Under the Commercial Revitalization Deduction program, businesses that construct or rehabilitate commercial property in RCs can deduct a portion of the costs of acquisition and rehabilitation over a shorter period of time than permitted under standard depreciation rules. A business can elect a deduction of one-half of "qualifying revitalization expenditures" (QRE) up to $10 million for any one project in the year the building is placed in service OR can deduct all QRE pro-rata over 10 years. Eligible projects include retail, industrial, office and some mixed use properties, but not residential rental property. The CRD also cannot be applied to the cost of the land for a project.
To qualify, a project must receive a CRD allocation from the State of Louisiana (up to $12 million is allocated for each RC in the state from 2002 through 2009). The process involves submitting an application to the Coordinating Responsible Authority (CORA) for the applicable RC. Allocations are awarded to businesses based on several criteria, including the projected number of jobs created as a result of the new construction or renovation. Visit renewallouisiana.com to find contact information for each RC's CORA and to download the application form.
One of the most advantageous and most used parts of the RC Tax Relief Act is the employment tax credit. This incentive targets businesses relocating to an RC with large hiring needs, expanding within an RC, experiencing frequent hiring due to high turnover, or even those with a stable workforce of employees who live in an RC. The incentive allows businesses to take a tax credit of up to $1,500 per employee for qualified wages paid to employees who perform substantially all of their work within the RC and also live within the RC. There are several limitations on qualified employees, and certain types of businesses such as liquor stores, golf courses and gambling facilities are ineligible for the tax credit. Consult Publication 954 for details. Businesses claiming the credit should use Form 8844. The credit is figured separately from the general business credit and should not be carried over to Form 3800.
A special Section 179 expensing provision allows businesses located in an RC to take an extra deduction of up to $35,000 on equipment purchases. This enables them to deduct all or part of the equipment cost the year it is purchased, instead of deducting the expense over a specified recovery period. The deduction can be claimed on certain depreciable property such as equipment and machinery, as long as 85% of the use of the property is in the active conduct of an RC business by a taxpayer in an RC. Since there are strict limits on how much a business can normally deduct under Section 179, this is a major investment incentive and savings opportunity for businesses in RCs, particularly for small businesses. The additional expensing amount is recorded on IRS Form 4562. This form has a special line, along with instructions, for Qualified Renewal Property.
The zero percent capital gains incentive provides a broad opportunity for owners of RC assets, including investors who buy stock in businesses operating in an RC. Taxpayers who purchased an RC asset between Jan. 1, 2002, and Dec. 31, 2009, and hold it for five years or more do not have to count the capital gain from sale or exchange of the asset toward their gross income. A variety of businesses stand to benefit from this incentive: a new business that locates in the RC and issues stock or partnership interests; an existing RC business that wants to issue additional stock or partnership interests; an RC business that purchases real estate or business property in the RC (the property must be used in the RC during the holding period); and investors interested in purchasing stock in an RC corporation. Even RC businesses that invest in substantial improvements to existing buildings can qualify for the capital gains exclusion. Standard definitions for capital gains transactions in the Internal Revenue Code apply. See Publication 954 for additional explanation.
