What abandoned-building credit rules did South Carolina Revenue Ruling 15-7 provide before RR 26-1 superseded it?
Apply this to your situation
This page answers the general question as of 2015. Ezel answers yours, under current South Carolina tax law, with citations.
Plain-English summary
South Carolina Revenue Ruling 15-7 was the Department's 2015 guide to the Abandoned Buildings Revitalization Act. It is no longer controlling: RR 26-1 expressly superseded it and incorporated the later 2016–2024 statutory amendments.
Under RR 15-7, a taxpayer rehabilitating a qualifying abandoned building site could choose either:
- an income-tax-style credit against the taxes listed in the ruling; or
- a locally approved credit against real property tax.
The taxpayer selected the track by filing a Notice of Intent to Rehabilitate before incurring qualifying expenses.
Old income-credit calculation
The estimated rehabilitation expense in the Notice of Intent controlled the old calculation:
- actual expenses below 80% of the estimate produced no credit;
- actual expenses from 80% through 125% produced a credit equal to 25% of actual expenses; and
- actual expenses above 125% capped the credit at 25% of 125% of the estimate.
The old income credit could not exceed $500,000 for each abandoned building site, unit, or parcel. For credits earned on or after June 9, 2015, it was taken in three equal annual installments; earlier credits used five installments. Unused credit could carry forward for five years.
These amounts and periods are historical and were changed by later law summarized in RR 26-1.
Old eligibility rules
RR 15-7 defined an abandoned building as a clearly delineated building or structure with at least 66% of its space continuously closed or nonoperational for income-producing purposes for at least five years before the Notice of Intent.
Each building site had to exceed a location-based minimum rehabilitation spend—more than $75,000, $125,000, or $250,000 under the old rules—and satisfy the Act's purpose and placed-in-service requirements.
The ruling excluded single-family residences and listed categories, and it allowed a building to be divided into separate units or parcels. Each separate site needed its own qualification, minimum expense, estimate, and Notice of Intent.
Notice and expense traps
- Expenses incurred before the Notice of Intent generally did not qualify.
- The taxpayer actually rehabilitating and placing the site in service had to file the notice.
- A protective notice for both credit tracks was not allowed.
- The old ruling generally prohibited amending the estimate or number of units, subject to its temporary October 15, 2015 transition allowance.
- Filing a notice did not itself mean the Department approved eligibility.
Property credit and transfers
The property-tax track required advance notice to the municipality or county, majority approval, a public hearing, and an ordinance. The old ruling allowed the ordinance to offset up to 75% of site property tax each year for up to eight years.
An earned income credit could be transferred with a sale or lease after the site was placed in service under the old rules. Remaining installments could transfer, but unused carryforwards could not, and the transfer did not accelerate annual installments.
Common questions
Q: Is RR 15-7 current guidance?
A: No. RR 26-1 expressly superseded it.
Q: Did spending more always increase the old credit?
A: No. Spending above 125% of the notice estimate was capped, while spending below 80% eliminated the credit.
Q: Could work begin before filing the notice?
A: The ruling generally excluded expenses incurred before the required Notice of Intent.
Q: Could the credit be claimed before the site was placed in service?
A: No. The credit was earned when the qualifying site, phase, or portion was completed and ready for its intended use.
Citations and references
- S.C. Code Ann. Chapter 67 of Title 12 (Abandoned Buildings Revitalization Act)
- S.C. Code Sections 12-67-120 through 12-67-160 (old definitions, calculations, transfers, and certification)
- 2015 Act No. 68 (amendments addressed by RR 15-7)
- SC Revenue Ruling #26-1 (current superseding guidance identified in the corpus)
Subject
Abandoned Building Revitalization Credit
Source
- Landing page: https://dor.sc.gov/advisory-opinion-search
- Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR15-7.pdf
Original ruling text
STATE OF SOUTH CAROLINA
DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 12265, Columbia, South Carolina 29211
SC REVENUE RULING #15-7
SUBJECT:
Abandoned Building Revitalization Credit
(Income and Property Taxes)
EFFECTIVE DATE: Rehabilitation, renovation, and redevelopment of abandoned
buildings begun in tax years beginning after 2012, except as
otherwise provided.
Note: A Notice of Intent may not be amended (see Part 2 of this
advisory opinion), however, for a taxpayer who has filed a Notice
of Intent with the Department and has not placed the qualifying
building site in service, the Department will allow amendments of
the Notice of Intent until October 15, 2015.
REPEAL DATE:
December 31, 2019
SUPERSEDES:
All previous documents and all oral directives in conflict herewith.
REFERENCES:
Chapter 67 of Title 12 (Supp. 2014)
2015 Act No. 68
AUTHORITY:
S.C. Code Ann. Section 12-4-320 (2014)
SC Revenue Procedure #09-3
SCOPE:
The purpose of a Revenue Ruling is to provide guidance to the
public. It is an advisory opinion issued to apply principles of tax
law to a set of facts or a general category of taxpayers. It is the
Department’s position until superseded or modified by a change in
statute, regulation, court decision, or another Department advisory
opinion.
GENERAL OVERVIEW OF ACT
The Abandoned Building Revitalization Act of 2013 (Act) was enacted in Title 12,
Chapter 67 to create an incentive for the rehabilitation, renovation, and redevelopment of
abandoned buildings located in South Carolina.
1
The Act provides that restoration of abandoned buildings into productive assets for the
communities in which they are located serves a public and corporate purpose and results
in job opportunities. To remove and alleviate adverse conditions, including
disproportionate expenditure of public funds, unmarketability of property, area crime,
and abnormal exodus of families and businesses, it is necessary to encourage private
investment and restore the tax base of the taxing districts in which such buildings are
located by the redevelopment of abandoned buildings.
CAVEAT: As a result of amendments to the Act in 2015, there are several differences
between the credit provisions applicable to building sites placed in service before and
after June 9, 2015. These differences are noted throughout this document.
A taxpayer who rehabilitates an abandoned building, incurs rehabilitation expenses
exceeding $75,000, $125,000, or $250,000 at each building site based on the building’s
location, and meets the other Act requirements, is eligible for either a credit against
“income taxes”1 or real property taxes. A taxpayer selects the credit type by filing a
“Notice of Intent to Rehabilitate.”
Income Tax Credit. A taxpayer seeking an income tax credit should file a Notice of
Intent with the Department before incurring any rehabilitation expenses at the building
site. The estimated expense amount reported in the Notice of Intent is used in the
calculation of the income tax credit. If the actual rehabilitation expenses are between
80% and 125% of the estimated rehabilitation expense amount reported in the Notice of
Intent, then the income tax credit is equal to 25% of the actual expenses for each building
site. If the actual rehabilitation expenses exceed 125% of the estimated rehabilitation
expense reported, then the credit for each building site is capped at 25% of 125% of the
estimated rehabilitation expense amount. If the actual rehabilitation expenses are below
80% of the estimated rehabilitation expense amount, then no credit is allowed. The
income tax credit may not exceed $500,000 for each abandoned building site (each unit
or each parcel.) See Part 7 – Examples 1 – 4.
1
A credit is allowed against the income tax imposed under Chapter 6, bank franchise tax under
Chapter 11, savings and loan income tax under Chapter 13, corporate license fee under Chapter
20, or any combination of these taxes. While all of the taxes in Title 12 are not income taxes, the
credit allowed against all of these taxes, is referred to in this advisory opinion as the “income tax
credit” for simplicity. For a credit earned on or after June 9, 2015, the Act allows the credit
against insurance premium taxes, including retaliatory taxes, imposed by Chapter 7, Title 38.
