Hotel rehab projects may be eligible for tax credits. (Hotel Development).Attention all hotel owners: Did you know that federal tax credits can be used as a financing source for a substantial rehabilitation of a hotel? If your building is a pre-1936 or historic structure, the renovation work could qualify for federal rehabilitation tax credits, representing up to 20% of qualified rehabilitation expenditures. More importantly, these rehabilitation tax credits can be transferred to an institutional investor Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. in exchange for additional equity capital. Through the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. Section 47, the federal government offers lucrative rehabilitation tax credits to encourage preservation and adaptive reuse Adaptive reuse is the process of adapting old structures for new purposes. When the original use of a structure changes or is no longer required, as with older buildings from the industrial revolution, architects have the opportunity to change the primary function of the of historic and pre-1936 buildings. Calculated as a percentage of the eligible rehabilitation expenses, federal tax law offers a 20% tax credit for substantial rehabilitations of non-historic, non-residential buildings built before 1936. A substantial rehabilitation means that a taxpayer's rehabilitation expenditures during a 24-month or 60-month measuring period must exceed the aggregate "adjusted basis" of the building. The adjusted basis is generally defined as the purchase price, minus the value (or cost) of the land, plus the value of any capital improvements made since the building acquisition, minus any depreciation already claimed. The federal tax credit program for historic buildings is administered by each state's historic preservation Historic preservation is the act of maintaining and repairing existing historic materials and the retention of a property's form as it has evolved over time. When considering the United States Department of Interior's interpretation: "Preservation calls for the existing form, office and requires approval from the National Park Service, a division of the U.S. Department of the Interior. In contrast, the 10% rehabilitation tax credit for substantial rehabilitations of non-historic, non-residential buildings built before 1936 is a single IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. tax form submission and requires no federal or state involvement. These tax credits can be either used to offset the building owner's federal income tax liability or transferred to an institutional investor in exchange for additional equity capital that can be utilized for long-term financing Long-term financing Liabilities repayable in more than one year plus equity. o f the project. Because the Internal Revenue Code's Passive Activity Rules and Alternative Minimum Tax Regulations severely limit and, sometimes, prohibit the use of tax credits by individuals, many building owners syndicate the tax credits to a third-party institutional investor who can utilize the tax credits. Syndicated tax credit transactions require the tax credit investor to be admitted into a legal entity, such as a limited partnership or limited liability company that will either own the building or hold a long-term operating lease Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. on the building. In these circumstances, the tax credit investor acts as either the limited partner or investor member while the building owner serves as either the general partner or managing member. When visiting any metropolitan area, odds are at least one hotel renovation can be found underway that is eligible for the federal rehabilitation tax credit. Such examples might be the restoration of a historic hotel to its original grandeur coupled with all the conveniences of contemporary culture, the adaptive reuse of a vacant office building into a luxurious four-star hotel, or the rehab conversion of a residential estate into a quaint bed and breakfast. However, one question always comes to mind ... Does the hotel owner realize that the renovation work qualifies for federal rehabilitation tax credits? ROBERT PLOTKA MANAGINC DIRECTOR CITYSCAPE (company) CityScape - A re-seller of Internet connections to the PIPEX backbone. E-Mail: <sales@cityscape.co.uk>. Address: CityScape Internet Services, 59 Wycliffe Rd., Cambridge, CB1 3JE, England. Telephone: +44 (1223) 566 950. CAPITAL GROUP, LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control |
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