HISTORIC TAX CREDITS
101
Presented by:
Bryan C. Keller, CPA
Partner In Charge
Real Estate Services Group
Rubin, Brown,Gornstein & Co. LLP
HTC Guidelines

Greater than $250,000


Independent CPA must perform a 100% audit
of all available invoices and proof of payment
CPA must also document any and all accrued
expenses
•
If incurred but not yet paid, applicant must
submit legal agreement outlining scope of work
and time for payment
2
Documentation Guidelines

Back up documentation of all expenditures
must be provided with Form HTC-E

Proof of payment is required
3
Examination

We have examined the accompanying Missouri
Department of Economic Development Historic Tax
Credit Program List of Itemized Project Costs (List)
for the Project. This list is the responsibility of the
Partnership’s management. Our responsibility is to
express an opinion on the List of Itemized Project
Costs based on our examination.
4
Examination

We conducted our examination in accordance
with attestation standards established by the
American Institute of Certified Public
Accountants, and, accordingly, our procedures
included examining, on a test basis, evidence
supporting the amounts and disclosures in the
List and performing such other procedures as
we considered necessary in the circumstances.
We believe that our examination provides a
reasonable basis for our opinion.
5
Examination

The List has been prepared on the basis of the
accounting and reporting practices prescribed by the
Missouri Department of Economic Development.
These prescribed practices are a comprehensive basis
of accounting other than accounting principles
generally accepted in the United States of America.
This report is intended solely for the information and
use of the Missouri Department of Economic
Development and is not intended to be and should not
be used by anyone other than the Missouri Department
of Economic Development.
6
Examination Opinion