The insurance premium tax is administered by the Department of Insurance. Questions
concerning the use of the credit against insurance premium taxes should be directed to the
Department of Insurance.
2
The entire income tax credit is earned in the tax year the applicable phase or portion of
the building site is placed in service. It is taken, however, in equal installments over 3
years or 5 years2 beginning with the tax year the applicable phase or portion of the
building site is placed in service. Any unused credit can be carried forward for 5 years.
(See Part 7 – Example 3 for the credit calculation of a building site placed in service in
phases).
Property Tax Credit. For the property tax credit, the approval process and credit
provisions differ. A taxpayer seeking a property tax credit should file a Notice of Intent
with the municipality or county where the building site is located before incurring any
rehabilitation expenses at the building site. A proposed rehabilitation of a building site
must be approved by a majority vote of the local governing body. If the county or
municipality determines the site and expenses are eligible for the credit, there must be a
public hearing and the building site must be approved for the credit by ordinance. The
ordinance must provide for the property tax credit to be taken against up to 75% of the
real property taxes due on the building site each year for up to 8 years. The property tax
credit may exceed $500,000.
Purpose of Advisory Opinion. The Act contains a number of requirements including
qualification of the abandoned building, qualification of the expenses incurred in the
rehabilitation, and information required in the Notice of Intent. The rules and
requirements can be complex. This advisory opinion is limited to the basic credit
principles. It provides guidance and examples regarding the provisions of the income tax
credit under the Act and only a general overview of the property tax credit. Special rules
exist for a building or structure listed on the National Register of Historic Places.
NOTE: The Act is repealed on December 31, 2019.
This question and answer document is divided into the following categories:
- Abandoned Building Definitions and Qualifications
- Notice of Intent to Rehabilitate
- Income Tax Credit
- Special Provisions
- Transfer of Credit and Notification to the Department
- Property Tax Credit Overview
- Examples and Additional Guidance
2
For a credit earned on or after June 9, 2015, the credit is taken in equal installments over 3
years. For a credit earned prior to June 9, 2015, the credit is taken is equal installments over 5
years.
3
PART 1 - ABANDONED BUILDING DEFINITIONS AND QUALIFICATIONS
-
Q. What is the definition of an “abandoned building”?
A. An abandoned building is a building or structure (clearly delineated from other
buildings or structures) with 66% or more of the space continuously closed to
business or nonoperational for income producing purposes for at least 5 years
immediately preceding3 the date the taxpayer files a “Notice of Intent to
Rehabilitate.” Special rules for a building or structure listed on the National
Register of Historic Places are discussed in Question 25. Code Section 12-67120(1).
Note: For a building placed in service on or after June 9, 2015, the taxpayer may
apply to the county or municipality in which the building is located for
certification that the building is an abandoned building or state-owned abandoned
building, as defined in Code Section 12-67-120. The taxpayer may conclusively
rely on this certification. A copy must be included with the first tax return for
which the credit is claimed. Code Section 12-67-160.
For a building placed in service before June 9, 2015, the burden of proof of the
abandonment time period is on the taxpayer; there is no county or municipal
certification process. See Part 7 – Examples C and D. -
Q. Can an abandoned building be divided into separate units or parcels?
A. Yes. An abandoned building can be subdivided into separate units or parcels. The
units or parcels may or may not be owned by the same taxpayer. Each unit or
parcel is deemed to be an abandoned building site for purposes of determining
whether each subdivided parcel is abandoned. Code Section 12-67-120(1). - Q. What is the definition of a “building site”?
A. A building site is the abandoned building and the parcel of land it is located upon
and other improvements on the parcel. However, the area of the building site is
limited to the land the abandoned building is located upon and the land
immediately surrounding the building used for parking and other similar purposes
directly related to the building’s income producing use. Code Section 12-67120(2).
3
The 5 year time period of abandonment is a consecutive period based on calendar days; it is not
simply 5 calendar years. For example, the 5 year time period for a building abandoned on April
1, 2010, ends March 31, 2015.
4
4. Q. What types of building sites qualify for the credit?
A. The Act only applies to abandoned building sites or phases or portions put into
operation for income producing purposes and that also meet the purposes stated in
Code Section 12-67-110.
The Act provides that the construction or operation of a charter school, private
school, or other similar educational institution meets the purpose of the Act. Code
Section 12-67-130(B).
The Act specifically does not apply to:
a. A building or structure with an immediate preceding use as a single-family
residence. Code Section 12-67-120(1).
b. The construction of a single family residence. Code Section 12-67-130(B).
c. A taxpayer who owned the building site when it was operational and
immediately prior to its abandonment. Code Section 12-67-140(D).
d. A taxpayer who incurs rehabilitation expenses under $75,000, $125,000, or
$250,000 at the abandoned building site based on the building location. Code
Section 12-67-130(A).
e. A taxpayer whose actual rehabilitation expenses are below 80% of the
estimated rehabilitation expense set forth in the “Notice of Intent to
Rehabilitate.” Code Section 12-67-140(B)(2).
f. A taxpayer who claims the Textile Revitalization Credit in Title 12, Chapter
65, or the Retail Facility Revitalization Credit in Title 6, Chapter 34, for the
building site. Code Section 12-67-140(B)(4).4
- Q. What are “rehabilitation expenses”?
A. Rehabilitation expenses are the expenses or capital expenditures incurred in the
rehabilitation, demolition, renovation or redevelopment of the building site. For
rehabilitation expenses to qualify, the abandoned buildings on the building site
must be either renovated or redeveloped; expenses incurred for demolition of a
building site without subsequent redevelopment do not qualify. Code Section 1267-120(6).
4
A taxpayer claiming the abandoned building credit for a qualifying building site is not prevented
from claiming the Textile Credit or Retail Credit for a different qualifying building site.
5
Below are examples of costs that qualify and costs that do not.
Rehabilitation Expenses Include:
Renovation costs of existing building
(e.g., interior demolition, movement of
walls, replacing floors, ceilings or roofs,
wall to wall carpet, permanent tiles and
paneling, central HVAC systems,
plumbing, electrical wiring, fixtures,
sprinkler systems and elevators)
Redevelopment costs of existing
building
Demolition expenses (i.e., the complete
destruction or removal of a building),
except as otherwise noted
See Part 7 – Example A
Construction of new buildings
Expenses that double the square footage
of an abandoned building (i.e., the
existing building square footage is
increased from 1,000 to no more than
2,000 square feet)
Environmental remediation (e.g.,
abatement of lead paint, removal of
asbestos or mold, removal of
underground oil tanks)
Site improvements (e.g., sidewalks,
fences, and docks)
Other improvements on the building site
(e.g., landscaping, drainage, or paving)
Rehabilitation Expenses Do Not Include:
Cost of acquiring the building, land and other
improvements, including the purchase price
Expenses incurred on an abandoned building
that is not renovated or redeveloped
Demolition expenses if the building being
demolished is on the National Register for
Historic Places
Demolition expenses if the building site is not
redeveloped
See Part 7 – Example B
Expenses incurred prior to sending the
Department a Notice of Intent to rehabilitate
the building site or unit
Expenses associated with the increase in
square footage on a building site more than
double the square footage of the existing
building (e.g., the existing building square
footage is tripled in size from 1,000 to 3,000
square feet; costs of the 1,000 square foot
excess enlargement do not qualify.) See
below for guidance on allocation of excess
enlargement costs.
