Fall 2014 issue of Horizons

Timing So what does this mean? Simply put, the occurrence of a casualty loss alone does not cause recapture. The affected buildings or units will typically be subject to recapture in instances in which the affected buildings or units are not restored within a reasonable period of time. Under Revenue Procedure 2007-54, the state credit agency has the responsibility of determining what constitutes a reasonable period. Yet, this reasonable period shall not exceed two years from the close of the year in which the casualty loss occurred. For projects not located in a government- declared major disaster area, failure to restore the property to original condition by the end of the tax year in which one casualty occurs will result in the loss of credits on the damaged buildings/units for that tax year (i.e. the owner will not be allowed to claim credits in the year of the casualty). Also, in this instance, there is no recapture of credits previously claimed as long as the qualified basis is restored within a reasonable period.

Major Disasters For projects located in major disaster areas, more favorable rules apply. In these cases, credits may continue to be claimed even during the restoration period. Again, for these projects, there is an assumption that the qualified basis must be restored within 24 months after the end of the calendar year in which the President issues a major disaster declaration. And, in general no credits will be lost or subject to recapture. In the event a project is faced with recapture, the maximum amount of credits to be recaptured at any given time during the credit period is limited to one-third of previous credits claimed. This limit decreases for years after the credit period but during the compliance period. It is important to note that the increase in tax not

only is comprised of the credit amount, but also the interest associated with the credits taken in prior years – the latter of which can be much more financially burdensome than the credits themselves.

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