Renewal Community Program
The Renewal Community Program is a federally driven initiative that provides a variety of specialized tax incentives for business locating within the locally identified Renewal Community Area. Enterprises locating within these boundaries are afforded the opportunity to take advantage of tax programs designed to stimulate economic growth.
Renewal Community Employment Credit
The Renewal Community Employment Credit (RCEC) gives businesses an incentive to retain or hire individuals who both live and work in the Renewal Community. The credit is available for both full-time and part-time employees as long as they have been employed by the employer for at least 90 days. The amount of the credit is tied to the wage paid rather than the number of hours worked.
The credit amount is 15% of wages up to a $10,000 wage amount. An employer can take the credit for as many employees that qualify. The RC Wage Credit is not available for family members of the employer, including sons, daughters, parents, step-children, step-mothers, step-fathers, in-laws, and other persons treated as dependents under the tax code. Similar exclusions apply to 5% owners related to the employer and family members of majority shareholders or partners of the employer.
Zero Percent Capital Gains Rate for Renewal Community Assets
If a business holds a Renewal Community Business asset acquired after December 31, 2001, and before January 1, 2010, for a minimum of 5 years, the business does not have to include any “qualified capital gains” for the asset’s sale or exchange in gross income. If the asset is sold before the end of the 5-year period, any subsequent purchaser of the asset that qualifies for the zero percent capital gain treatment is eligible for the incentive. The original purchaser would not be able to exclude any gain attributed to the period the asset was held, however, because the asset was not held by that original purchaser for the minimum period.
Qualifying assets include:
- stock in a domestic company acquired by the taxpayer at its original issue from the corporation solely in exchange for cash.
- any capital or profits interest in a domestic partnership if the interest was acquired by the taxpayer from the partnership solely in exchange for cash.
- tangible business property acquired by the taxpayer by purchase, in which either the original use of the property in an RC zone commences with the taxpayer or the taxpayer substantially improves the property. In the case of stock or partnership interests and ownership of tangible business property, the business must be a Renewal Community Business.
- Increased Section 179 Deduction
Section 179 of the Internal Revenue Code allows businesses to deduct all or part of costs of certain qualifying property in the year they place it in service. Businesses can do this instead of recovering the cost by taking depreciation deductions over a specified recovery period.
The tax code allows a Renewal Community Business to take an additional expense deduction of up to $20,000 per year on the purchase of tangible personal property for use in the RC. Expensing permits a business to take a deduction for the full cost of the equipment in the year it was purchased. Additionally, this write-off means that a business does not have to set up a tax depreciation schedule and deduct the expense over time. Expensing is helpful for equipment with a long recovery period.
Certain business activities do not qualify, including residential rental activity, commercial real estate and rental of personal property.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit provides businesses with an incentive to hire individuals from groups that have particularly high unemployment rates or special employments needs. Businesses do not have to be located in the RC to qualify for this credit. They can claim the credit if they pay or incur qualified first-year wages to a target-group employee who began work after September 1996.
The credit is calculated against a maximum of $6,000 in first-year wages (or $3,000 for summer youth). A business may pay an employee more than $6,000 in the first year, but the maximum for calculating the credit is $6,000. An employer may take the maximum $2,400 credit (40% of $5,000) for as many new hires as are qualified.
The credit is available for both full- and part-time employees who work at least 120 hours for a business. The credit rate is 25% of wages paid to the individual. Groups that qualify include, but are not limited to high risk youth (ages 18-24) and summer youth employees (ages 16-17) who live in the RC.