Rhode Island Code of Regulations
Title 280 - Department of Revenue
Chapter 20 - Division of Taxation
Subchapter 20 - TAX CREDITS/DEDUCTIONS
Part 3 - Historic Structures Tax Credit (280-RICR-20-20-3)
Section 280-RICR-20-20-3.6 - Substantial Rehabilitation; Qualified Rehabilitation Expenditures

Universal Citation: 280 RI Code of Rules 20 20 3.6

Current through December 26, 2024

A. Substantial Rehabilitation.

1. A Rehabilitation of Certified Historic Structure shall be deemed a Substantial Rehabilitation only if the Qualified Rehabilitation Expenditures incurred in the twenty-four (24)-month period selected by the Owner ending within the taxable year in which the Rehabilitation is Placed in Service shall equal or exceed fifty percent of the Adjusted Basis of the Certified Historic Structure as of the beginning of the twenty-four (24) month period. In the case of projects involving multiple buildings (except for phased Rehabilitations addressed in § 3.6(A)(2) of this Part), the Substantial Rehabilitation Test must be met with respect to each building separately based on the Adjusted Basis attributable to each such building and the Qualified Rehabilitation Expenditures attributable to each such building. The twenty-four (24) month period is a measuring period for testing whether the Rehabilitation is a Substantial Rehabilitation. Qualified Rehabilitation Expenditures incurred in connection with the Rehabilitation either before the beginning of the twenty-four (24) month period or after the Rehabilitation is Placed in Service but prior to the end of the taxable year in which the Rehabilitation is Placed in Service may be included in the calculation of the Credit provided the Substantial Rehabilitation Test is met.

2. In the case of any Rehabilitation that may reasonably be expected to be completed in phases set forth in architectural plans and specifications prepared before the physical work on the Rehabilitation begins, at the election of the Owner, § 3.6(A)(1) of this Part may be applied by substituting "60 month period" for "24-month period." A Rehabilitation may reasonably be expected to be completed in phases if it consists of two or more distinct stages of development. The Commission may review each phase of a Phased Project as it is presented, and may issue a Certificate for Completed Work upon completion of each Phase. However, an Assignable Historic Preservation Investment Tax Credit Certificate may be issued only upon satisfaction of the Substantial Rehabilitation test for the entire Phased Project. Thereafter, Assignable Historic Preservation Investment Tax Credit Certificates may be issued upon issuance of a Certificate of Completed Work for later phases without again having to meet the Substantial Rehabilitation test. The Applicant may elect to claim the Credit allowable for each completed phase of a Phased Project, upon receipt from the Tax Division of an Assignable Historic Preservation Investment Tax Credit Certificate. Any Credit claimed prior to final certification of the completed Rehabilitation will be contingent upon final certification of the completed Rehabilitation.

B. Qualified Rehabilitation Expenditures.

1. Qualified Rehabilitation Expenditures are those expenses incurred in connection with a Substantial Rehabilitation of a Certified Historic Structure that are properly capitalized to the building and either depreciable under the Internal Revenue Code or made with respect to property (other than the Principal Residence of the Owner) held for sale by the Owner.

2. Amounts are properly capitalized to the building if they are properly includible in computing the depreciable basis of real property under federal income tax law. Amounts treated as an expense and deducted in the year paid or incurred or amounts that are otherwise not added to the basis of real property do not qualify. Amounts incurred for soft costs, including without limitation architectural and engineering fees, survey fees, legal expenses, insurance premiums, development fees and other construction related costs that are added to the depreciable basis of real property satisfy this requirement.

3. Expenses that do not qualify as Qualified Rehabilitation Expenditures include, without limitation:
a. The cost of acquiring a building, an interest in a building (including a leasehold interest) or land. For this purpose, interest incurred on a construction loan, the proceeds of which are used for Qualified Rehabilitation Expenditures (and which is added to the basis of the Certified Historic Building) is not treated as a cost of acquisition.

b. Any expense attributable to an enlargement of a building. A building is enlarged to the extent that the total volume of the building is increased. An increase in floor space resulting from interior remodeling is not considered an enlargement. If expenditures only partially qualify as Qualified Rehabilitation Expenditures because some of the expenditures are attributable to the enlargement of the building, the expenditures must be apportioned between the original portion of the building and the enlargement. The expenditures must be specifically allocated between the original portion of the building and the enlargement to the extent possible. If it is not possible to make a specific allocation of the expenditures, the expenditures must be allocated to each portion on a reasonable basis. The determination of a reasonable basis for an allocation depends on factors such as the type of improvement and how the improvement relates functionally to the building. Example: Historic Rehabilitation project includes a new rear wing. A new air-conditioning system and a new roof are installed on the building. A reasonable basis for allocating the expenditures between the historic building and the new rear wing generally would be the volume of the historic building (excluding the new wing), served by the air-conditioning system on the roof, relative to the volume of the new wing that is served by the air-conditioning system and the roof.

c. Any expense attributable to the rehabilitation of a Certified Historic Structure, or a building located in a Registered Historic District, which is not a Certified Rehabilitation.

d. Any site work expenses.

e. Any costs of demolition of adjacent structures.

f. Processing Fees imposed under R.I. Gen. Laws §§44-32.2-3(b) and 44-33.2-4(d).

4. Public Grants. Except in the case of nonprofit corporations, there shall be deducted for purposes of calculating the Historic Preservation Investment Tax Credit any funds made available to the Person incurring the Qualified Rehabilitation Expenditures in the form of a direct grant from a federal, state or local governmental entity or agency or instrumentally thereof.

C. Step in the Shoes. The Owner may take into account Qualified Rehabilitation Expenditures incurred in connection with the same plan of Rehabilitation by any other Person who has or had an interest in the building. Where Qualified Rehabilitation Expenditures are incurred with respect to a building by a Person (or Persons) other than the Owner, and the Owner acquires the building or a portion of the building (including a leasehold interest in the building or a portion thereof) to which the expenditures were allocable, the Owner acquiring such property will be treated as having incurred the Qualified Rehabilitation Expenditures actually incurred by the transferor, provided that the Rehabilitation was not Placed in Service by the transferor, and no Credit with respect to such Qualified Rehabilitation Expenditures is claimed by anyone other than the Owner acquiring the property or that Owner's Assignee(s). In such instances, the Measuring Period during which the Substantial Rehabilitation Test must be met shall include the transferor's period of ownership, and the Adjusted Basis against which Qualified Rehabilitation Expenditures are tested shall be the Adjusted Basis of the transferor as of the beginning of the Measuring Period.

Disclaimer: These regulations may not be the most recent version. Rhode Island may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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