IRS Issues Final Federal Historic Tax Credit Regulations

The Internal Revenue Service (IRS) issued final regulations on the five-year period over which the Federal Historic Tax Credit (HTC) may be claimed, along with other special rules for investment credit property. Proposed regulations were published in May and adopted as final without modification. The regulations include a general rule for calculating the HTC, definitions for the terms “ratable share” and “rehabilitation credit determined,” and rules to coordinate changes to Internal Revenue Code (IRC) Section 47 with special rules in IRC Section 50 relating to dispositions, basis adjustment and income inclusion. The rules will be effective upon publication in the Federal Register. The rule also provides sample illustrative examples of how the new definitions apply to qualified rehabilitation expenditures (QREs). Key definitions:

Ratable Share: Ratable share means, for any taxable year during the five-year period, the amount equal to 20 percent of the rehabilitation credit determined with respect to the qualified rehabilitated building, allocated ratably to each year during such period.

Rehabilitation Credit Determined: The amount equal to 20 percent of the qualified rehabilitation expenditures. However, if the taxpayer claims the additional first year depreciation for the qualified rehabilitation expenditures the term rehabilitation credit determined means the amount equal to 20 percent of the remaining rehabilitated basis.