Benefit of Purchasing a Missouri Redevelopment Tax Credit

March 20, 2017

Benefit of Purchasing a Missouri Redevelopment Tax CreditThe purchase of a Missouri Redevelopment Tax Credit (“MRTCs”) can provide you with a respectable return on your investment, if you fully understand the applicability of the MRTC to your individual tax situation. In this article, we analyze the return on investment from the purchase of a Missouri Redevelopment Tax Credit and provide additional information about the types of MRTCs available.

Missouri Redevelopment Tax Credits provide financial leverage to build projects possibly otherwise not feasible that aim to improve the economic and social environment of a specific area. An interesting feature of the MRTCs is that they have some degree of transferability. These credits are actively bought and sold between the developers/owners and individual/entities that can utilize the tax credits. The purchaser of the MRTC will receive an additional Missouri tax credit benefit since the MRTC is typically purchased at a discount. For example, a $25,000 tax credit sells for less than $25,000, so the buyer of a $25,000 tax credit can purchase the tax credit at a discount, but still offset it against $25,000 of Missouri income taxes.

Missouri Tax Credit Example

An individual taxpayer with Missouri taxable income of $500,000 will have a Missouri income tax liability of approximately $30,000 (6% of taxable income). If she purchases MRTCs for $.92 per credit dollar ($27,600) and remits the tax credit certificate in 2016, she is entitled to a deduction on her 2016 federal income tax return of $30,000 and will recognize a short-term capital gain of $2,400. Taxpayers can also carry back certain unused MRTCs to three previous tax years and obtain a refund of Missouri income taxes paid in previous years, again at a discount.
Assuming a federal marginal income tax rate of 39.6 percent, the taxpayer realizes an 8.70 percent return on investment (“ROI”) on the purchase and application of a MRTC. The 8.70 percent ROI is calculated as follows:

  • Total available MRTC                      $30,000
  • Amount paid for MRTC                ($27,600)
  • Net benefit of MRTC purchase         $2,400
  • Return on investment (ROI)               8.70%

There are several types of MRTCs available for purchase in the Missouri tax credit market. Below is a list of the available MRTCs along with a summary of characteristics about each MRTC program. If you would like to learn more about the MRTCs please feel free to contact us to discuss your individual income tax situation.

Historic Preservation Tax Credit

The Historic Preservation Tax Credit program provides an incentive for the redevelopment of commercial and residential historic structures in Missouri.

  • Can be used by any Missouri taxpayer;
  • First applied to the year the credit is purchased, any excess is carried back for 3 years and forward for 10 years;
  • May be applied to income tax (excluding withholding tax), bank tax, insurance premium tax and other financial institutional tax;
  • May not be used for corporate franchise tax;
  • Sellable or transferable.

Missouri Brownfield Tax Credit

The Missouri Brownfield Tax Credit program provides financial incentives for the redevelopment of commercial/industrial sites that are contaminated with hazardous substances and have been abandoned or underutilized for at least three years.

  • Can be used by any Missouri taxpayer;
  • First applied to the year the credit is purchased, any excess is carried forward 20 years;
  • No carry-back provision;
  • May be applied to income tax (excluding withholding tax), bank tax, insurance premium tax, other financial institutional tax and corporate franchise tax;
  • Sellable or transferable.

Low Income Housing Tax Credit

The Missouri Low Income Housing Tax Credit program provides an incentive for the new construction or rehabilitation of rental housing affordable to low and moderate income families in Missouri.

  • Can be used by any Missouri taxpayer;
  • First applied to the year the credit is purchased, any excess is carried back 3 years and forward for 5 years;
  • Subject to 10 year recapture period and 15 year compliance period;
  • May be applied to income tax (excluding withholding tax), bank tax, insurance premium tax, other financial institutional tax, express companies’ gross receipts tax and corporate franchise tax;
  • Sellable or transferable.

Neighborhood Preservation Tax Credit

The Neighborhood Preservation Tax Credit program provides an incentive for the rehabilitation or construction of owner-occupied homes in certain areas of the state.

  • Can be used by any Missouri taxpayer;
  • First applied to the year the credit is purchased, any excess is carried back for 3 years and forward for 5 years;
  • May be applied to income tax (excluding withholding tax), bank tax, insurance premium tax, other financial institutional tax and corporate franchise tax;
  • Sellable or transferable.
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