Often when a business leader decides to move forward with a capital project or an investment in another business, they don’t realize the project may qualify for different tax incentives that could substantially help offset the costs.
“The government enacts an array of incentives for different activities — economic development, capital investments, hiring people, training your workforce — that businesses undertake all the time, regardless of any incentive to do so,” says Richard Fry III, Taxation Group Chair at Buckingham, Doolittle & Burroughs, LLC. “Businesses often miss out on those opportunities because they didn’t check beforehand whether the activity or investment qualified.”
Smart Business spoke with Fry about some overlooked credits and incentives that could be applied to capital projects and other business activities.
What are some often-overlooked incentives?
Among the government credits and incentives that businesses can use include the Low-Income Housing Tax Credit; Rehabilitation Credit (historic); Qualified Opportunity Zone investments; Energy-Efficiency incentives; and federal and state incentives.
Qualified Opportunity Zone investments can be made either in businesses or real estate in certain designated low-income areas. For real estate investments to qualify, the property must be substantially improved after it is acquired — so, a certain amount of money must be put into improving the property. But those who are purchasing or starting a business in an Opportunity Zone can take advantage of those benefits as well.
The Low-Income Housing Tax Credit and Rehabilitation Credit have a more complex qualification process and are targeted to particular activities. The former credit applies to real estate developers building new residential units that qualify for government subsidies, while the latter are available for the rehabilitation of historic structures listed on the National Registry of Historic Structures. Even if not on the list but the structure to be renovated is an older building, a process can be undertaken to apply for the building to be included in that registry.
Businesses can find Energy-Efficiency incentives for things such as replacing their air conditioning or installing solar panels on their building, actions companies may want to do in any event, but often fail to identify and act on the available incentives.
There are also different levels of government — federal, state, municipal, county — that offer incentives or credits for businesses. The State of Ohio, for instance, has incentives for job creation, workforce training, and remediation or demolition of dilapidated real property. Local governments can authorize property tax benefits for certain capital improvement projects or increasing jobs in their jurisdiction.
How are these incentives secured?
The time to apply for these credits and incentives is typically when the potential investment is being considered, prior to signing a purchase agreement, construction contract, or lease. Business leaders should work with their legal counsel and other professional advisers to identify any potential credits or incentives, and to help with the application or qualification process.
Opportunity Zone investments require no additional time to consider incentives because those investing in these areas just need to comply with the requirements to claim the benefit. Similarly, energy incentives are not very time consuming in terms of compliance. It’s just being aware of what’s available. Other tax credits have more rigorous qualification requirements that can take quite a bit of time. Therefore, it is best to understand what benefits are available and get ahead of the process.
Who can help secure these incentives?
Business leaders should work with legal professionals who have awareness of the vast array of programs and incentives that are available to businesses, as well as the know-how to navigate what is often a complex application or qualification process.
New credits and programs get enacted often. To stay up on those incentives is difficult and time consuming. So, before jumping into a project, it’s worthwhile to make a call to a legal professional with experience in this area as there might be incentives that can be leveraged.
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