Current through Register Vol. 48, No. 38, September 20, 2024
a) A corporation that is a "financial
organization" within the meaning of IITA Section 304(c) may subtract an amount
included in its taxable income as interest income from a loan or loans made by
such taxpayer to a borrower, to the extent that such a loan is secured by
property which is eligible for the enterprise zone investment credit (IITA
Section 203(b)(2)(M)) or the river edge redevelopment zone investment credit
under IITA Section 201(f). The subtraction for interest from loans secured by
property eligible for the enterprise zone investment credit is allowed only for
interest received or accrued prior to August 7, 2012, the effective date of PA
97-905, which repealed this subtraction.
b) Eligible Property. For purposes of this
Section, "Eligible Property" shall mean:
1)
for tax years ending prior to June 8, 1984 (the effective date of PA 83-1114),
property for which the borrower had successfully claimed the credit under IITA
Section 201(h) (prior to recodification as IITA Section 201(f) by PA 85-731);
and
2) for tax years ending on or
after June 8, 1984, property that is "qualified property" as defined under IITA
Section 203(f)(2) and Section
100.2110(e)
or that would have been qualified property under those provisions if placed in
service in an enterprise zone at the time it was new by a taxpayer otherwise
eligible to claim the credit under IITA Section 203(f).
c) Portion of Loan Secured by Eligible
Property. To determine the portion of a loan that that is secured by Eligible
Property, the entire principal amount of the loan between the taxpayer and the
borrower should be divided into the basis of the Eligible Property which
secures the loan, using for this purpose the original basis of such property on
the date it was placed in service in the enterprise zone or the river edge
redevelopment zone. The subtraction modification available to the taxpayer in
any year under this Section shall be the portion of the total interest paid by
the borrower with respect to such loan attributable to the Eligible Property as
calculated under the previous sentence. (IITA Section 203(b)(2)(M)) There is no
limitation to the length of time for which the subtraction may be taken with
respect to a particular loan.
d)
Basis. For purposes of the computation in subsection (c), the basis of Eligible
Property shall be its borrower's basis in the Eligible Property for federal
income tax purposes, including the costs of any improvements or repairs
included in that basis, but without adjustment for depreciation or IRC section
179 deductions claimed with respect to the property.
e) Examples. This subsection provides
examples of various fact situations and the Department's interpretation of how
this subtraction would apply:
1) EXAMPLE 1.
Bank lends $1,000 to Borrower, secured by Eligible Property with a basis of
$900. The portion of the loan secured by Eligible Property is the $900 basis of
the borrower in Eligible Property divided by the $1,000 principal amount of the
loan, or 90%.
2) EXAMPLE 2. Bank
lends $1,000 to Borrower, secured by Eligible Property with a basis of $1,000
and by other property with a basis of $2000. The portion of the loan secured by
Eligible Property is the $1,000 basis of the borrower in Eligible Property
divided by the $1000 principal amount of the loan, or 100%. The existence of
other property securing the loan is irrelevant.
3) EXAMPLE 3. In 1996, ABC Company built a
new warehouse in an enterprise zone at the cost of $1,000,000 and is able to
claim the enterprise zone investment credit under IITA Section 201(f). ABC
takes out a $2,000,000 loan at Bank A, which then places a lien on the
property. In 1999, when the warehouse had an adjusted basis (after
depreciation) of $900,000 and a fair market value of $1,300,000, ABC refinanced
the loan for the same principal amount, but at a lower interest rate. For both
loans, the portion of the loan secured by Eligible Property is the $1,000,000
original basis in the warehouse divided by the $2,000,000 principal. Neither
the adjusted basis after depreciation nor the fair market value are relevant to
the computation for the refinanced amount.
4) EXAMPLE 4. The facts are the same as in
Example 3, except that, in 2001, ABC Company again refinanced the loan, this
time at Bank B (unrelated to Bank A). There was no change in the principal
amount. Bank B takes a lien on the warehouse to secure the new loan. The
portion of the Bank B loan that qualifies for the subtraction modification is
50% because the principal amount of the loan and ABC Company's original basis
in the property remain unchanged.
5) EXAMPLE 5. Same facts as in Example 4,
except that Bank B purchased the refinanced loan from Bank A. The loan is not
refinanced. ABC continues to pay the same amount, but now pays Bank B rather
than Bank A. Bank B does not qualify for the subtraction modification, which is
allowed only with respect to a loan "made by such taxpayer to a borrower" and
Bank B did not make the loan.
6)
EXAMPLE 6. X Corp., headquartered outside the river edge redevelopment zone,
builds a $100,000,000 warehouse in a river edge redevelopment zone in 2007 and
claims the river edge redevelopment zone credit. X takes out a 20-year loan at
Bank A in the principal amount of $1,000,000. In 2017, X takes out a new
$1,750,000 loan at the same bank and uses $1,000,000 of the proceeds to pay off
the old loan and spends the remaining $750,000 to renovate its corporate
headquarters located outside the zone. Bank A takes a lien on the warehouse as
security for each loan. Because X Corp.'s $100,000,000 basis in the warehouse
exceeds the principal amount of each loan, Bank A is entitled to subtract the
entire amount of interest received from each loan. The portion of the loan
whose interest may be subtracted need not be reduced by the $750,000 portion
not spent inside the river edge redevelopment zone because use of the borrowed
funds is not relevant to the subtraction.
7) EXAMPLE 7. The F Church, located in an
enterprise zone, decides to borrow $500,000 in 2003 from Bank A for roof
repairs and a new addition. The church cannot claim the enterprise zone credit
because it did not have unrelated business taxable income and was not required
to file an IL-990-T for 2003. Bank A may claim the subtraction modification.
The loan is secured by property that is either qualified property or could be
qualified property, and the property has been placed in service within an
enterprise zone.
