Question

Lavinia owns an advertising agency. In February 2018, Lavinia purchases a building for $125,000. Lavinia spends $275,000 rehabilitating the building for use as her advertising agency office. The rehabilitation is completed in November 2018.

a. To qualify for the historic structures credit, the depreciable building including residential real estate property must be certified by the Department of Treasury and must be located in a registered historic district or listed on the National Register of Historic Places.

b. Assume Lavinia meets the qualification criteria. Also assume that the building qualifies for the credits. The total tax credits for 2018 is $______ and the basis of the building is $________.

Answer 1

Tax credit = Rehabilitation cost*20%

                 = $275,000*20%

                 = $55,000

Note: Tax credit are incentives for encouraging renovators of real estate to rehabilitating old buildings. Thus, 20% tax credit is provided on rehabilitation cost and not on the building acquiring cost.

Basis of building = Cost + Rehabilitation cost – Tax credit

                            = $125,000 + $275,000 – $55,000

                            = $345,000