (TIF) Neighborhood Enterprise Zone (NEZ)
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Michigan Tax Incentives
Incentives: Key Questions
What are the benefits?
What are the eligibility requirements?
What else do you have to do?
What are the drawbacks/limitations?
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Michigan Tax Incentives
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Michigan Tax Incentives
What are the benefits? State tax credit
• Credit = 25% of QRE
• Must be reduced by available Federal credit Can be used to offset MBT or MI Income Tax Claimed in year completed rehab certificate is
issued May be assigned (but not re-assigned):
• To owners of pass-through entities
• Can assign pro-rata or 100% to a single owner
• Typically “sold” for $.50 to $.85 per $1 of credit
Michigan Historic Tax Credits
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Michigan Tax Incentives
What are the eligibility requirements? Eligible property
• Includes buildings, structures, sites, objects, features and open spaces
o Individually listed on National or State Register of Historic Places, or
o Located in National, State or local historic district
• Can be non-income-producing (i.e., owner occupied residence)
• Tax-exempt use property
o Can be owned by tax exempt entity if leased to unrelated taxpayer
o Can be leased to tax-exempt entity on long-term lease
Michigan Historic Tax Credits
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Michigan Tax Incentives
What are the eligibility requirements (continued) ? Eligibility of rehabilitation
• QRE = same definition as Federal credit
• QRE must exceed
o 10% of SEV, or
o 5% of appraised value, if no SEV
• Certificate of completed rehabilitation must be issued not more than 5 years after the rehabilitation certified by State
• QRE must be paid within 5 years of certification of rehab plan for historic resource not eligible for Federal credits
Michigan Historic Tax Credits
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Michigan Tax Incentives
What else do you have to do? Secretary of Interior’s Standard Guidelines apply for
Rehabilitation Plan State Historic Preservation Office (SHPO) reviews
federal Historic Preservation Certification Application SHPO issues Verification of Eligibility after Federal Part
III approval Fee = $0 to $2,500 Credit claimed on Michigan Form 3581 Credit is assigned by submitting to Michigan
Department of Treasury Michigan Tax Credit Assignment Form 3614 and securing approval
Michigan Historic Tax Credits
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Michigan Tax Incentives
What else do you have to do (continued)?Contact Information: Robb McKay
Federal historic tax credits
517-335-2727 Bryan Lijewski
State historic tax credits
517-373-1631
Michigan Historic Tax Credits
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Michigan Tax Incentives
What are the drawbacks/limitations? Credit reduces Federal deduction for state taxes Construction costs to comply with rehab standards Reduced depreciation
• Must reduce basis of building by amount of Federal credit (if any)
• Can’t claim bonus depreciation on leasehold improvements
Recapture
• 5 year compliance period
• Prorata vesting Potential taxability of proceeds from “sale” of credits
Michigan Historic Tax Credits
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Michigan Tax Incentives
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Michigan Tax IncentivesFederal Tax Impact of
State Tax Credits
State credit pricing depends upon federal tax treatment
Federal tax treatment depends upon assignment structure
Structuring alternatives Credit transferred via sale of certificate Credit transferred via partnership allocation
Pricing Certificate = up to $.90 Partnership allocation = $.50 to $.75
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Michigan Tax IncentivesFederal Tax Impact of
State Tax Credits(continued)
Assignor’s treatment - Generally Credit transferred via sale of certificate
Ordinary income upon receipt
CCA 200211042 - Missouri Credit transferred via partnership allocation
Capital gain upon disposal of LLC interest (reversal of difference between inside and outside basis)
Mandatory basis reduction could accelerate income and convert income to ordinary
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Michigan Tax IncentivesFederal Tax Impact of
State Tax Credits (continued)
Assignee’s treatment - Generally Credit transferred via sale of certificate
Ordinary deduction when credit is used to pay state tax
PLR 200348002
CCA 200445046 - Massachusetts Credit transferred via partnership allocation
Capital loss upon put/call exercise
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Michigan Tax IncentivesFederal Tax Impact of
State Tax Credits(continued)
Can ordinary income/deduction treatment apply to credits transferred via partnership allocations? Maybe – If substance (vs. form) of
transaction is equivalent to the sale of a certificate credit
AM2007-02
CCA 200704028 and CCA 200704030 Risk that State could disallow assignment
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Michigan Tax Incentives
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Michigan Tax IncentivesObsolete Property Tax
Freeze (OPRA)
What are the benefits? Allows local government units to abate real
property taxes on the value of renovations to blighted or obsolete structures in eligible communities.
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Michigan Tax Incentives
How does it work? Up to 12 year exemption from Ad Valorem
property taxes on increased value of buildings and improvements
Exemption does not apply to:
• School operating millage and State Education Tax
• Personal property Freezes value of building shell Land remains subject to regular taxes State Treasurer may exempt up to ½ of school
taxes for up to 6 years (limit = 25 per year) Exemption may be transferred with approval
Obsolete Property Tax Freeze (OPRA)
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Michigan Tax Incentives
What are the eligibility requirements? Property must be Blighted or Functionally
Obsolete Property must be either:
• Commercial property
• Residential rental property Must meet “but for” test (wouldn’t occur but for
exemption) Rehab must exceed 10% of FMV before rehab
Obsolete Property Tax Freeze(OPRA)
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Michigan Tax Incentives
What else do you have to do? Qualified local governmental unit must establish
an Obsolete Property Rehabilitation District Owner of obsolete property files application for
exemption with local unit’s clerk (Form 3674) Local unit approves application State Tax Commission approves application and
issues exemption certificate
Obsolete Property Tax Freeze(OPRA)