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Take advantage of new Abandoned Buildings Act and Tangible Property Regulations

The new year brings new opportunities for the real estate community and those who own commercial property in South Carolina. The impact of the recently released South Carolina Abandoned Buildings Revitalization Act will allow a South Carolina tax credit for up to 25 percent of the expenses incurred to redevelop an abandoned building. The incentive starts for projects completed in 2014 through 2019, and should be considered when determining net cost or whether to pursue a rehabilitation project.

Also released in 2013 were federal Tangible Property Regulations (TPR), which will affect capitalization policies for businesses in 2014 and beyond. Both the South Carolina Abandoned Building credit and TPR are facts- and circumstances-based.

Here’s an overview of how the Act and final Tangible Property Regulations are affecting real estate property holders in South Carolina.

Abandoned Buildings Credit

 

The South Carolina Abandoned Buildings Revitalization Act created new tax incentives for rehabilitating, renovating and redeveloping qualifying abandoned buildings beginning in 2014. To qualify for the credit, the abandoned building or structure must have been continuously closed for business, or non-operational for income-producing activity, for a period of at least five years preceding the date on which the new owner files a Notice of Intent to Rehabilitate (NIR). The NIR should be filed before any expenses have been incurred at the building site.

To qualify for the credit, the taxpayer must incur these expenses:

 

  • More than $250,000 must be spent for qualifying buildings located in unincorporated counties or municipalities with populations of greater than 25,000 (in most recent U.S. census).
  • More than $150,000 must be spent for qualifying buildings located in unincorporated counties or municipalities with populations of at least 1,000 but not more than 25,000.
  • More than $75,000 must be spent for qualifying buildings located in a municipality with a population of less than 1,000.

There are also certain applicable limitations on the amount of the credit the taxpayer may receive. A taxpayer may claim up to a 25 percent South Carolina credit for qualifying expenses. The credit will offset a taxpayer’s South Carolina tax liability dollar for dollar up to 50 percent of the total liability with the balance carrying forward.

The credit is also transferrable to other taxpayers, making it favorable for real estate developers. Taxpayers who wish to utilize this credit should understand the other requirements to qualify and how they relate to a specific site.

Capitalization Policy

 

Also issued in late 2013 and coming into effect in the New Year is the final Tangible Property Regulations (TPR) Act. This comprehensive regulatory package not only changes the rules regarding whether costs are required to be capitalized or expensed, but it also affects the tax treatment of acquisition, improvement and disposition costs for all tangible property, including buildings.

Tax authorities view the new regulations as favorable to taxpayers, containing de minimis expensing safe harbor rules for costs that meet certain requirements. Whether property is leased or owned, companies will need to make changes to their current capitalization policies to avoid the risk of noncompliance. These changes need to be effective as of Jan. 1.

The final TPR contain rules for:

 

  • Materials and supplies
  • Capitalization of improvements/unit of property definitions
  • De minimis thresholdDispositions/retirements of building components (proposed)

 

What to Do Now

 

The complex rules surrounding compliance and possible necessary changes to your accounting methods will require strategic planning to take advantage of these tax savings. Three suggested action items when addressing the Abandoned Buildings Revitalization Act and TPR would be to:

  • Prioritize – Put in place written policies and procedures as soon as possible at the beginning of this tax year.
  • Identify opportunities – Take a look at the structural building components to see where action could take place to provide tax savings.
  • Create a timetable – Many of the regulations associated with the South Carolina Abandoned Buildings Revitalization Act or Tangible Property Regulations are complex and will take time to understand. Those with a proper timetable and those who will be able to put in the effort will receive the most favorable changes under these new regulations.

 

Consult with your tax advisor before implementing any strategies associated with the South Carolina Abandoned Buildings Revitalization Act or Tangible Property Regulations.

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