All expenses when the minimum amount of
rehabilitation expenses based on the building
site location are not incurred (i.e., over
$75,000, $150,000, or $250,000)
All expenses when actual expenses are less
than 80% of the estimated rehabilitation
expense amount reported in the Notice of
Intent
Cost of personal property at the building site
(e.g., furniture, appliances, window
treatments, etc.)
See below for guidance on distinguishing real
property costs from personal property costs
6
Rehabilitation Expenses Include:
Professional fees associated with
redevelopment of the site, including
engineering and architectural fees
Interest costs on a construction loan
Expenses paid from grant proceeds when
the grant money is taxable (i.e., the
taxpayer will have basis)
Expenses paid by the taxpayer under a
“tenant improvement allowance” with
the lessee for improvements to the real
property to customize the space to fit a
tenants needs (e.g., costs incurred for
adding permanent walls, permanent
paneling or tiling, lighting, wiring, and
cable)
Rehabilitation Expenses Do Not Include:
Professional fees associated with the purchase
of the site (e.g., title work, surveying, or
closing costs)
Interest costs to purchase the building site
Expenses paid from nontaxable grant money
Expenses paid under a “tenant improvement
allowance” for personal property costs (e.g.,
cubicles, office furniture, etc.) or moving
costs
All expenses if the building site is not put into
operation for income producing purposes
Additional guidance concerning specific costs as qualifying rehabilitation
expenses are discussed below.
A. Distinguishing Real Property Costs and Personal Property Costs. Whether an
expense is for personal property depends on the facts and circumstances.
Generally, personal property is a movable item of property that is not
permanently affixed to, or part of, real estate. In making this determination,
the Department will consider (1) the mode of attachment; (2) the character of
the structure or the article; (3) the intent of the parties making the annexation;
and, (4) the relationship of the parties. City of North Charleston v. Claxton,
431 S.E.2d 610 (S.C. 1993). In addition, the Department may consider whether
the removal of the property in question would be costly, time consuming,
and/or destructive to the building.5 Note: This determination may be different
for other income tax purposes, such as Internal Revenue Code Section 1245
property.
B. Rehabilitation that Includes Excess Enlargement over Twice the Size of
Original Building. If the square footage on a building site increases by more
than double the square footage of the existing buildings on the site,
rehabilitation expenses associated with the excess enlargement are not
5
The Department has used these guidelines in advisory opinions concerning sales and use taxes
and property taxes. See RR #98-2 (Banks), PLR #09-1 (Residential Water Heater Repair
Program), PLR #07-3 (Equipment and Services for Enhancement of Wireless Communications)
and PLR #07-4 (Signs).
7
qualifying rehabilitation expenses and do not qualify for the credit. The
expenses must be allocated between the qualifying portion of the rehabilitated
building(s) (no more than double the square footage of the original building)
and the non-qualifying portion of the rehabilitated building(s) (i.e., the excess
enlargement). If it is not possible to make a specific allocation of expenses,
expenses must be allocated to each portion on some reasonable basis, such as
reasonable allocation of costs by the contractor or architect based on justifiable
factors (e.g., type of improvement and how the improvement relates
functionally to the building). If a reasonable allocation cannot be determined,
the allocation should be made based upon square footage. Note: An increase in
floor space resulting from interior remodeling is not considered an
enlargement.
C. Allocation of Common Costs Associated with Multiple Units. Common cost
expenses associated with multiple units, such as common areas and parking
garages, must be allocated to each unit on some reasonable basis, such as
reasonable allocation of costs by the contractor or architect based on justifiable
factors. If a reasonable allocation cannot be determined, the allocation should
be made based upon square footage.
D. Determination of When an Expense is Incurred. An expense is incurred by the
taxpayer on the date such expenditure would be considered incurred under the
accrual method of accounting, regardless of the method of accounting used by
the taxpayer with respect to other items of income and expense.
- Q. What minimum requirements must the abandoned building site or phase meet to
be eligible for the credit?
A. The minimum credit requirements for an abandoned building site or phase to be
eligible for the credit are:
a. The abandoned building site or phase is put into operation for income
producing purposes;
b. The abandoned building site or phase meets the purpose of the Act contained
in Code Section 12-67-110 (see Introduction of this advisory opinion for a
summary of the Acts purposes);
c. The abandoned building site or phase is one in which the taxpayer has incurred
a minimum amount of rehabilitation expenses based on the population of the
area in which the building site is located. The minimum rehabilitation expenses
and population criteria for a building site are listed below:
8
Population of Building Location Based on the
Most Recent United States Census:6
Under 1,000 people
1,000 – 25,000 people
Over 25,000 people
Actual Rehabilitation
Expenses Are More
Than:
$ 75,000
$150,000
$250,000
and
d. Actual rehabilitation expenses are 80% or more of the estimated expense
amount reported in the Notice of Intent for the building site. Code Sections 1267-120 and 12-67-130.
The following illustrates the interplay of the Acts requirements in items (c) and (d)
above requiring a taxpayer incur actual rehabilitation expenses of more than
$75,000 - $250,000 based on the building location and incur actual expenses over
80% of the estimated expense amount reported in the Notice of Intent.
Assume a taxpayer rehabilitates an abandoned building located in a county that
requires rehabilitation expenses exceeding $75,000. The taxpayer’s Notice of
Intent reports the following expense for the site:
Estimated Rehabilitation Expense
Reported in Notice of Intent
$75,001
80% of
Estimated
$60,001
Actual
Expenses
$60,001
Since the taxpayer did not incur over $75,000 of actual expenses, the Act
requirement in item (c) above is not met. Accordingly, the taxpayer is not eligible
for the credit.
If, however, the taxpayer reported estimated expense in the Notice of Intent of
$93,751 as illustrated below, this would result in the 80% of estimated amount
being $75,001 (i.e., the minimum expenditure required based on location). If the
actual expenses incurred exceed $75,000, the Act requirements in items (c) and (d)
are met.
Estimated Rehabilitation
Expense Reported in
Notice of Intent
$93,751
6
80% of Estimated
(At least the minimum required
based on location)
$75,001
Actual
Expenses
$75,001
The taxpayer should use the census available at the time the Notice of Intent is filed.
9
7. Q. What taxes may the credit be used against?
A. A taxpayer who rehabilitates an abandoned building is eligible for either:
a. “Income” Tax Credit.7 A credit against taxes imposed under Title 12, Chapter
6 (income tax), Chapter 11 (bank tax), Chapter 13 (savings and loan), Chapter
20 (corporate license fees); Title 38, Chapter 7 (insurance premium tax)8;or
any combination of these taxes or
b. Property Tax Credit. A credit against real property taxes levied by local taxing
entities. Code Section 12-67-140(A).
A taxpayer’s selection of the credit type is made when filing the Notice of Intent
with the Department or with the county or municipality in which the property is
located.
- Q. When can a building site be separate units?
A. Whether separate “units” of a building site each qualify as an abandoned building
is based upon the substance (rather than the form) of the redevelopment. This
determination depends upon the specific facts of each redevelopment. Factors to
consider include, but are not limited to, the operational use or line of business of
each separate unit, the economic activity of each separate unit, the structural
components (e.g., separate firewalls, entrances, HVAC, etc.) of each separate unit,
the sale or lease of the building site as one or more separate properties, subdivision
by plat or the use of the South Carolina Horizontal Property Act9.
Note: A building or a unit within a building that is a single family residence or that
is not put into operation for income producing purposes does not meet the
purposes of the Act. See Question 4.
For simplicity, this credit is referred to as an “income tax credit,” although the bank tax and the
corporate license fee in Title 12 and the insurance premium tax in Title 38 are not income taxes.
