The owners of small commercial properties in Maryland historic districts should take note of the Maryland Sustainable Communities Small Commercial Tax Credit, a new state income tax credit that may be available to them as of January 1, 2015. This new program—administered by the Maryland Historical Trust (MHT) and similar to programs previously available to larger commercial projects and homeowners— targets commercial projects with between $5,000 and $500,000 in qualifying expenditures.

Qualifying small commercial projects could earn a state income tax credit equal to 20 percent of qualified rehabilitation expenditures (capped at $50,000 in a 24-month period). The tax credit is available on a “first-come, first-served” basis to any project that meets the credit requirements until a total of $4 million in credits is awarded statewide.

Eligibility Requirements

To be eligible for the tax credit, a building must:

  • Be located within a Maryland Sustainable Community
  • Be used primarily as an income-producing property and have not more than 75 percent residential rental use (measured after the rehabilitation is completed)
  • Have total qualifying rehabilitation expenditures not exceeding $500,000
  • Be a certified historic structure, meaning that a building must be one of the following:
    • Listed individually in the National Register of Historic Places or be a structure that contributes to the significance of a National Register Historic District
    • A locally designated structure or a structure that contributes to the significance of a local historic district that the MHT designates as eligible for the National Register
    • Located within and certified as contributing to the significance of a certified heritage area

Qualifying Work

For rehabilitation costs, including design fees, to be eligible for the credit, the MHT must review and approve an owner’s application prior to the date those costs are incurred. Proposed rehabilitation work must meet the Secretary of the Interior’s Standards for Rehabilitation.

The tax credit may be used for projects that restore a structure through repair or alteration while preserving aspects of the structure, site, and environment that are historically, architecturally or culturally significant. Work that is primarily remodeling of otherwise functional areas, landscaping, and interior décor generally are not eligible. The MHT’s credit application lists the following as examples of eligible and ineligible work:

  • Eligible: Roof repair and replacement; chimney repair and lining; window restoration; new storm doors/windows; masonry repointing; floor refinishing; structural repairs; plumbing, electrical, and mechanical systems; architectural/engineering/consulting fees; tool/equipment rental; and repair of historic outbuildings
  • Ineligible: Landscaping; sidewalks; patios; driveways; non-historic outbuildings; appliances; new construction; carpeting over historic flooring; curtains, blinds, or rugs; tool/equipment purchases; pest control; chimney and drain cleaning; etc.

Local and Federal Tax Credits

The Small Commercial Tax Credit may be used with federal and local historic tax credits. The MHT reviews federal applications in coordination with the National Park Service (NPS), and federal applications should be submitted to the MHT and the NPS simultaneously for a streamlined review. For local credits, the process for MHT and local approvals is separate.

Recapture and Expiration

All or a portion of the credits are subject to recapture if disqualifying work (generally work that would not qualify for the credit) is performed or the property is sold in the year that the qualifying work is completed or during any of the following four taxable years.

Unless reauthorized, the small commercial tax credit is scheduled to end on July 1, 2017.

For more information on this new program or about how Ballard Spahr can help you navigate the program’s requirements, please contact Mark Pollak at 410.528.5563 or pollakm@ballardspahr.com


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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