In our opinion, the List presents fairly, in all
material respects, the actual cost of the Project
through Date on the basis of accounting
described in the previous paragraph
7
Category of Work
Acquisition Total
Appliances Total
Architectural & Engineering Total
Asbestos & Environmental Remediation Total
Cabinets Total
Carpentry Labor Total
Common Labor Total
Concrete Finishing Total
Concrete Floor Topping Total
Concrete Ramps, Structural Formwork Total
Concrete Ramps-Floors Total
Concrete Removal Total
Concrete Restoration Total
Construction Insurance Total
Construction Period Interest Total
Demolition Total
Developer Fee Total
Electrical Total
Elevators Total
Financing Costs Total
Finish Carpentry Total
Fire Suppression System Total
Fireplace Total
Flashing & Sheet Metal Total
General Requirements Total
Glass & Glazing Total
Gypsum Board Assemblies Total
HVAC Total
Legal/Accounting/Consulting Total
Lumber - Materials Total
Marketing/Management/Start Up Total
Masonry Total
Membrane Roofing Total
Metal Doors & Frames Total
Metal Fabrication Total
Ornamental Metal Fabrication Total
Other Costs Total
Overhead / Supervision Total
Painting Total
Permits Total
Plumbing Total
Postal Specialties Total
Profit Total
Rough Carpentry-Materials Total
Sandblasting Interior Total
Toilet & Bath Accessories Total
Windows Total
Wood Floor Total
Grand Total
Method of
Payment
Date Paid
Contractor
Description of Expenditure
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Acquisition
Appliances
Architecture & Engineering
Environmental
Cabinets
Carpentry Labor
Common Labor
Concrete Finishing
Concrete Floor
Concrete Ramps, Structural Formwork
Concrete Ramps-Floors
Concrete Removal
Concrete Restoration
Construction Insurance
Construction Period Interest
Demolition
Developer Fee
Electrical
Elevators
Financing Costs
Finish Carpentry
Fire Suppression System
Fireplace
Flashing & Sheet Metal
General Requirements
Glass & Glazing
Gypsum Board Assemblies
HVAC
Legal/Accounitng/Consulting
Lumber - Materials
Marketing/Management/Start Up
Masonry
Membrane Roofing
Metal Doors & Frames
Metal Fabrication
Ornamental Metal Fabrication
Other Costs
Overhead/Supervision
Painting
Permits
Plumbing
Postal Specialties
Profit
Rough Carpentry-Materials
Sandblasting
Toilet & Bath Accessories
Windows
Wood Floor
Work
Completed
8/28/98 9/13/2004
Qualified
Rehabilitation
Expenditures Post 8/27/98
Non Qualified
Rehabilitation
Expenditure
$
1,800,000
4,300
277,000
67,000
8,827
163,000
55,540
49,500
31,668
134,745
4,851
96,295
172,278
119,798
600,000
190,718
1,500,000
600,000
119,108
109,105
10,136
204,142
1,651
17,100
165,000
4,861
400,000
250,000
17,755
7,735
71,652
6,750
73,470
9,287
31,336
200,000
15,524
250,000
79,925
75,894
425,000
1,243
180,000
32,743
98,456
332
240,000
1,759
$
—
—
277,000
67,000
8,827
163,000
55,540
49,500
31,668
134,745
4,851
96,295
172,278
113,060
230,000
190,718
1,500,000
560,000
119,108
59,786
10,136
204,142
1,651
17,100
165,000
4,861
400,000
250,000
4,379
7,735
—
6,750
73,470
9,287
31,336
200,000
7,189
250,000
79,925
64,399
425,000
1,243
180,000
32,743
98,456
332
240,000
1,759
$
1,800,000
4,300
—
—
—
—
—
—
—
—
—
—
—
6,738
470,000
—
—
40,000
—
49,319
—
—
—
—
—
—
—
—
13,376
—
71,652
—
—
—
—
—
8,335
—
—
11,495
—
—
—
—
—
—
—
—
$
8,975,484
$
6,600,269
$
2,475,215
8
Category of Work
Acquisition
Method
of
Payment
Date
Paid
Check
Withhold
Check
Check
Check
Check
Check
Check
Check
Wire
Check
Check
Withhold
04/03/03
04/03/03
04/03/03
04/03/03
04/03/03
04/03/03
04/03/03
04/03/03
04/03/03
04/11/03
06/27/03
06/27/03
06/27/04
Bank1
Bank 2
Bank 1
Bank 2
Bank1
Bank 2
Bank 1
Bank 2
Bank1
Bank 2
Bank 1
Bank 2
Bank 1
Accrued Interest - Additional Acquisition Cost
Acquisition Loan Costs
Title Fee
Closing Fee-Buyer
Recording
Acquisition Loan - Lender's Counsel
MSD Fees-Additional Acquisition Cost
Acquisition Legal
Survey
Acquisition Payment at Closing
Seller Financing
Refund of Earnest Money & Purchase Option Cost
Pre-Construction Interest
Check
Check
Check
Check
Check
12/03/03
12/03/03
01/08/04
09/13/04
09/15/04
Vendor 1
Vendor 1
Vendor 1
Vendor 1
Vendor 1
Appliances
Appliances
Appliances
Appliances
Appliances
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
Check
06/27/03
06/27/03
08/06/03
08/06/03
08/06/03
09/04/03
09/04/03
09/04/03
10/09/03
10/09/03
10/09/03
11/06/03
11/06/03
11/06/03
11/06/03
12/03/03
12/03/03
12/22/03
01/08/04
01/08/04
01/08/04
Vendor 1
Vendor 2
Vendor 3
Vendor 1
Vendor 2
Vendor 3
Vendor 1
Vendor 2
Vendor 3
Vendor 1
Vendor 2
Vendor 3
Vendor 1
Vendor 2
Vendor 3
Vendor 1
Vendor 2
Vendor 3
Vendor 1
Vendor 2
Vendor 3
Architectural Fees
Architectural Fees
Engineering
Engineering
Engineering
Engineering
Engineering
Architectural Fees
Engineering
Engineering
Architectural Fees
Engineering - Structural evaluation and Design
Engineering - surveying
Blueprints
Blueprints
Engineering
Architectural Fees
Engineering
Engineering
Engineering
Architectural Fees
Contractor
Description of Expenditure
Acquisition Total
Appliances
Appliances Total
Architectural & Engineering
Work
Completed
8/28/98 9/13/2004
$
Qualified
Rehabilitation
Expenditures Post 8/27/98
3,189 $
16,554
125
125
137
6,000
58
1,457
2,225
1,400,000
211,000
27,500
131,630
1,800,000
Non Qualified
Rehabilitation
Expenditure
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
3,189
16,554
125
125
137
6,000
58
1,457
2,225
1,400,000
211,000
27,500
131,630
1,800,000
2,297
238
213
828
724
4,300
—
2,297
238
213
828
724
4,300
25,000
32,000
1,290
4,960
1,600
3,360
15
32,643
2,960
10,270
50,000
5,600
1,960
27
113
505
61,392
5,580
6,740
490
11,505
25,000
32,000
1,290
4,960
1,600
3,360
15
32,643
2,960
10,270
50,000
5,600
1,960
27
113
505
61,392
5,580
6,740
490
11,505
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9
Qualified Rehabilitation Expenses

