1. The tax credit for rehabilitation expenditures is $40,000.
2. The increase in the building's basis from the rehabilitation expenditures is $200,000.
How did we get these values?
The tax credit for rehabilitation expenditures and the increase in the building's basis from rehabilitation expenditures are determined under the guidelines of the federal Historic Rehabilitation Tax Credit program.
1. Tax Credit for Rehabilitation Expenditures: The federal Historic Rehabilitation Tax Credit typically allows for a credit equal to 20% of the qualified rehabilitation expenditures for certified historic structures. In your case, Sarah incurred $200,000 in qualifying rehabilitation expenditures.
Tax Credit = 20% of $200,000 = $40,000
Therefore, the tax credit for rehabilitation expenditures would be $40,000.
2. Increase in Building's Basis: The basis of a property is generally the original cost plus any capital improvements made over time. In this case, the increase in the building's basis from the rehabilitation expenditures is equal to the amount spent on qualifying rehabilitation.
Increase in Basis = $200,000
Therefore, the increase in the building's basis from the rehabilitation expenditures would be $200,000.
Complete question:
Several years ago, Sarah purchased a certified historic structure for $150,000 that was placed in service in 1929. In the current year, she incurred qualifying rehabilitation expenditures of $200,000. Determine the tax credit for rehabilitation expenditures and the increase in building's basis from the rehabilitation expenditures.