South Carolina Abandoned Buildings Revitalization Act Provides New Tax Credit

On June 11, 2013 the “South Carolina Abandoned Buildings Revitalization Act” was signed into law by the Governor.  The Act provides new incentives for the rehabilitation, renovation, and redevelopment of abandoned buildings in South Carolina.  Taxpayers meeting the requirements of the Act can receive a tax credit equal to 25% of the cost of rehabilitating property against either (1) state income taxes and corporate license fees, or (2) property taxes.

In order to qualify for the credit a taxpayer must rehabilitate an abandoned building for commercial use.  A building with an immediate preceding use as a single-family residence cannot qualify for the credit.  A building is considered to be abandoned if 66% of the space in the building has been vacant or nonoperational for five years.  Rehabilitation expenses (which can include, among other costs, demolition, site improvements, new construction costs) must be: (1) more than $250,000 for a site located in a county with a population exceeding 25,000; (2) more than $150,000 for a site located in a county with a population of 1,000-25,000; or (3) more than $75,000 for a site located in a municipality with a population of less than 1,000.  A project will generally meet the commercial use requirement if it involves an income producing purpose.  The construction of a single-family residence or the construction of an educational institution does not meet the commercial use requirement.

A taxpayer must file a notice of intent to rehabilitate before beginning a project in order to receive a credit for all costs of the rehabilitation.  Costs incurred before filing a notice of intent to rehabilitate do not qualify for the credit.  The notice of intent to rehabilitate is filed with the South Carolina Department of Revenue if a taxpayer elects to receive a credit against income taxes and license fees.  If a taxpayer elects to receive a credit against property taxes, the notice of intent to rehabilitate is filed with the municipality where the site is located, or county if the site is located in an unincorporated area.

A notice of intent to rehabilitate must include, among other information, an estimate of the rehabilitation expenses that will be incurred.  The credit a taxpayer may ultimately receive may be limited or eliminated based on the estimated expenses included in a notice of intent to rehabilitate.  Actual expenses which exceed 125% of the estimate are disregarded when determining the amount of the credit.  If actual expenses are less than 80%, then no credit is allowed.

A taxpayer who elects to receive a credit against income taxes and license fees receives a credit equal to 25% of the rehabilitation expenses incurred.  However, expenses exceeding 125% of the estimate included with the notice of intent to rehabilitate are disregarded and a taxpayer must incur expenses that are at least 80% of the estimate in order to receive any credit.  The credit is available once the site is placed in service and is taken ratably over five-years.  The amount of credit claimed in any year may not exceed 50% of a taxpayer’s liability and unused credits may be carried for five years.  The credit is capped at $500,000 per abandoned building.

A taxpayer who elects to receive a credit against property taxes receives a credit that may not exceed 25% of the rehabilitation expenses incurred.  Here again, expenses exceeding 125% of the estimate included with the notice of intent to rehabilitate are disregarded and a taxpayer must incur expenses that are at least 80% of the estimate in order to receive any credit.  The credit for property taxes requires approval of local taxing entities, a public hearing, and specific ordinance approval by a municipality or county.  The approval ordinance must provide for the credit to be taken as a credit against no more than 75% of the property taxes otherwise due for up to eight years.  There is no otherwise applicable cap on the property tax credit.

Taxpayer Impact

The Act provides taxpayers with an new incentive to rehabilitate abandoned properties.  A wide variety of projects can qualify for the credits, including not only traditional rehabilitation projects but also projects that involve demolition and rebuilding.

The credits are not provided automatically and require a taxpayer to take affirmative steps before beginning a project.  Taxpayers should carefully consider whether income tax credits or property tax credits are desired.  If property taxes are desired, planning will need to begin well in advance of the project to ensure that all local taxing entities will approve the credit.

A taxpayer who qualifies for the credit allowed by the South Carolina Abandoned Buildings Revitalization Act and the credit allowed pursuant to the Textiles Communities Revitalization Act or the Retail Facilities Revitalization Act may claim one of the three credits (a taxpayer is not disqualified from claiming any other tax credit).  The Textiles Communities Revitalization Act and the Retail Facilities Revitalization Act provide credits similar to the South Carolina Abandoned Buildings Revitalization Act.  There is some overlap between the credits, however, a taxpayer must carefully evaluate each of the acts to determine eligibility which may be solely under one the Acts or under both the South Carolina Abandoned Buildings Revitalization Act and either the Textiles Communities Revitalization Act or the Retail Facilities Revitalization Act.

About the Author

Jeffrey T. Allen
Jeff focuses his practice on business and tax matters. He provides advice to clients on a variety of transactional matters and represents clients in tax controversy matters before the South Carolina Department of Revenue (DOR), Internal Revenue Service (IRS), South Carolina Administrative Law Court, United States Tax Court and United States District Court.