Qualified Rehabilitation Expenses only are
eligible for tax credits

Qualified rehabilitation expenses include…
•
Any expenditures for a structural component of a
building, including:
– Walls
– Partitions
– Floors
– Ceilings
– Paneling
10
Qualified Rehabilitation Expenses

Qualified rehabilitation expenses include…

Any expenditure for a structural component of a
building, including:
•
•
•
•
•
Tile
Windows
Doors
HVAC systems
Plumbing
11
Qualified Rehabilitation Expenses

Qualified rehabilitation expenses include…

Plumbing and plumbing fixtures
 Electrical wiring and lighting fixtures
 Chimneys
 Stairs
 Elevators/escalators
 Sprinkler systems
12
Qualified Rehabilitation Expenses

Soft Costs:








Construction period interest, excluding acquisition
interest
Construction period taxes/insurance
Architect fees
Professional fees
Engineering fees
Construction management costs
“Reasonable” development fees
Construction financing fees/costs
13
Costs Ineligible for
Historic Tax Credits









Acquisition costs, acquisition related interest
Appliances
Additions or enlargements (decks, porches, enclosing
open areas, adding rooms/floors)
Unattached cabinets
Carpeting (if tacked in place and not glued)
Demolition (interior demo includable)
Fencing
Financing fees (permanent financing)
Furniture
14
Costs Ineligible for
Historic Tax Credits









Leasing expenses
Outdoor lighting
Parking lots/paving
Planters
Retaining walls
Sidewalks
Signage
Storm sewer construction
Window treatments
15
Federal Credit Calculation
Total Development Costs
Ineligible Costs
Credit Eligible Costs
Federal Credit %
Federal Historic Tax Credit
Limited Partner Ownership %
Federal Credit to LP
Equity “pricer”
Limited Partner Equity
$10,000,000
(1,000,000)
$9,000,000
x 20%
$1,800,000
x 99%
$1,782,000
x .90
$1,603,800
16
Who can use the credit?

The person(s) and/or entity who holds title to the
property




Widely held C corporations
Real estate professionals (subject to participation and
eligibility rules)
Individuals (with limitations)
Limitations:
•
•
•
Passive activity rules
Credit not available against AMT
Unused credits can be carried back one year and forward
for 20 years
17
Who can use the credit?

A lessee of a building can claim the tax credit


A lessee who incurs the cost of rehabilitation
and who has a lease term greater than the
recovery period, can claim the tax credit on
qualified rehabilitation expenditures
A building owner, who is not tax exempt, who
incurs the cost of rehabilitation, can elect to pass
the tax credit to its lessee
18
Claiming the Credit


Federal Form 3468
Attachment to Form 3468 (1.4-12(b)(2)(viii)





Beginning/ending dates of measuring period
Adjusted basis of building as of beginning of measuring
period
Amount of QRE incurred or treated as incurred during
measuring period
Copy of final certification of completed work by
Secretary of the Interior
If adjusted basis includes that of a 3rd party, must attach
statement by 3rd party as first day of holding period,
measuring period and adjusted basis calculation
19
Credit Recapture Rules
Rehab credits are subject to recapture if the
building is sold or ceases to be business use
property.
 No recapture required after 5 years from placed
in service date.
 Recapture Schedule:


Year 1
 Year 2
 Year 3
100%
80%
60%
Year 4
Year 5
After Year 5
40%
20%
None
20
State Credit Calculation
Total Development Costs
Ineligible Costs
Credit Eligible Costs
State Credit %
State Historic Tax Credit
Limited Partner State Credit %
State Credit to LP
Equity “pricer”
Limited Partner Equity
$10,000,000
(1,000,000)
$ 9,000,000
x 25%
$ 2,250,000
x 100%
$ 2,250,000
x .80
$ 1,800,000
21
Other Issues/Topics
Tax exempt entities
 Disqualified leases
 At risk rules – 704(b)
 Combining with other tax credit programs
 Deferred developer fees
 Application/Final Approval/Transfer Forms



Federal
State
22