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Business BriefsTax Briefs

Tap Into the 20% Rehabilitation Tax Credit for Business Space Improvements

July 8, 2025by admin

If your business occupies a large space and you’re planning to relocate, expand or renovate in the future, consider the potential benefits of the rehabilitation tax credit. This could be particularly valuable if you’re interested in historic properties.

The credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified rehabilitated building that’s also a certified historic structure by the National Park Service. A qualified rehabilitated building is a depreciable building that has been placed in service before the beginning of the rehabilitation and is used, after rehabilitation, in business or for the production of income (and not held primarily for sale). Additionally, the building must be “substantially” rehabilitated, which generally requires that the QREs for the rehabilitation exceed the greater of $5,000 or the cost of acquiring the existing building.

Eligible expenses

A QRE is any amount chargeable to capital and incurred in connection with the rehabilitation (including reconstruction) of a qualified rehabilitated building. Qualified rehabilitation expenditures must be for real property (but not land) and can’t include building enlargement or acquisition costs.

The 20% credit is allocated ratably, to each year in the five-year period beginning in the tax year in which the qualified rehabilitated building is placed in service. Thus, the credit allowed in each year of the five years is 4% (20% divided by 5) of the QREs concerning the building. The credit is allowed against both regular federal income tax and alternative minimum tax.

Permanent changes to the credit

The Tax Cuts and Jobs Act, signed at the end of 2017, made some changes to the credit. Specifically, the law:

  • Now requires taxpayers to claim the 20% credit ratably over five years instead of in the year they placed the building into service, and
  • Eliminated the 10% rehabilitation credit for the pre-1936 buildings.

It’s important to note that while many individual tax cuts under the TCJA are set to expire after December 31, 2025, the changes to the rehabilitation tax credit aren’t among them. They’re permanent.

Maximize the tax benefits

Contact us to discuss the technical aspects of the rehabilitation credit. There may also be other federal tax benefits available for the space you’re contemplating. For example, various tax benefits may be available depending on your preferences regarding how a building’s energy needs will be met and where the building will be located. In addition, there may be state or local tax and non-tax subsidies available.

Beyond these preliminary considerations, we can work with you and construction professionals to determine whether a specific available “old” building can be the subject of a rehabilitation that’s both tax-credit-compliant and practical to use. And, if you find a building that you decide to buy (or lease) and rehabilitate, we can help you monitor project costs and substantiate the project’s compliance with the requirements of the credit and any other tax benefits.

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Business BriefsTax BriefsTax Planning

Startup Costs and Taxes: What You Need to Know Before Filing

July 8, 2025by admin

The U.S. Census Bureau reports there were nearly 447,000 new business applications in May of 2025. The bureau measures this by tracking the number of businesses applying for an Employer Identification Number.

If you’re one of the entrepreneurs, you may not know that many of the expenses incurred by start-ups can’t currently be deducted on your tax return. You should be aware that the way you handle some of your initial expenses can make a large difference in your federal tax bill.

How to treat expenses for tax purposes

If you’re starting or planning to launch a new business, here are three rules to keep in mind:

  1. Start-up costs include those incurred or paid while creating an active trade or business or investigating the creation or acquisition of one.
  2. Under the tax code, taxpayers can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs in the year the business begins. As you know, $5,000 doesn’t go very far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
  3. No deductions, including amortization deductions, are allowed until the year when “active conduct” of your new business begins. Generally, this means the year when the business has all the necessary components in place to start generating revenue. To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity with the intention of earning a profit? Was the taxpayer regularly and actively involved? And did the activity actually begin?

Expenses that qualify

In general, start-up expenses are those you incur to:

  • Investigate the creation or acquisition of a business,
  • Create a business, or
  • Engage in a for-profit activity in anticipation of that activity becoming an active business.

To qualify for the limited deduction, an expense must also be one that would be deductible if incurred after the business began. One example is money you spend analyzing potential markets for a new product or service.

To be eligible as an “organization expense,” an expense must be related to establishing a corporation or partnership. Some examples of these expenses are legal and accounting fees for services related to organizing a new business, and filing fees paid to the state of incorporation.

Plan now

If you have start-up expenses you’d like to deduct this year, you need to decide whether to take the election described above. Recordkeeping is critical. Contact us about your start-up plans. We can help with the tax and other aspects of your new business.

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Tax Deadlines

July 2025 Tax Deadlines

July 1, 2025by admin

July 10

Individuals: Reporting June tip income, $20 or more, to employers (Form 4070).

July 31

Employers: Reporting income tax withholding and FICA taxes for second quarter 2025 (Form 941), and paying any tax due.

Employers: Filing a 2024 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or requesting an extension.

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