Explain the purpose of the tax credit for rehabilitation expenditures and describe the general characteristics of its computation
The rehabilitation expenditures credit is intended to discourage businesses from moving from older, economically distressed areas (e.g., inner cities) to newer locations and to encourage the preservation of historic structures. To that end, taxpayers are allowed a tax credit for expenditures incurred to rehabilitate industrial and commercial buildings and certified historic structures. To calculate the credit, qualifying expenditures are multiplied by 10 percent for nonresidential buildings and residential rental property (other than historic structures) originally placed in service before 1936 . For nonresidential and residential certified historic structures, a 20 percent rate is applied.
To qualify for the credit, the buildings must be substantially rehabilitated. A building has been substantially rehabilitated if qualified rehabilitation expenditures exceed the greater of: (1) The adjusted basis of the property before the rehabilitation expenditures, or (2) $5,000 . Qualified rehabilitation expenditures do not include the cost of acquiring a building, the cost of facilities related to a building (such as a parking lot), and the cost of enlarging an existing building.
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