Renewal Community Tax Credits

Renewal Communities (RCs) and Empowerment Zones (EZs) are distressed areas in urban and rural communities that the federal government has targeted for development and where businesses are eligible for billions of dollars in tax incentives. These incentives help to spur business and job growth in communities that have been suffering from high levels of poverty and unemployment. Businesses can claim the tax incentives by operating in, and hiring residents who reside in these areas.

The current federal program runs from Jan. 1, 2002, through Dec. 31, 2009, with a remarkable $22 billion tax-incentive package to open new businesses, provide thousands of new jobs, rehabilitate and build new housing, and change lives in urban and rural areas throughout the nation. The Departments of Housing and Urban Development (HUD) and Agriculture (USDA) have designated RCs and EZs in urban and rural areas in three competitions since 1994. Currently, there are four RCs in Louisiana , encompassing dozens of census tracts in Northern Louisiana, Central Louisiana, Ouachita Parish, and New Orleans .

Quick Guide to Renewal Communities:

Source: Northeast Louisiana Economic Alliance (CoRa for Northern and Central Louisiana Renewal Communities)

The Northern Renewal Community consists of the following 14 parishes: Bienville, Caldwell , Claiborne, DeSoto, Franklin , Jackson , Lincoln , Morehouse, Red River, Richland , Union , Webster, West Carroll, and Winn parishes. The Central Renewal Community consists of Avoyelles, Beauregard, Catahoula, Concordia, Grant, La Salle, Natchitoches , Rapides, Sabine, Tensas, and Vernon parishes. The Ouachita Parish Urban Renewal Community is located in Northeast Louisiana and covers parts of the cities of Monroe and West Monroe and unincorporated portions of Ouachita Parish.

The Orleans-Jefferson Renewal Community falls within the Gulf Opportunity Zone and includes census tracts 249, 69, 70, 72, 75.01, 75.02, 75.05, and now 65, 64, 50, 49, 44.01, 94, 103, 123, 112, 119, 121.01, 121.02, and 126. The Governor added 13 U.S. Census tracts to the existing seven in the Orleans-Jefferson Renewal Community Program. Using Year 2000 Census data the expansion increases the Renewal Community population in the Orleans/Jefferson area from 19,756 to include a total population of 51,873, more than double the existing area.

Governor Blanco is requesting to expand the Orleans-Jefferson Renewal Community to include as many contiguous census tracts as possible up to the 200,000 population limit. This request could include the Medical District and the New Orleans Downtown Development District. This will require federal legislative action.A Renewal Community offers the following tax incentives:

  • Wage Credits. Renewal Community Employment Credit (RC Wage Credit). Credit against federal taxes of up to $1,500 during each year of RC designation for all existing employees and every new hire living in the RC.
  • Deductions. 1) Increased Section 179 deduction (up to $35,000) if it qualifies as a Renewal Community Business. Can be claimed on certain depreciable property such as equipment and machinery. 2) Commercial Revitalization Deduction (CRD) of either one-half of qualified revitalization expenditures (QREs) in the first year a building is placed in service or all QREs on a prorated basis over 10 years if QREs have been allocated to revitalization of a commercial building located in an RC. 3) Environmental Cleanup Cost Deduction (brownfields): Businesses can elect to deduct qualified cleanup costs of hazardous substances in certain areas (brownfields) in the tax year the business pays or incurs the costs.
  • Bond Financing. Qualified Zone Academy Bonds (QZABs). State or local governments can issue bonds at 0-percent interest cost to them to finance public school programs with private business partnerships. Private businesses must contribute money, equipment, or services equal to 10% of bond proceeds (which may qualify as a charitable contribution). The federal government pays interest in the form of tax credit to banks, insurance companies, and certain lending corporations that hold QZABs.
  • Capital Gains. Zero percent capital gains rate for RC assets. The holder, for a minimum of five years of an RC asset acquired between Jan. 1, 2002, and Dec. 31, 2009, will not have to include in its gross income any qualified capital gain from the sale or exchange of the asset.

For more information review IRS Publication 954 or visit www.renewalla.com on the Web.