8
For a credit earned on or after June 9, 2015, the Act allows the credit against insurance
premium taxes, including retaliatory taxes, imposed by Chapter 7, Title 38. The insurance
premium tax is administered by the Department of Insurance. Questions concerning the use of
the credit against insurance premium taxes should be directed to the Department of Insurance.
9
See the definition of “apartment” in the South Carolina Horizontal Property Act in Code Section
27-31-20. Note: A multi-family residential complex is one economic unit and one abandoned
building site.
7
10
Examples of an abandoned building that is one abandoned building site, and not
separate units, are:
a. A self-service storage building with 50 individual climate controlled storage
units rented to the public;
b. A two-story building with a restaurant on Floor 1 and a private meeting room
for restaurant events on Floor 2;
c. A hotel building with 150 guest rooms, a dining facility, and a fitness facility;
d. A building with temporary walls partitioning 15 separate antique businesses;
and
e. A residential apartment complex, a residential duplex, or a residential
condominium complex (see Part 7, Example H).
Examples of an abandoned building that may be considered separate units (sites),
depending on the particular facts, are:
a. A strip mall comprised of separate and distinct retail stores;
b. A multi-family duplex converted into a duplex office building;
c. A one-level office building leased by three separately owned businesses (e.g., a
hair salon, a real estate office, and a law office) with each having private
access, fire walls, and separate HVAC systems (see Part 7, Example E);
d. A two-story building with a restaurant on Floor 1 and a real estate office on
Floor 2 accessed by a separate side entrance (see Part 7, Example F); and
e. A commercial condominium or a dual purpose condominium (i.e., part
commercial use and part non-commercial use – see Part 7, Example G.)
NOTE: Although a building may contain multiple units, the taxpayer may choose to treat
the entire building as one abandoned building site. If a building is subdivided into units,
it is important to remember that each unit must meet the minimum rehabilitation expense
requirement (i.e., over $75,000 - $250,000 based on location population), each unit must
file a separate Notice of Intent, and each unit must report an estimated rehabilitation
expense in its Notice of Intent. If each unit meets the purpose and requirements of the
Act, then each is eligible for an income tax credit not to exceed $500,000.
11
PART 2 - NOTICE OF INTENT TO REHABILITATE
- Q. Should a taxpayer file a Notice of Intent with the Department or with the county or
municipality?
A. This depends upon whether the taxpayer is seeking the income tax credit or the
property tax credit.10 The requirements are:
Income Tax Credit. The taxpayer must file a Notice of Intent with the Department
before incurring its first rehabilitation expenses at the building site. Rehabilitation
expenses incurred before the Notice of Intent is provided do not qualify. Code
Section 12-67-140(B)(1).
The written Notice of Intent for the income tax credit should be mailed to:
Abandoned Building Credit Notice
Research and Forms Development
South Carolina Department of Revenue
Columbia, SC 29214-0019
Property Tax Credit. The taxpayer must file a Notice of Intent with the
municipality, or the county if the building site is located in an unincorporated area,
where the building site is located before incurring its first rehabilitation expenses
at the building site. Rehabilitation expenses incurred before the Notice of Intent is
provided do not qualify. Code Section 12-67-140(C)(1).
NOTE: If the taxpayer later decides to choose the alternative credit, then a new
Notice of Intent should be filed with the other governmental agency and written
notification of withdrawal of the first Notice of Intent should be provided. All
expenses incurred prior to the filing of the second Notice of Intent, however, will
not qualify for the credit. A Notice of Intent for the same abandoned building or
building site may not be sent simultaneously to the Department and the county or
municipality. - Q. What is the “Notice of Intent to Rehabilitate”?
A. The Notice of Intent to Rehabilitate an abandoned building, including a separate
unit or parcel, is a letter from the taxpayer to the Department or municipality or
county indicating the following information:
10
The Notice of Intent should be filed with the Department of Insurance by a taxpayer seeking to
use the credit against insurance premium taxes.
12
a. A statement of the taxpayer’s intent to rehabilitate the building site, unit or
parcel;
b. The building site, unit, or parcel location;
c. Whether new construction is to be involved;
d. The amount of acreage in the building site;
e. The square footage of existing buildings involved in the building site;
f. The building(s) or unit(s) the taxpayer intends to renovate; and
g. The estimated expenses to be incurred in connection with the rehabilitation of
the building site, unit, or parcel. Code Section 12-67-120(7).
Note: See Question 16 for guidelines to consider when filing the Notice of
Intent to avoid any credit reduction or ineligibility.
-
Q. Who must file the Notice of Intent?
A. The Notice of Intent must be filed by the taxpayer actually rehabilitating the
building site, unit, or parcel and placing the building site in service for its intended
use. In some instances, this may be the developer, the owner of the building, one
or more lessees of the building site or units, or a pass through entity (not the
individual partner, shareholder, or member of the pass through entity). -
Q. When must the Notice of Intent be filed?
A. The Notice of Intent should be filed before any rehabilitation expenses are
incurred at the building site. If the Notice of Intent is filed after expenses are
incurred, then only those rehabilitation expenses incurred after the Notice is
provided may qualify; all previous expenses do not qualify. See Question 5, Item
D. for the method of accounting for expenses. -
Q. Why is the estimated rehabilitation expense amount reported in the Notice of
Intent important and can the Notice of Intent be amended to restate estimated
expenses?
A. A Notice of Intent cannot be amended to revise the estimated rehabilitation
expense amount to be incurred in connection with the rehabilitation of the building
13
site once submitted to the Department. Accordingly, the accuracy of the estimated
expense amount listed in the Notice of Intent is important since the credit
calculation is based on the amount of actual expenses compared to the estimated
expense amount reported in the Notice of Intent (even if the Notice of Intent
inadvertently includes non-qualifying expenses, such as personal property costs).
If actual expenses are less than 80% of the estimated expenses, then no credit is
allowed.
Note: For a taxpayer who has filed a Notice of Intent with the Department and has
not placed the qualifying building site in service, the Department will allow
amendments of the Notice of Intent until October 15, 2015.
-
Q. Does a Notice of Intent have to be filed for each unit if an abandoned building is
divided into separate units?
A. Yes. If a taxpayer chooses to subdivide an abandoned building into separate units,
then each unit is deemed a building site and a separate Notice of Intent must be
filed for each unit. -
Q. Can the Notice of Intent be amended to restate the number of units?
A. No. A Notice of Intent cannot be amended to increase or decrease the number of
units being rehabilitated.
Note: For a taxpayer who has filed a Notice of Intent with the Department and has
not placed the qualifying building site in service, the Department will allow
amendments of the Notice of Intent until October 15, 2015. -
Q. What are some guidelines to consider when filing the Notice of Intent to avoid any
reduction or credit ineligibility?
A. Guidelines to consider when filing the Notice of Intent include:
a. The Notice must contain a specific dollar amount of estimated rehabilitation
expenses for the building site. A range of expenses, such as $1 million to $5
million, is not acceptable.
b. The specific amount of estimated rehabilitation expense reported in the Notice
of Intent should include only those expenses that qualify as rehabilitation
expenses under the Act (see Question 5 for examples). No credit is available if
actual rehabilitation expenses are not 80% or more of the total estimated
expense amount reported in the Notice of Intent.
14
c. Carefully consider and designate whether the abandoned building or structure
qualifying for the credit is to be redeveloped or renovated by the taxpayer as
one or more building sites (units or parcels.) See Part 7 – Example 4.
d. File one Notice of Intent for a building site that is anticipated to be completed
in phases. The one Notice of Intent should report the total of expenses for the
entire rehabilitation; it should not report estimated costs by phases. The
answer is different for a site divided into units. See Part 7 – Examples 3 and 4.
e. File a separate Notice of Intent for each unit or each parcel of a building site.
