Capital Construction-Related Credits

The tax law encourages certain types of construction.

DISABLED ACCESS CREDIT

If you make capital improvements to make your premises more accessible to the handicapped, you may qualify for a credit of 50% of expenditures over $250, but not over $10,250. Thus, the top credit is $5,000. If you claim this credit, you cannot claim depreciation on these costs.

LOW-INCOME HOUSING CREDIT

If you invest in the construction or rehabilitation of housing for low-income individuals, you may be eligible for a tax credit of 70% of new construction or 30% of federally subsidized buildings. The credit is claimed over a 10-year period.

REHABILITATION CREDIT

If you rehabilitate or reconstruct certain buildings, you may claim a credit of 10% of your costs if the building was originally placed in service before 1936. If the building is a certified historic structure listed on the National Register of Historic Places, the credit is 20% of your expenditures. To qualify, your expenditures must be more than the greater of $5,000 or your adjusted basis in the building and its structural components.

NEW MARKETS CREDIT

This credit expired at the end of 2011. If extended, then the following information applies for 2012. To encourage investments in certain economically disadvantaged areas, you may claim a credit for purchasing stock in a community development entity (CDE). A CDE is a domestic corporation or partnership that provides investment capital for low-income communities or persons, maintains accountability to the residents of the area, and has been certified as a CDE by the Community Development Financial Institutions (CDFI) Fund of the Department of the Treasury. The credit is claimed over a period of 7 years. The amount of the credit is the equity investment multiplied by 5% in years 1 through 3 and 6% in years 4 through 7. The credit is subject to recapture if the CDE ceases to be qualified, the proceeds cease to be used to make qualified investments, or the investment is redeemed by the entity (there is no recapture if you merely sell your investment).

ENERGY-EFFICIENT HOME CREDIT

To encourage the construction of energy-efficient homes, contractors may qualify for a tax credit of up to $2,000 per dwelling unit for site-built homes or $1,000 or $2,000 (depending on energy conservation) for manufactured homes. To qualify for the credit, a home must be certified to provide a level of heating and cooling energy consumption that is at least 30 to 50% in the case of a manufactured home, and 50% for other homes, below that of a comparable home constructed in accordance with the standards of the 2004 Supplement to the 2003 International Energy Conservation Code. It must also have building envelope component improvements providing a level of heating and cooling energy consumption that is at least 10% below that of a comparable home.