Heritage Structure Rehabilitation Tax Credit

Description:

A credit may be allowed for substantial expenditures incurred in a 24-month period to rehabilitate a certified heritage structure located in Maryland. The credit is available for owner-occupied residential property, as well as income-producing property. Credits may not be authorized after June 30, 2010.

The credit may be taken against corporate income, personal income or insurance premium tax.

Sole proprietorships, corporations, tax-exempt nonprofit organizations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit.

To qualify for the credit:

The business must complete a heritage preservation certification application and submit the application for approval to the Maryland Historical Trust (MHT).

After certification by MHT, the form is returned to you. A copy of the certified form (part3) from MHT must accompany your Maryland income tax return.

How the credit is calculated:

The credit is 20 percent of the total expenditures incurred during the 24 month rehabilitation period. For the rehabilitation of commercial structures, the credit cannot be more than the maximum amount specified under the initial credit certificate, which is based on estimated expenditures. If the application was submitted to MHT before June 1, 2002, the credit based on actual expenditures can be up to $250,000 more than the amount shown on the initial credit certificate.

The credit is claimed in the year in which the rehabilitation is completed; however, it cannot be claimed until the Part 3 certification is approved.

For property certified before July 1, 2001, a business could have received a mortgage credit certificate. In lieu of taking the credit, the certificate may be transferred to the mortgage holder who may then take a credit against their income tax in an amount equal to the face value of the certificate.

For certifications received after June 30, 2001, the amount in excess of the state tax liability can be refunded.

Credits for tax years 2002 and later are limited to $3 million. For non-commercial properties, the credit is $50,000 per property for applications received by MHT after June 30, 2004.

The total amount of credits approved by MHT for properties located in certain areas of the state during each fiscal year is subject to certain limitations.

The MHT will not accept applications for the approval of plans for commercial rehabilitations if a substantial part of the work has been completed if the applicant has already submitted three or more applications for a combined total of more than $500,000 in that year.

A pro-rated percentage of the credit is subject to recapture if disqualifying work is performed during a five-year period, beginning with the year in which the certified rehabilitation was completed.

Documentation required:

Corporate income tax:

Form 502H must be completed and submitted with the income tax return (Form 500) along with the MHT certification.

Personal income tax:

Form 502H must be completed and submitted with the income tax return (Form 502 or 505) along with the MHT certification. If the business is a pass-through entity, Form 502H must be prepared for the pass-through entity and submitted with the entity's income tax return (Form 510). A modified federal Schedule K-1 provided by the pass-through entity to members must separately state their shares of the credit. Individuals or entities must attach this statement to the Form 502H submitted with their personal (Form 502 or 505), corporate (Form 500) or pass-through entity (Form 510) income tax returns.

Insurance premiums tax:

Documentation of the credit shall be maintained by the taxpayer in their files and be made available to the Insurance Commissioner, on request, in accordance with COMAR 31.06.04.03. The documentation should include documents from the agency granting the credit and a list of the names and telephone numbers for the taxpayer's staff who are directly involved in granting the credits. All information shall be retained for a minimum of three years from the date of the filing of the final tax return on which the credit is taken.

For more information, contact:

Maryland Historical Trust
100 Community Place
Crownsville, MD 21032-2023
Phone: 410-514-7628
E-mail: goodrow@dhcd.state.md.us