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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3375
Experience:  Over 20 Years experience
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Our historic Condo building seeks to claim the IRS 20% rehabiliation

Customer Question

Our historic Condo building seeks to claim the IRS 20% rehabiliation credit for historic structures.
The credit specifies that it is for income producing properties. The condo association has income from a lease on part of the property, and assessments are listed as exempt income on 1120-h.Can a condo association claim this credit for renovations on the historic structure?
Submitted: 4 years ago.
Category: Tax
Expert:  R. Klein, EA replied 4 years ago.
The credit is only for TAXABLE INCOME-producing properties. If your condo association does not have taxable income, it does not qualify.
Tax Exempt Use Property
The rehabilitation tax credit is not allowed for expenditures with respect to property that is considered be tax exempt use property. Under the tax-exempt entity leasing rules of 168(h) the threshold to determine if a disqualified lease exists has been raised from more than 35% to more than 50%. The provision is effective for expenditures properly taken into account for periods after December 31, 2007.
Customer: replied 4 years ago.
The property does have taxable income from a rooftop lease.
Expert:  R. Klein, EA replied 4 years ago.
Unless that represents more than 50% of total income, then it does not qualify.
Customer: replied 4 years ago.
Ok, thanks for the quick response. We may sell the lease for a one-time, lump sum this year. If we did so, the income from that sale would be 75%+ of 2013 income, and would be taxable, but this would only be for 2013. Would the association be able to qualify on this basis?
Expert:  R. Klein, EA replied 4 years ago.
That is not rental income. That would be capital gain income. Still not qualified.
Customer: replied 4 years ago.
Alright, last possibility: Could one of the constituent owners, who uses their unit for 100% rental purposes, personally finance building renovations and claim the tax credit, and receive benefit or reimbursement from the rest of the owners in some future way that would not disqualify them from the credit?
Expert:  R. Klein, EA replied 4 years ago.
No. The credit requires the building to qualify, not one beneficial owner. This project does not qualify. Simple as that.