Qualifying for Maryland Heritage Rehabilitation Tax Credit as an Investor
As an investor, you must spend at least your adjusted basis on your rehabilitation during a twenty-four month period in order to qualify for the program.
The investor credit is a competitive credit and Investors are not guaranteed the credits as the State of Maryland has imposed a budgetary cap on the amount of credits that may be awarded to investors in a given fiscal year.
As of January 1, 2008, Investors applying for the Maryland Heritage Rehabilitation Tax Credit will be afforded two application periods, January 1 – June 30 and July 1 – December 31. Each year the Governor allocates an amount to the program known as the “Budgetary Cap.” Whatever the fiscal year cap is, let's say $30M for example, it will be divided into two equal portions of $15M. The first $15M will be awarded during the January 1 – June 30 application period and the second $15M will be awarded during the July 1 – December 31 period.
The cap amount changes each year. While you are permitted to spend more than fifteen million dollars on your rehabilitation, any amount exceeding fifteen million dollars will not count toward the credit. In other words, investors are only eligible to receive up to three million dollars per project (there are some other complex issues surrounding this aspect of the law. We encourage you to call us to discuss them).
Additionally, once a tax credit recipient, you are required to keep the building for which you received a credit in compliance with the Secretary of the Interior's Standards for Rehabilitation for five years. If after receiving a tax credit, you do something to the building that does not adhere to these Standards, you must give back a portion of the tax credits that you received, this is known as recapture. The credit vests twenty percent (20%) every year for five years. So if you received a $100,000.00 credit in 2001 and you violated the Standards with new work you did to the building in 2003, two years after you received the credit, you will be required to return sixty percent (60%) of the credit to the State .
Important note about recapture for the Maryland Credit Only:
Last, it is important to consider that this program is an all or none program. What that means is that you can't just decide to do some renovations on your property that qualify and receive the credit on those items and not other renovations that would not qualify. All renovations must qualify and meet the Secretary of the Interior's Standards for Rehabilitation. If you complete 100 tasks in your renovations and 1 of the completed tasks violates the Standards, you will not receive credit for the other 99 tasks that met the Standards. This is one reason why we recommend using a consultant to help assist you in completing this process so as to remove the guess work.