1. HISTORIC TAX CREDITS 101 Presented by: Bryan C. Keller, CPA Partner In Charge Real Estate Services Group Rubin, Brown,Gornstein & Co. LLP

2. 2 HTC Guidelines  Greater than $250,000  Independent CPA must perform a 100% audit of all available invoices and proof of payment  CPA must also document any and all accrued expenses If incurred but not yet paid, applicant must submit legal agreement outlining scope of work and time for payment

3. 3 Documentation Guidelines  Back up documentation of all expenditures must be provided with Form HTC-E  Proof of payment is required

4. 4 Examination  We have examined the accompanying Missouri Department of Economic Development Historic Tax Credit Program List of Itemized Project Costs (List) for the Project. This list is the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the List of Itemized Project Costs based on our examination.

5. 5 Examination  We conducted our examination in accordance with attestation standards established by the American Institute of Certified Public Accountants, and, accordingly, our procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the List and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion.

6. 6 Examination  The List has been prepared on the basis of the accounting and reporting practices prescribed by the Missouri Department of Economic Development. These prescribed practices are a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. This report is intended solely for the information and use of the Missouri Department of Economic Development and is not intended to be and should not be used by anyone other than the Missouri Department of Economic Development.

7. 7 Examination Opinion  In our opinion, the List presents fairly, in all material respects, the actual cost of the Project through Date on the basis of accounting described in the previous paragraph

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10. 10 Qualified Rehabilitation Expenses  Qualified Rehabilitation Expenses only are eligible for tax credits  Qualified rehabilitation expenses include… Any expenditures for a structural component of a building, including: –Walls –Partitions –Floors –Ceilings –Paneling

11. 11 Qualified Rehabilitation Expenses  Qualified rehabilitation expenses include…  Any expenditure for a structural component of a building, including: Tile Windows Doors HVAC systems Plumbing

12. 12 Qualified Rehabilitation Expenses  Qualified rehabilitation expenses include…  Plumbing and plumbing fixtures  Electrical wiring and lighting fixtures  Chimneys  Stairs  Elevators/escalators  Sprinkler systems

13. 13 Qualified Rehabilitation Expenses  Soft Costs:  Construction period interest, excluding acquisition interest  Construction period taxes/insurance  Architect fees  Professional fees  Engineering fees  Construction management costs  “Reasonable” development fees  Construction financing fees/costs

14. 14 Costs Ineligible for Historic Tax Credits  Acquisition costs, acquisition related interest  Appliances  Additions or enlargements (decks, porches, enclosing open areas, adding rooms/floors)  Unattached cabinets  Carpeting (if tacked in place and not glued)  Demolition (interior demo includable)  Fencing  Financing fees (permanent financing)  Furniture

15. 15 Costs Ineligible for Historic Tax Credits  Leasing expenses  Outdoor lighting  Parking lots/paving  Planters  Retaining walls  Sidewalks  Signage  Storm sewer construction  Window treatments

16. 16 Federal Credit Calculation Total Development Costs$10,000,000 Ineligible Costs (1,000,000) Credit Eligible Costs $9,000,000 Federal Credit % x 20% Federal Historic Tax Credit $1,800,000 Limited Partner Ownership % x 99% Federal Credit to LP $1,782,000 Equity “pricer” x.90 Limited Partner Equity $1,603,800

17. 17 Who can use the credit?  The person(s) and/or entity who holds title to the property  Widely held C corporations  Real estate professionals (subject to participation and eligibility rules)  Individuals (with limitations)  Limitations: Passive activity rules Credit not available against AMT Unused credits can be carried back one year and forward for 20 years

18. 18 Who can use the credit?  A lessee of a building can claim the tax credit  A lessee who incurs the cost of rehabilitation and who has a lease term greater than the recovery period, can claim the tax credit on qualified rehabilitation expenditures  A building owner, who is not tax exempt, who incurs the cost of rehabilitation, can elect to pass the tax credit to its lessee

19. 19 Claiming the Credit  Federal Form 3468  Attachment to Form 3468 (1.4-12(b)(2)(viii)  Beginning/ending dates of measuring period  Adjusted basis of building as of beginning of measuring period  Amount of QRE incurred or treated as incurred during measuring period  Copy of final certification of completed work by Secretary of the Interior  If adjusted basis includes that of a 3rd party, must attach statement by 3rd party as first day of holding period, measuring period and adjusted basis calculation

20. 20 Credit Recapture Rules  Rehab credits are subject to recapture if the building is sold or ceases to be business use property.  No recapture required after 5 years from placed in service date.  Recapture Schedule:  Year 1100%Year 440%  Year 2 80%Year 520%  Year 3 60% After Year 5 None

21. 21 State Credit Calculation Total Development Costs$10,000,000 Ineligible Costs (1,000,000) Credit Eligible Costs$ 9,000,000 State Credit %x 25% State Historic Tax Credit$ 2,250,000 Limited Partner State Credit % x 100% State Credit to LP$ 2,250,000 Equity “pricer”x.80 Limited Partner Equity $ 1,800,000

22. 22 Other Issues/Topics  Tax exempt entities  Disqualified leases  At risk rules – 704(b)  Combining with other tax credit programs  Deferred developer fees  Application/Final Approval/Transfer Forms  Federal  State