The separate Notices of Intent for the income tax credit may be mailed
together. It is possible for the taxpayer to select the income tax credit for one or
more units and the property tax credit for other units at the building site. In
such cases, taxpayers selecting the property tax credit should notify the
Department that a Notice of Intent has been submitted to the county or
municipality.
f. A taxpayer may not file a “protective” Notice of Intent with both the
Department and the county or municipality while deciding whether to take the
income tax credit or the property tax credit.
g. A Notice of Intent provided to the Department does not represent approval of
the taxpayer’s eligibility for the credit, approval of the estimated rehabilitation
expenses, or approval of the credit amount.
h. The appropriate taxpayer(s) should file the Notice of Intent. The person who
will be incurring the rehabilitation expenses and placing the site in service is
the person who should file the Notice of Intent.
i. Expenses associated with a building site that increases the amount of square
footage on the building site in excess of 200% of the amount of square footage
of the buildings that existed on the building site as of the filing of the Notice of
Intent do not qualify. For example, if a 1,000 square foot building is tripled in
size from 1,000 to 3,000 square feet, then the expenses attributable to the 1,000
square foot excess enlargement do not qualify.
j. The Notice of Intent cannot be amended to restate estimated expenses to be
incurred in connection with the rehabilitation or to change the number of
building sites or units to be rehabilitated.
Note: For a taxpayer who has filed a Notice of Intent with the Department and
has not placed the qualifying building site in service, the Department will
allow amendments of the Notice of Intent until October 15, 2015.
15
PART 3 - INCOME TAX CREDIT
- Q. When is the income tax credit earned and how many years of credit installments
apply to the credit?
A. The entire credit is earned in the tax year the building site, or applicable phase or
portion of the building site, is placed in service. The credit, however, is taken in
equal installments over 3 or 5 years (see below) beginning with the tax year the
building site, or applicable phase or portion of the building site, is placed in
service. Once the building is placed in service and the credit is earned, there is no
“clawback” provision if the building is not rented, rented to a tax exempt
organization, or the business closes.
For Credits Earned On or After June 9, 2015. The credit must be taken in equal
installments over 3 years beginning with the tax year the applicable phase or
portion of the building site is placed in service.
For Credits Earned Prior to June 9, 2015. The credit must be taken in equal
installments over 5 years beginning with the tax year the applicable phase or
portion of the building site is placed in service. Code Section 12-67-140(B)(3). -
Q. What is the definition of “placed in service”?
A. Placed in service is the date the building site is completed and ready for its
intended use. If the building site is rehabilitated in phases or portions, each phase
or portion is considered to be placed in service when it is completed and ready for
its intended use. Code Section 12-67-120(5). -
Q. What form is used to compute and claim the income tax credit?
A. Form TC-55, “Abandoned Buildings Revitalization Credit,” is used to compute
and claim the credit. A separate Form TC-55 must be used for each abandoned
building site and each unit or parcel deemed to be an abandoned building site. -
Q. What is the credit amount?
A. The credit amount depends upon the amount of actual rehabilitation expenses
incurred and estimated rehabilitation expense reported in the Notice of Intent to
Rehabilitate. The total credit earned for any taxpayer for each abandoned building
site, unit, or parcel may not exceed $500,000. Code Sections 12-67-140(B)(2) and
(B)(3).
16
Rehabilitation Expenses
If the actual expenses are
between 80% and 125% of
the estimated expense
reported in the Notice of
Intent
Credit Calculation
25% of the actual
rehabilitation expenses
incurred at the building site
If the actual expenses are
more than 125% of the
estimated expense reported
in the Notice of Intent
25% of 125% of the
estimated rehabilitation
expense in the Notice of
Intent
Actual expenses are under
80% of the estimated
rehabilitation expense
reported in the Notice of
Intent
No credit
Credit Cap
$500,000 for any taxpayer
in a tax year for each
abandoned building site (or
each unit or parcel deemed
to be an abandoned building
site)
$500,000 for any taxpayer
in a tax year for each
abandoned building site (or
each unit or parcel deemed
to be an abandoned building
site)
No credit
Reminder: The credit is earned in the tax year the applicable phase or portion of the
building site is placed in service, provided the actual rehabilitation expenses are at least
80% of the total estimated rehabilitation expense. The credit, however, is taken in equal
installments over 3 or 5 years (see Question 17) beginning with the tax year the
applicable phase or portion of the building site is placed in service. Code Section 12-67140(B)(3).
- Q. Is the use of each annual credit installment limited?
A. The answer depends upon the date the credit was earned (i.e., the date the building
or first phase was placed in service.)
For a Credit Earned On or After June 9, 2015. The annual available credit
installment can be used to offset the taxpayer’s entire income tax, bank tax,
savings and loan tax, corporate license fee liability, insurance premium tax, or a
combination of them for the tax year. Code Section 12-67-140(A)(1).
For example, a partnership earns the maximum $500,000 credit on July 1, 2015
when it places the building in service. The total credit installment available to pass
through for Year 1 is $166,667 (the first of three installments). The partnership
passes through $100,000 of the credit installment to a corporate partner and the
remaining $66,667 of the credit installment to an individual partner. The
corporation has a $90,000 income tax liability and a $10,000 corporate license fee
liability; it may use the entire $100,000 installment to offset its income tax and
17
corporate license fee liability. The individual has a $60,000 income tax liability.
He may offset his entire liability, and the unused $6,667 credit is carried forward
by the individual for 5 years.
For a Credit Earned Prior to June 9, 2015. The annual available credit installment
is limited to 50% of the taxpayer’s income tax, bank tax, savings and loan tax,
and/or corporate license fee liability for the tax year. Code Section 12-67140(B)(5) (prior to amendment by Act No. 68 in 2015).
For example, a corporation earns the maximum $500,000 credit on May 1, 2015,
when it places the building in service. The credit installment for Year 1 is
$100,000 (the first of five installments); it may offset 50% of the taxpayer’s
income tax and corporate license fee liability. The corporation has a $140,000
income tax liability and a $40,000 corporate license fee liability. The corporation
may offset $90,000 of its liability ($70,000 income tax and $20,000 corporate
license fee). The unused $10,000 credit is carried forward for 5 years.
-
Q. What are the provisions for the allocation of the credit if the taxpayer is a
partnership or limited liability company taxed as a partnership?
A. If the taxpayer is a partnership or limited liability company taxed as a partnership,
the credit may be passed through to the current partners or members and may be
allocated among any of its current partners or members, including an allocation of
the entire credit to one partner or member. Note: A partnership cannot allocate
more than its current year credit installment amount to any partner in a single tax
year. Code Section 12-67-140(B)(6). -
Q. What is the carry forward period?
A. Any unused credit may be carried forward for 5 years. Code Section 12-67140(B)(3).
The charts below provide the 5 year periods that each credit installment may be
carried forward based upon the date that the credit was earned.
For Credits Earned On or After June 9, 2015:
Credit
Installment
Amount
Carry forward
of Installment
Year 1
Year 2
Year 3
one-third
Years 2-6
one-third
Years 3-7
one-third
Years 4-8
18
For Credits Earned Before June 9, 2015:
Credit
Year 1
Installment
Amount
20%
Carry
Years 2-6
forward of
Installment
Year 2
Year 3
Year 4
Year 5
20%
Years 3-7
20%
Years 4-8
20%
Years 5-9
20%
Years 6-10
- Q. What is the practical effect of the repeal of the abandoned building credit in 2019?
