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Neighborhood Preservation Tax Credits on Investment Properties in Springfield MO

Many investors are taking advantage of the bargains on the market today.  Never before has there been so many values to choose from.  What most investors aren't aware of is the excellent incentives in Springfield, MO, for tax credits and financing to rehab these homes.

The State of Missouri offers a State Tax credit equal to 15% of renovation or new construction of residential properties in certain qualifying areas.  The intent of the program is to provide an incentive to invest in upgrading or new structures in these areas in order to upgrade quality of housing and housing stock.  A home owner and or a developer may apply for the credits.  A developer must be intending to sell the property and not use it as a rental property.  Developers can apply for multiple properties.  The credits are granted in a lottery system each year based on demand and annual limits on the program. 

 TAX CREDIT AMOUNT:  The credit is equal to 15% of the cost of remodeling, renovation, or new construction of a home on vacant property, up to a selling of $25,000 per property.  If recipient does not use the entire $25,000 within two years they may reapply each year for up to ten years in order to use all of the credit.

 TYPE OF TAX CREDIT:  The credit is for state income tax, financial institution tax.  The recipient will be issued the credits upon completion of the renovation or new construction.  Recipient may use the credits to offset the current year's state tax, then may carry back for three years any unused portion and carry forward for the next five years.  Recipient may also sell the credits to a third party for cash.  Usual discount on selling credits range from 10% to 25% of the amount of the credit.

 ELIGIBLE PROPERTIES:  Any single family home which is 40 years old or older (built in 1968 or before) is eligible.  The condition of the property is not a condition of approval.  The recipient can make any renovations and or additions to the property, including a garage, but no other out buildings will qualify.  Appliances, window treatments or other non-attached appliances or improvements are eligible.  Recipients may demolish the existing structure and rebuild if they wish.  Vacant land is eligible so long as the land has not been on the tax books as agricultural land during the past 40 years.  The cost of acquisition is eligible if a new structure is being constructed.  Only owner occupied properties are eligible.  No rental property may qualify.  A developer may apply for the credits and receive the credits so long as the property is sold within one year of completion to an owner occupied buyer.   Evidence of sale must be submitted to the State.  Failure to sell the home will require repayment of the credits to the State.

 MINIMUM IMPROVEMENTS:  On renovation projects a minimum of $10,000 must be spent on the property to qualify.  No minimum is required for new construction since the property is eligible.

 ISSUANCE OF THE TAX CREDITS:  Recipients have two years to make the improvements from approval.  Evidence of expenses and cost must be submitted to the Department of Economic Development, including invoices and canceled checks.  The State will not inspect the property nor are their any controls on the nature of the improvements except to provide evidence that the property was constructed or renovated in compliance with local building codes.  The credits will be issued upon completion of the project.

 APPLICATION PROCESS:  The deadline for application is November of 2008.  Applications will be ready in September of 2008.  The application is not lengthy or cumbersome, but does required photos, evidence of age of structure, or evidence that property has not been taxes as agricultural for 40 years.  Evidence of ownership, or option to purchase property within 60 days must be provided with application.  Te State conducts a lottery system for the credits.  It is not competitive.  If approved a commitment will be issued to the recipient and they will have two years to complete the improvements.  The credits will be issued only upon completion.  The State will charge a 2 ½% fee for the credits.  If a person does not receive the credits in the year applied, they may reapply the following year.

 MULTIPLE PROPERTIES:  Applicants may submit up to 75 properties for approval.

 EXAMPLES & USAGE:  This program is ideal for existing home owners who desire to make improvements to their property, or a person looking for a fixer upper.  It is also ideal for individuals or developers to purchase vacant land and build new structures.

 EXAMPLE #1 EXISTING HOME OWNER:  Assume an existing home owner is planning or considering renovating their home.  Assume the improvements they desire to make will cost $40,000.  If they receive the credits they will receive $6,000 in tax credits to use or sell, thus reducing their renovation cost to $34,000.

 EXAMPLE #2 BUYER LOOKING FOR FIXER UPPER: Assume someone is looking for a fixer upper and finds a home in the area for $75,000 and purchases the property and plans $40,000 in renovations.  They would receive $6,000 in tax credits, thus reducing their investment from $115,000 to $109,000 in the property.

 EXAMPLE #3 NEW HOME CONSTRUCTION:  Assume someone desires to purchase a vacant lot or a home that they wish to demolish and build a new structure.  Assume the purchase price of the property is $40,000 and the cost of the new structure is $135,000.  They will have invested $175,000.  They will receive tax credits equal to the maximum of $25,000, thus reducing their cost in the property to $150,000.

 EXAMPLE #4 MULTIPLY DEVELOPER PROPERTIES:  One person may apply for up to 75 properties in any given year.  Assume a developer targeted an area and found 20 vacant lots in an older subdivision that qualifies.  Assume they paid $20,000 each for the lots and then constructed homes on the lots costing $120,000 each.  The developer would have invested $140,000 in each property.  Each property would qualify for a tax credit of $21,000.  Assume the developer sells the properties for $160,000 each.  His normal profit would have been $20,000 or 12.5%, with the credits his profit increases to $41,000 or 26%.  On the entire 10 properties his profit would be $410,000.

 EXAMPLE #5 RURAL FARM PROPERTIES:  The program requires that the property be taxed for at least forty years as residential property.  Agricultural land is not eligible, but an older farm house that is 40 years old or older is eligible for the portion that the house sits on.  Assume someone wants to purchase a 40 acre farm with an old farm house for $200,000.  Assume the person wishes to build a $200,000 new home on the old site.  The owner would receive a $25,000 tax credit, thus reducing their cost in the property from $400,000 to $375,000.

To search for investment properties in Springfield, MO, visit my website at www.ozarks-realestate.com.

  For more information on this program, please feel free to contact Lina Robertson, RE/MAX Solutions at (417) 844-7265, or e-mail me at linarobertson@remax.net

 

Contact Lina Robertson Jones

 

 

 About the author:  I am full-time REALTOR® with RE/MAX Solutions in Springfield, MO, and a member of the Greater Springfield Board of REALTORS®.  I have helped hundreds of families in the Springfield, Nixa, Republic and Ozark real estate markets, whether buying a home, or selling a home.  Visit my website  to search for All Springfield MO Area MLS listings.  Want to know what our market is like?  My website is also an excellent resource for current Springfield MO Area Real Estate Market Reports, as well as current market reports for Ozark, Nixa, Republic, and Rogersville.

 

 

Comment balloon 2 commentsLina Robertson • January 24 2009 10:38PM

Comments

Lina, this certainly is the YEAR for the investor! Good information for those thinking of investment property in Springfield, MO.

Posted by Gena Riede, Real Estate Broker - Sacramento CA Real Estate (916) 417-2699 (Riede Real Estate, Lic. 01310792) over 9 years ago

Gena - I'm sure there are comparable programs in your area as well.  It's a good tool to use for your investors.  Thanks for stopping by!

Lina Robertson

Posted by Lina Robertson, REALTOR® Serving Springfield, Nixa and Ozark, MO (RE/MAX Solutions and RE/MAX House of Brokers) over 9 years ago

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