The owners of mixed use properties in Maryland historic districts should take note of the Maryland Sustainable Communities Small Commercial Tax Credit, a new state income tax credit that may be available to them. This new program—administered by the Maryland Historical Trust (MHT) and similar to programs previously available to larger commercial projects and homeowners—targets commercial projects (defined as income-producing properties with not more than 75 percent rental use) with between $5,000 and $500,000 in qualifying expenditures.
Qualifying small commercial projects could earn a state income tax credit equal to 20 percent of qualified rehabilitation expenditures (capped at $50,000 in a 24-month period). The tax credit is available on a “first-come, first-served” basis to any project that meets the credit requirements until a total of $4 million in credits is awarded statewide. The tax credits may be allocated among the partners, members or shareholders of an owner entity in any manner agreed to in writing.
To be eligible for the tax credit, a building must:
- Be located within a Maryland Sustainable Community
- Be used primarily as an income-producing property and have not more than 75 percent residential rental use (measured after the rehabilitation is completed)
- Have total qualifying rehabilitation expenditures not exceeding $500,000
- Be a certified historic structure, meaning that a building must be one of the following:
- Listed individually in the National Register of Historic Places or be a structure that contributes to the significance of a National Register Historic District
- A locally designated structure or a structure that contributes to the significance of a local historic district that the MHT designates as eligible for the National Register
- Located within and certified as contributing to the significance of a certified heritage area
For rehabilitation costs, including design fees, to be eligible for the credit, the MHT must review and approve an owner’s application prior to the date those costs are incurred. Proposed rehabilitation work must meet the Secretary of the Interior’s Standards for Rehabilitation.
The tax credit may be used for projects that restore a structure through repair or alteration while preserving aspects of the structure, site, and environment that are historically, architecturally or culturally significant. Work that is primarily remodeling of otherwise functional areas, landscaping, and interior décor generally are not eligible.
Local and Federal Tax Credits
The Small Commercial Tax Credit may be used with federal and local historic tax credits. The MHT reviews federal applications in coordination with the National Park Service (NPS), and federal applications should be submitted to the MHT and the NPS simultaneously for a streamlined review. For local credits, the process for MHT and local approvals is separate.
Recapture and Expiration
All or a portion of the credits are subject to recapture if disqualifying work (generally work that would not qualify for the credit) is performed or the property is sold in the year that the qualifying work is completed or during any of the following four taxable years.
Unless reauthorized, the small commercial tax credit is scheduled to end on July 1, 2017.