Page 24 - May 1-14, 2024 Law & Accounting © 2020 Spencer Fane LLP | The choice of a lawyer is an important decision and should not be based solely on advertisements. Spencer Fane LLP 1700 Lincoln Street, Suite 2000 | Denver, CO 80203 Phone: 303.839.3800 | Fax: 303.839.3838 Where your business leaders work with our business leaders The Real Estate attorneys at Spencer Fane are experienced in helping real estate owners and developers purchase, sell, exchange, develop, build and nance properties through both private and public funds. Jamie Cotter Nicole Detweiler Russ Dykstra Wendy Harring Jacob Hollars James Jacobson Ken Kramer Jim Kurtz-Phelan Charlie Leder Larry Martinez Lisa Mayers Gil McNeish Michael Miller Robin Nolan David O’Leary Sarah Sicotte Adam Veltri Kelly Vos John Watson BDO Denver 303 E. 17th Avenue, Suite 600 Denver, CO 80203 303-830-1120 Accountants and Advisors © 2021 BDO USA, LLP. All rights reserved. What’s Next? Business resilience is being tested daily. At BDO, our team of experienced professionals provides the knowledge and proactive guidance necessary to overcome the evolving challenges construction facing companies of every size. From ever-changing tax and reporting regulations, unstable surety and banking markets, to labor issues and unrelenting competition, we’re here to help the clients we serve, wherever they do business. Y ou can’t drive through Col- orado, and certainly urban communities in the Front Range, without seeing the growing num- ber of historic commercial build- ings that have been renovated and repurposed for commercial use. While these projects seem daunting, many find success by taking advantage of preservation tax credits to help offset costs and secure financing. Broadly speaking, Colorado’s Commercial Historic Preserva- tion Tax Credit program, codified within CRS-39-22-514.5, provides tax incentives to property own- ers who rehabilitate or preserve historic commercial structures in Colorado. The program has been widely used for the rede- velopment of commercial proj- ects across the state and has been expanded several times. With the state Legislature poised to pass new revisions under House Bill 24-1314, it’s a good time to review the details of this popular tax credit program and the proposed changes. n The basics. Under CRS-39- 22-514.5, Colorado provides own- ers with a 20% to 35% state tax credit for historic buildings used for income purposes. In urban areas, property/project owners can receive a tax credit for rehabil- itation and/or renovation work on a qualified historic building against their Colorado state taxes: equal to 25% for up to $2 million of qualified expenditures and 20% for any qualified expenditures reaching more than $2 mil- lion. In rural areas, those n u m b e r s increase to 35% for the first $2 million and 30% for qualified expendi- tures of more than $2 million. The program does have a total credit cap of $1 million, but projects can be phased over multiple years to maximize the credits available. Tax credits can be applied to the owner’s state taxes or can be sold to secure investment for the proj- ect. Each year the total amount of tax credits available is capped at $10 million (although this has changed with the new revisions), which is divided into two halves: Half of the funding is dedicated to projects under $2 million, while the other half is dedicated to proj- ects more than $2 million. It is worth noting that because this is a separate program from the fed- eral tax credit program, projects that qualify can acquire both fed- eral and state tax credits to help finance or offset costs themselves. n The details. As with any type of tax credit program, there are conditions that must be met. To qualify for the Commercial Historic Preservation Tax Credit, the project/property must meet the following conditions: 1. The applicant must either own the building or be a lessee under a ground lease; 2. The property must be income- producing, meaning it must have some use by which income is being derived; 3. The project must have quali- fied expenditures of at least $20,000; 4. The property must be at least 50 years old and listed on the State Register of Historic Proper- ties, National Register of Historic Places or on a local register by a Certified Local Government; and 5. The renovation/rehabilita- tion work must meet the Secre- tary of the Interior Standards for Rehabilitation. Additionally, only “qualified expenditures” are eligible for tax credits. Qualified expenditures include most costs necessary to restore or renovate a property for use and operation, but do not include certain soft costs. The project still needs to meet the SOI Standards, so additions and reno- vations cannot alter the character- istics of the building that make it eligible for federal, state or local designation. n Application process. The historic preservation tax credit program is noncompetitive, meaning approvals come on a first-come, first-served basis. Applications are reviewed joint- ly by History Colorado, which reviews projects for historical designation and that renovations meet the SOI Standards, and the Office of Economic Development and International Trade, which reviews financial qualifications to determine how many tax credits are to be awarded. Timing can be a bit of an issue, but easily planned for. Once applied for and approved, past renovations can be applicable for credits, but only up to two years before the date of approval, and the submission for credits must be made within 120 days of the renovation work being com- pleted. Additionally, 20% of any qualified costs must be submitted within 18 months after the credits have been approved. n Proposed changes. The House bill seeks to expand the program even further. Details of the proposed changes can be found at https://leg.colorado . gov/bills/hb24-1314, but in short, the bill would reduce the age requirement for a qualifying building to 30 years old, extend the period for which the tax cred- its could be claimed, from 2029 to 2037, but those reduce the period for seeking credits for past reno- vations from two years to one. Additionally, HB 24-1314 would create a new pool of funding of $5 million for qualified projects that create net new housing rental units that include a deed restric- tion to rent to individuals below a certain income threshold. n Seeing challenges & oppor- tunities. This article is intended as an overview and does not include every detail of the Com- mercial Historic Preservation Tax Credit Program. Not every project will qualify, and the hoops that need to be jumped through are not insignificant. However, con- sidering the number of successful projects that have made use of the program, the abundance of his- toric buildings and structures in Colorado, and the appeal many of these historic buildings and structures have to local commu- nities, the Commercial Historic Preservation Tax Credit Program can be a valuable tool in reducing project costs and securing financ- ing for innovative and creative developments that preserve and promote the history of Colorado, while moving it into the future. Thankfully, specialized guid- ance is available from the state offices managing the program, nonprofits focused on preser- vation, qualified attorneys and tax credit brokers, who can help navigate the program’s intricacies and ensure that applicants receive the maximum benefits available and are up to date on proposed changes. s Explaining Commercial Historic Preservation Tax Credit Thomas Witt Attorney, Reinhart