A. This Act is repealed on December 31, 2019. Accordingly, a credit may not be
earned on January 1, 2020 or thereafter. The repeal does not affect remaining
credit installments for a credit earned on or before December 31, 2019. Further, it
does not affect the 5 year carry forward period of any credit earned but unused.
Code Section 12-67-140 and Act No. 57, 2013 S.C. Acts, Section 1.B.
PART 4 - SPECIAL PROVISIONS
- Q. What are the special rules for a building or structure listed on the National
Register of Historic Places?
A. The special rules for a building or structure listed on the National Register of
Historic Places include:
a. Additional Definition of Abandoned Building in Code Section 12-67-120(1).
Use of any portion of a building or structure listed on the National Register for
Historic Places when used solely for storage or warehouse purposes is
considered nonoperational for income producing purposes.
b. Limitation on the Income Tax Credit in Code Section 12-67-120(1). The
income tax credit is further limited by disqualifying for credit purposes the
portion of the building or structure that was operational and used for storage or
as a warehouse for income producing purposes. This limitation is calculated
based on the actual percentage of space which has been closed continuously to
business or otherwise nonoperational for income producing purposes for a
period of at least 5 years immediately preceding the date on which the taxpayer
files a “Notice of Intent to Rehabilitate” divided by 100%. Code Sections 1267-120(1) and 12-67-140(B).
19
c. Demolition Expenses are Not Rehabilitation Expenses. The definition of
rehabilitation expenses provides that demolition expenses (the complete
destruction or removal of a building), are not a rehabilitation expense for
purposes of calculating the credit amount if the building being demolished is
on the National Register for Historic Places. Code Section 12-67-120(6).
- Q. What is the definition of “state-owned abandoned building” added by Act No. 68
in 2015?
A. A state-owned abandoned building is an abandoned building and its ancillary
service buildings or a project consisting of one or more abandoned buildings, the
aggregate size of which is greater than 50,000 square feet, that has been
abandoned for more than 5 years, and prior to the taxpayer’s acquisition, was most
recently owned by the State, or an agency, instrumentality, or political subdivision
of the State. For purposes of this definition, a taxpayer includes any entity under
common control or common ownership with the taxpayer. Code Section 12-67120(8).
PART 5 - TRANSFER OF CREDIT and NOTIFICATION to DEPARTMENT
-
Q. Can a taxpayer transfer the credit earned if he sells the building site, or any phase
or portion of the building site that has been placed in service?
A. Yes. If a taxpayer has earned the credit and sells the building site, or any phase or
portion of the building site, the taxpayer may transfer all or part of the remaining
credit associated with the rehabilitation expenses incurred with respect to that
phase or portion of the site to the purchaser of the applicable portion of the
building site. Code Section 12-67-140(B)(5). Note: The answer is different if the
property is sold prior to the site being placed in service. In such instance, no credit
has been earned and no future credit can be earned on the property since it is no
longer an abandoned building. See Part 7 – Examples B, J and K. See Questions
17 and 18 for a discussion of when the income tax credit is earned. -
Q. Can a taxpayer that is the lessor of the building site, or part of the building site,
transfer any remaining credit to the lessee of the site?
A. Yes. If the taxpayer that is the lessor of the building site, or part of the building
site, has earned the credit, then the taxpayer may transfer any applicable remaining
credit associated with the rehabilitation expenses incurred with respect to that part
of the site to the lessee of the site. Unused credit carry forwards may not be
transferred. Code Section 12-67-140(B)(5).
20
29. Q. Can an earned credit be transferred more than one time?
A. Yes, provided that the transfer of the earned credit is to a new owner or lessee of
the abandoned building or building site. Unused credit carry forwards may not be
transferred. The Act does not contain any other transfer provision. The credit by
itself cannot be bought or sold. Note: If the building site, or phase or portion of the
building site, has not been placed in service, a credit has not been earned. See
Questions 17 and 18 for a discussion of when the income tax credit is earned.
-
Q. When and how does a transferor notify the Department of a credit transfer?
A. The transferor must notify the Department in writing within 30 days after the
transfer. See Question 36 below for the information that must be provided in the
notification. Code Section 12-67-140(B)(5)(b).
Certain events do not constitute a credit transfer, such as the allocation of the credit
through a partnership or the proposed pledge or collateral assignment of any future
credit to be earned to a lender as collateral for the project loan. If the lender later
takes possession of the property after the credit is earned, then a transfer has taken
place and notification to the Department is required. -
Q. What form is used to claim a transferred credit?
A. The transferee claims a transferred credit on Form TC-55, “Abandoned Buildings
Revitalization Credit,” by completing applicable portions of the form. -
Q. When can a credit be transferred?
A. A credit can be transferred once the taxpayer rehabilitating the building site has
earned the credit (i.e., after placing the building site in service.) A transfer may
take place prior to the time the South Carolina income tax return is filed for the
year in which the credit is earned. -
Q. What credit amount may the transferee claim?
A. The original credit is earned in the year the building site is placed in service, but is
claimed in equal installments over a 3 or 5 year period (see Question 17). As such,
the transfer may be for any applicable remaining credit associated with the
rehabilitation expenses.
21
For example, if the original taxpayer has a 3 year credit installment and sells the
site in Year 2, the original taxpayer may transfer the credit installments for Years
2 and 3. Any credit carry forward resulting from the installments for Year 1
remains with the original taxpayer and may not be transferred. Code Sections 1267-140(B)(3)(a) and (5).
-
Q. Can the transferee claim the entire credit in the year of transfer?
A. A taxpayer to whom a credit has been transferred may only claim that year’s credit
installment. Code Section 12-67-140(B)(3).
For example, on January 1, Year 2, XYZ Partnership sells the redeveloped
building to a retailer. XYZ Partnership completes a transfer notification to the
Department. The remaining credit installments that have not been passed through
to XYZ’s partners (i.e., Year 2 and Year 3 installments) are transferred to the new
owner. No unused credit carry forwards may be transferred.
The new owner is eligible to claim the Year 2 installment in the year of the
transfer and the Year 3 installment the next year. It may not aggregate the
installments. The annual installment can be used to offset the transferee’s entire
income tax liability since the original credit was earned on or after June 9, 2015.
If, however, the original credit was earned prior to June 9, 2015, then the
installment period is five years, and each transferred installment is limited in use
to 50% of the transferee’s income tax liability (e.g., the entity’s, partner’s,
shareholder’s, or member’s income tax liability or married couple’s income tax
liability). See Question 21. -
Q. What is the credit carry forward period for a transferred credit?
A. Each annual installment of the credit transferred may be carried forward for 5
years. A transfer does not extend the time period a credit can be used. Code
Section 12-67-140(B)(3)(a).
22
36. Q. How does a transferor notify the Department of a transfer of all or a portion of the
credit?
A. The transferor must send a written “notice of transfer” to the Department
containing the following information:
a. The complete name, address, telephone number and the last 5 digits of the
taxpayer identification number of the transferor of the credit;
b. The complete name, address, telephone number and last 5 digits of the
taxpayer identification number of each transferee of the credit;
c. The complete address and tax map number of the building site;
d. The total amount of credit currently available to the transferor (i.e., the total
amount of credit less any credits used or carried forward by the transferor in
the current or prior tax years);
e. The date the original credit was earned (the date the site was placed in service)
and the amount of each credit installment;
f. The date the credit was transferred;
g. The amount of the credit transferred;
h. The transferor must provide a waiver of the right to claim that portion of the
credit that was transferred;
i. The transferor’s remaining credit balance after the transfer;
j. The consideration paid by the transferee; and
k. Any other information requested by the Department.
