Renewal Community Incentives

Substantial tax incentives will be available to businesses in Renewal Communities (RCs) during the period January 1, 2002, through December 31, 2009. These tax incentives are generally designed to encourage businesses to locate or expand operations in an RC and to hire RC residents. The incentives include:

Renewal Community Tax Incentives for Businesses

Wage Credits
Deductions
Bond Financing
Capital Gains
Other 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.
Work Opportunity Tax Credit (WOTC). Credit of up to $2,400 against Federal taxes for businesses for each new hire from groups that have high unemployment rates or other special employment needs, including youth ages 18 to 24 and summer hire ages 16 to 17 who live in an RC.
Welfare to Work (WtW) Credit. Two-year credit against Federal taxes for businesses that hire long-term family assistance recipients. Credits of up to $3,500 in the first year and $5,000 in the second year for each new hire.
Indian Employment Credit. Credit against Federal taxes calculated on wages of up to $20,000 for each qualified employee who is an enrolled member of an Indian tribe (or spouse of and enrolled member) who lives on or near an Indian reservation. Available for existing employees and new hires.

Deductions

Increased Selection 179 Deduction. Allows a business to claim an increased Section 179 deduction (up to $35,00) if it qualifies as Renewal Community Business. Can be claimed on certain depreciable property such as equipment and machinery.
Commercial Revitalization Deduction. Deduction of either one-half of qualified revitalization expenditures (QREs) in the first year of 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.
Environmental Cleanup Deduction (Brownfields). Businesses can elect to deduct qualified cleanup cost of hazardous substances in certain areas (brownfields) in the tax year the business pays or insure the cost.
Depreciation of Property Used on Indian Reservations.Special accelerated depreciation rules apply to qualified property placed in service on an Indian reservation after 1993 and before 2004. Certain public infrastructure used or located off the Indian reservation also qualifies.

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 partnerships. Private businesses must contribute money, equipment, or services equal to 10 percent of bond proceeds (which may qualify as a charitable contribution). The Federal Government pays interest in he 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 5 years, of an RC asset acquired between January 1, 2002, and December 31, 2009, will not have to include in its gross income any qualified capital gain from the sale or exchange of the asset.

Other Incentives

New Markets Tax Credit. Equity investors in qualified Community Development Entities (CDEs) can obtain a tax credit against Federal taxes of 5 to 6 percent of the amount invested for each of the years investment is held, for up to 7 years of the credit period.
Low-Income Housing Tax Credit (LIHTC). Ten-year credit against Federal taxes for owners of newly constructed or renovated rental housing that set aside a specified percentage of units for low-income persons for a minimum of 15 years. The credit caries for new construction and renovation.

For more information on tax incentives available in RCs, please see Tax Incentive Guide for Businesses in the Renewal Communities, Empowerment Zones, and enterprise Communities. See section 12 for instructions on how to obtain the guide. Also, designated communities will need to prepare a tax incentive utilization plan (TIUP) outlining a strategy for promoting the use of these tax incentives. See section 8 for details on the TIUP.