Section 280-RICR-20-20-6.19 - Substantial Rehabilitation; Qualified Rehabilitation ExpendituresA. Substantial Rehabilitation. 1. A Rehabilitation of Certified Historic Structure shall be deemed a Substantial Rehabilitation only if the QREs incurred in the twenty-four (24) month period selected by the Owner ending within the taxable year in which the Rehabilitation is Placed-in-Service and beginning no earlier than July 3, 2013 shall exceed the Adjusted Basis of the Certified Historic Structure as of the beginning of the twenty-four (24) month period or July 3, 2013, whichever is later. In the case of projects involving multiple buildings (except for phased Rehabilitations addressed in § 6.19(B) of this Part below), the Substantial Rehabilitation test must be met with respect to each building separately based on the Adjusted Basis attributable to each such building and the QREs attributable to each such building. The twenty-four (24) month period is a Measuring Period for testing whether the Rehabilitation is a Substantial Rehabilitation. QREs incurred in connection with the Rehabilitation either before the beginning of the twenty-four (24) month period, but not prior to July 3, 2013, or after the Rehabilitation is Placed-in-Service but prior to the end of the taxable year in which the Rehabilitation is Placed-in-Service may be included in the calculation of the credit provided the Substantial Rehabilitation test is met. Expenditures incurred prior to July 3, 2013 are ineligible as QREs, but are included in the calculation of Adjusted Basis.2. In the case of any Rehabilitation that may reasonably be expected to be completed in phases as set forth in architectural plans and specifications prepared before the physical work on the Rehabilitation begins, at the election of the Owner, § 6.19(A) of this Part may be applied by substituting sixty (60) month period for twenty-four (24) month period. A Rehabilitation may reasonably be expected to be completed in phases if it consists of two or more distinct stages of development. The Commission may review each phase of a Phased Project as it is presented, and may issue a certificate for completed work upon completion of each phase. However, an Assignable Historic Preservation Tax Credit Certificate may be issued only upon satisfaction of the Substantial Rehabilitation test for the entire Phased Project. Thereafter, Assignable Historic Preservation Tax Credit Certificates may be issued upon receipt of a Certificate of Completed Work for later phases without again having to meet the Substantial Rehabilitation test. The Applicant may elect to claim the credit allowable for each completed phase of a Phased Project, upon receipt from the Division of Taxation of an Assignable Historic Preservation Tax Credit Certificate, which shall be issued no earlier than the estimated completion date for such phase set forth in the Contract. Any credit claimed prior to final certification of the completed Rehabilitation will be contingent upon final certification of the completed Rehabilitation.B. Qualified Rehabilitation Expenditures (QREs). 1. QREs are those amounts expended in the Rehabilitation of a Certified Historic Structure properly capitalized to the building and either:a. Depreciable under the IRC; orb. Made with respect to property (other than the Principal Residence of the Owner) held for sale by the Owner.2. Amounts are properly capitalized to the building if they are properly includible in computing the depreciable basis of real property under federal income tax law. Amounts treated as an expense and deducted in the year paid or incurred or amounts that are otherwise not added to the basis of real property do not qualify. Amounts incurred for soft costs - including, without limitation, architectural and engineering fees, survey fees, legal expenses, insurance premiums, development fees and other construction related costs that are added to the depreciable basis of real property - satisfy this requirement.3. Expenses that do not qualify as QREs include, without limitation:a. The cost of acquiring a building, an interest in a building (including a leasehold interest) or land. For this purpose, interest incurred on a construction loan, the proceeds of which are used for QREs (and which is added to the basis of the certified historic building), is not treated as a cost of acquisition.b. Any expense attributable to an enlargement of a building. A building is enlarged to the extent that the total volume of the building is increased. An increase in floor space resulting from interior remodeling is not considered an enlargement. If expenditures only partially qualify as QREs because some of the expenditures are attributable to the enlargement of the building, the expenditures must be apportioned between the original portion of the building and the enlargement. The expenditures must be specifically allocated between the original portion of the building and the enlargement to the extent possible. If it is not possible to make a specific allocation of the expenditures, the expenditures must be allocated to each portion on a reasonable basis. The determination of a reasonable basis for an allocation depends on factors such as the type of improvement and how the improvement relates functionally to the building. (1) Example: A historic Rehabilitation project includes a new rear wing. A new air-conditioning system and a new roof are installed on the building. A reasonable basis for allocating the expenditures between the historic building and the new rear wing generally would be the volume of the historic building (excluding the new wing), served by the air-conditioning system on the roof, relative to the volume of the new wing that is served by the air-conditioning system and the roof.c. Any expense attributable to the Rehabilitation of a Certified Historic Structure, or a building located in a Registered Historic District, which is not a Certified Rehabilitation.d. Any site work expenses.e. Any costs of demolition of adjacent structures.f. Processing Fees imposed under R.I. Gen. Laws Chapter 44-33.6.g. Additional expenses that do not qualify as QREs include, without limitation: (3) Carpeting (if tacked in place and not glued);(4) Decks (not part of the original building);(8) Furniture leasing expenses;(10) Moving (building) costs (if part of acquisition);(11) Outdoor lighting remote from building;(15) Porches and porticos (not part of original building);(19) Storm sewer construction costs; or4. Public Grants. Except in the case of nonprofit corporations, there shall be deducted for purposes of calculating the historic preservation tax credit any funds made available to the Person incurring the QREs in the form of a direct grant from a federal, state or local governmental entity or agency or instrumentally thereof.C. Step in the Shoes. 1. The Owner may take into account QREs incurred in connection with the same plan of Rehabilitation by any other person who has or had an interest in the building. Where QREs are incurred with respect to a building by a Person (or Persons) other than the Owner, and the Owner acquires the building or a portion of the building (including a leasehold interest in the building or a portion thereof) to which the expenditures were allocable, the Owner acquiring such property will be treated as having incurred the QREs actually incurred by the transferor, provided that: a. The Rehabilitation was not Placed-in-Service by the transferor; and no credit with respect to such QREs is claimed by anyone other than the Owner acquiring the property or that Owner's Assignee(s).b. The Adjusted Basis against which QREs are tested shall be the Adjusted Basis of the transferor as of the beginning of the Measuring Period, provided that no QREs incurred before July 3, 2013 may be included in calculating the tax credits available to the project.280 R.I. Code R. § 280-RICR-20-20-6.19