The written notice of transfer should be mailed to:
Abandoned Building Credit Transfer Notice
Research and Forms Development
South Carolina Department of Revenue
Columbia, SC 29214-0019
23
PART 6 - PROPERTY TAX CREDIT OVERVIEW
- Q. What are the requirements to file a Notice of Intent with the municipality or
county?
A. The taxpayer must file a Notice of Intent with the municipality, or the county if the
building site is located in an unincorporated area, where the building site is located
before incurring its first rehabilitation expenses at the building site. Rehabilitation
expenses incurred before the Notice of Intent is provided do not qualify. Code
Section 12-67-140(C). - Q. What is the property tax credit amount?
A. The amount of the property tax credit depends upon the amount of actual
rehabilitation expenses compared to the estimated rehabilitation expenses reported
in the Notice of Intent and is summarized below. Code Section 12-67-140(C)(3).
Rehabilitation Expenses
If the actual expenses incurred in
rehabilitating the building site are
between 80% and 125% of the
estimated expense reported in the
Notice of Intent
If the actual expenses are more than
125% of the estimated expenses
reported in the Notice of Intent
Actual expenses are under 80% of
the estimated rehabilitation expenses
reported in the Notice of Intent
Credit Calculation
25% actual rehabilitation expenses
incurred at the building site x the
local taxing entity ratio11 of each
local taxing entity that has
consented to the credit
25% of 125% of the estimated
expenses incurred at the building
site x the local taxing entity ratio of
each local taxing entity that has
consented to the credit
No credit
The credit may be taken against up to 75% of the real property taxes due on the
building site each year for up to 8 years. Code Section 12-67-140(C)(3).
- Q. What is the repeal date of the Act?
A. The Act is repealed on December 31, 2019. Any credit carry forward will
continue to be allowed until the 8 year time period in Code Section 12-67140(C)(3) is completed. See Act No. 57 of 2013, Section 1.B.
11
The local taxing entity ratio is set as of the time the Notice of Intent is filed and remains set for
the entire period the credit may be claimed by the taxpayer. Code Section 12-67-140(C)(3)(b).
24
PART 7 - EXAMPLES AND ADDITIONAL GUIDANCE
Additional Guidance. The following scenarios provide additional guidance on the
general rules discussed in this advisory opinion regarding credit requirements and Notice
of Intent considerations.
A. Demolish Building and New Construction by Same Taxpayer. A taxpayer demolishes
(completely destroys) an abandoned building and constructs a new building meeting all
the Act requirements. The taxpayer is eligible for the credit.
B. Demolish Building and New Construction by Different Owners. A developer
purchases an abandoned building and demolishes it. The developer sells the land to a
business owner who will construct a new building on the land. Since the developer did
not redevelop the site with a new building and the business owner purchased vacant land
and not an abandoned building, neither meets the Act requirements. Accordingly, neither
the developer nor the business owner is eligible for the credit.
C. Abandoned Building Site – Condition of Site. An abandoned building that has
collapsed but remains on the ground meets the definition of abandoned building. In
contrast, an abandoned building that has been cleared except for the concrete foundation
at the time of purchase does not meet the definition of abandoned building.
D. Abandoned Building – 66% Abandonment Requirement and Storage Use. A building
used for storage or warehouse purposes (e.g., storing old office furniture or boxes of
records) is considered abandoned. A building used for storing inventory or generating
rental income is not abandoned.
E. Selecting One Site or Multiple Units in Notice of Intent – Multiple Businesses
Adjoining on Ground Level. A taxpayer purchases an abandoned national retail store.
The taxpayer will redevelop and up-fit the building into 6 independent stores (5 junior
anchor shops and one local retail shop). Each store is totally separated from the others by
a firewall, each has direct access to the street, and each has separate utilities and HVAC
systems. The taxpayer may decide whether the abandoned building site will consist of
one building site or 6 units. If he chooses 6 units, then each unit must meet the minimum
rehabilitation expense requirement of over $75,000 - $250,000 based on location and a
Notice of Intent must be submitted for each of the 6 sites.
F. Selecting One Site or Multiple Units in Notice of Intent – Multiple Businesses on
Multiple Floors (Commercial Condominium). A taxpayer purchases a three story
abandoned building. He intends to rehabilitate and lease the entire building. Floor 1 will
be a restaurant, Floor 2 will be a banquet room for the restaurant, and Floor 3 will be
professional office spaces. The taxpayer must decide whether the abandoned building site
will consist of one building site or two units (Floors 1 and 2 being one unit and Floor 3
being a second unit) when filing the Notice of Intent. His decision may be influenced, in
part, on the estimated and actual expenses.
25
G. Selecting One Site or Multiple Units in Notice of Intent – Dual Purpose
Condominium. A taxpayer purchases a three story abandoned building. He intends to
rehabilitate and lease Floor 1 as a retail store and Floors 2 and 3 as four residential
condominiums. The taxpayer must decide when filing the Notice of Intent whether the
abandoned building site will consist of one building site or two units (one commercial
unit and one multi-family residential unit).
H. Abandoned Building Site – Selection of Multiple Units is Not Allowed. A taxpayer is
redeveloping an abandoned apartment building. The building will contain 20 apartments,
each with its own separate entrance, kitchen, bath and utilities. The taxpayer spends
$250,000 to redevelop each apartment. The taxpayer must file one Notice of Intent for
the entire multi-family residence. Each planned apartment cannot be a separate unit
because a single family residence does not qualify under the Act pursuant to Code
Section 12-67-130(B).
I. Two Units – Each Selects Different Credit Type. A taxpayer has chosen to divide an
abandoned building into two units – Unit A and Unit B. He has decided to file a Notice of
Intent with the Department selecting the income tax credit for Unit A and file a Notice of
Intent with the county requesting the property tax credit for Unit B. The taxpayer also
should notify the Department that the property tax credit has been requested for Unit B.
J. Property Sold After Being Completed. A developer rehabilitates an abandoned
building and meets all the Act requirements. The building is recorded as “inventory” on
his books (i.e., the developer has completed the building and it is ready to be held for sale
or lease.) He sells the building to a retailer. Pursuant to Code Section 12-67-120(5), the
developer is deemed to have “placed the building in service” as defined in the Act, and is
eligible for the income tax credit; he also may transfer any remaining credit installments
to the retail purchaser. Code Section 12-67-140(B)(5)(a).
K. Property Sold Before Being Completed. A limited liability company purchases and
rehabilitates an abandoned building that meets all the Act requirements. The site is sold
to another investor during the rehabilitation. The limited liability company did not
complete the rehabilitation. Accordingly, no credit has been earned and it does not have
any credit to transfer to the new owners. When the new owners complete the
rehabilitation and place the building in service, they are not eligible for a credit since the
building they purchased was not an abandoned building under the Act.
L. Rehabilitate a Portion of a Site – Future Rehabilitation Eligibility. A taxpayer
purchases an abandoned building that was and will continue to be a retail showroom and
a warehouse. The taxpayer rehabilitates only a portion of the site due to his current retail
and warehouse needs. The taxpayer reports in the Notice of Intent that the redevelopment
is for one building site. As a result, any future rehabilitation is not eligible for the credit
since the building site is no longer abandoned. The answer may be different if the
rehabilitation is completed in phases or the redevelopment was for two or more building
sites.
26
EXAMPLES
Example 1: Entire Building Placed in Service in One Year
In Year 1, a taxpayer rehabilitates an abandoned building and meets the
requirements in the Act. The taxpayer incurs $5 million in actual rehabilitation
expenses. The Notice of Intent reports the following estimated expenses for the building
site:
Estimated
Expense
$1.6 million
80%
125%
$1,280,000
$2 million
In Year 3, the taxpayer places the entire building in service and earns a $500,000
income tax credit (25% of 125% expense amount of $2 million).
Example 2: Estimated and Actual Expense Impacts Income Tax Credit Amount
A taxpayer files a Notice of Intent with the Department reporting the following for the
building site:
Estimated Rehabilitation
Expense
$400,000
80%
125%
$320,000
$500,000
Scenario 1: The following illustrates the credit amount if actual expenses are between
80% - 125% of the estimated rehabilitation expense amount reported to the Department.
Actual
Income Tax Credit (25% x actual expenses)
Expenses
$350,000 $87,500
(25% x $350,000 actual expenses)
Scenario 2: The following illustrates the credit amount if the actual expenses incurred
exceed 125% of the estimated rehabilitation expense amount reported to the Department.
Actual
Income Tax Credit (25% x 125% of estimated expenses)
Expenses
$600,000 $125,000
(25% x $500,000)
27
Example 3: Building Site Placed in Service in Phases
An abandoned building redevelopment is completed in multiple phases as indicated
below. The taxpayer’s Notice of Intent provided to the Department reports the following
expenses for the building site:
Estimated
Expense
$2 million
80%
125%
$1.6 million
$2.5 million
The income tax credits for the actual rehabilitation expenses incurred in Phase 1
(completed in Year 1), Phase 2 (completed in Year 3), and Phase 3 (completed in Year 3)
are calculated as follows:
Year
1
Phase
Actual
Rehabilitation
Expenses
1 (Exterior and $1.5 million
Floor 1- Retail
store)
Year Phase
is Placed in
Service
Year 1
Income Tax Credit
No credit earned in Year 1.
The costs incurred are below
the 80% estimated expense
for the entire building site.
2
2 (Floor 2 –
$200,000
n/a - not yet No credit earned in Year 2.
Professional
placed in
Although total expenses to
Office)
service
date are $1.7 million, no
credit is allowed since Phase
2 has not been placed in
service.
3
2 (continuing
$300,000
Year 3
$500,000 credit. Since Phase
phase 2)
2 is placed in service and the
actual costs incurred to date
($2 million) are over the 80%
estimated expense for the
entire building site, the credit
is earned (25% x $2 million
actual rehabilitation
expenses)
4
3 (Site
$200,000
Year 3
No credit is allowed for any
Improvements)
other phases. The maximum
$500,000 credit for the
building site has been earned.
NOTE: The answer may be different if the taxpayer had elected two units instead of one
building site when submitting the Notice of Intent.
28
Example 4: Credit Calculation Based on One Site or Multiple Units
This example illustrates a taxpayer deciding whether to rehabilitate an abandoned
building as one building site, two units, or four units.
Scenario 1: Assume the taxpayer decides to rehabilitate one building. The taxpayer sends
one Notice of Intent to the Department. Based on the estimated and actual expenses, the
income tax credit earned is capped at $500,000 as calculated below.
Estimated
80%
125%
Actual
Rehabilitation
Expenses
Expense Reported in
Notice of Intent
$4,000,000
$3,200,000 $5,000,000 $3,900,000
(one building site)
Income Tax Credit
$500,000 –
Maximum credit
Scenario 2: Assume instead the taxpayer decides to rehabilitate the building as two sites.
The taxpayer would submit two separate Notices of Intent to the Department. The credit
earned per unit is $500,000 as calculated below. The taxpayer earns a total credit of $1
million.
Estimated
Expense
Unit 1 –
$2,000,000
Unit 2 –
$2,000,000
80%
125%
$1.6 million
$2.5 million
Actual
Expenses
$2 million
$1.6 million
$2.5 million
$2 million
Income Tax Credits
$500,000
(25% of actual)
$500,000
(25% of actual)
Scenario 3: Assume instead the taxpayer decides to rehabilitate the building as four sites.
The taxpayer would submit four separate Notices of Intent to the Department and report a
separate estimated expense amount for each of the four units as indicated below. The
credit earned per unit ranges from $200,000 to $312,500 based upon the actual expenses
indicated. The taxpayer earns total credits of $975,000.
Estimated
Expense
Unit 1 –
$1,000,000
Unit 2 –
$1,000,000
Unit 3 –
$1,000,000
Unit 4 –
$1,000,000
80%
125%
$800,000
$1,250,000
Actual
Expenses
$1,300,000
$800,000
$1,250,000
$1,000,000
$800,000
$1,250,000
$850,000
$800,000
$1,250,000
$800,000
29
Income Tax Credits
$312,500
(25% of 125% amount)
$250,000
(25% of actual)
$212,500
(25% of actual)
$200,000
(25% of actual)
Example 5: Over Estimation of Estimated Expense in Notice of Intent Could Result
in Disallowance of Credit
The following example illustrates that a taxpayer may not be eligible for a $500,000
income tax credit if he estimates in the Notice of Intent $2 million of expenses versus
$1.6 million of expenses, even though his actual expenses may be greater.
Scenario 1:
Estimated
Rehabilitation
Expense
Reported in
Notice of Intent
$2 million
Scenario 2:
Estimated
Rehabilitation
Expense
Reported in
Notice of Intent
$1,600,000
80%
125%
Actual
Expenses
Income Tax Credit
$1,600,000 $2,500,000
$1,550,000
$0 – Actual expenses
are less than 80% of
estimated rehabilitation
expense reported in the
Notice of Intent
80%
Actual
Expenses
Income Tax Credit
$1,300,000
$325,000
(25% of actual)
125%
$1,280,000 $2 million
30
Example 6: New Partnership Investors and Allocation of Credit Installments
Developer LLC and Investors LLC form Development LLC. Each LLC is taxed as a
partnership and has a calendar tax year. Developer LLC selects abandoned building sites
for rehabilitation. Investors LLC contributes $800,000 to Development LLC in exchange
for 100% of the tax credits generated. Investors LLC is a member of Development LLC
at the time the each building site is placed in service. The members of Investors LLC may
change each year as a result of the purchase of an ownership interest or capital
contribution. Development LLC uses the $800,000 capital and a $200,000 bank loan to
purchase an abandoned building site that will be subdivided into two units.
Development LLC files a Notice of Intent for Unit A and a Notice of Intent for Unit B.
Unit
A
B
Estimated Costs
$1,600,000
$1,600,000
Actual Costs
$2 million – Year 1
$1 million –Year 1
$1.1 million – Year 2
Placed in Service
Year 1
Year 2
Unit A. In Year 1, Development LLC earns a $500,000 credit when Unit A is placed in
service. It passes 100% of the first year tax credit installment through to Investors LLC
(who passes the credit installment through to each of its members who have an interest as
of December 31, Year 1). In Years 2 -3, equal installments will be passed through to
Investors LLC members with ownership interests for that respective year.
Unit B. In March, Year 2, Development LLC earns a $500,000 credit when Unit B is
placed in service and passes 100% of the credit through to Investors LLC (who passes the
credit installment through to each of its members who have an interest as of December
31, Year 2). In Years 3 and 4, equal installments will be passed through to Investors LLC
members with ownership interests for that respective year.
SOUTH CAROLINA DEPARTMENT OF REVENUE
s/Rick Reames III
Rick Reames III, Director
July 8
, 2015
Columbia, South Carolina
31
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