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August 5, 2020

IRS extends deadline to claim rehabilitation credits

The IRS, in Notice 2020-58, extended the deadline for taxpayers to claim the rehabilitation credit under IRC Section 47. Responding to the "burdens" the COVID-19 pandemic has placed on taxpayers claiming the credit, the IRS gave taxpayers until March 31, 2021, to satisfy the requirements of the substantial rehabilitation test.


Former IRC Section 47(a) established a two-tier credit for qualified rehabilitation expenditures (QREs) incurred in rehabilitating a qualified rehabilitated building (QRB). The credit was fully allowed in the tax year the QRB was placed in service. The former credit amounts were 20% for QREs for a certified historic structure and 10% for QREs for a QRB first placed in service before 1936.

The Tax Cuts and Jobs Act (TCJA) repealed the 10% credit for pre-1936 QRBs and modified the rules for claiming the 20% credit for historic structures. Under the post-TCJA rules, the 20% credit must be claimed ratably over five years, beginning in the tax year in which the QRB was placed in service.

The post-TCJA rules apply to QREs paid or incurred after December 31, 2017, except if: (1) the taxpayer owned or leased the building on January 1, 2018, and continues to own or lease the building after that date, and (2) the 24- or 60-month period selected by the taxpayer for phased rehabilitation begins by June 20, 2018. The pre-TJCA credit structure still applies to QREs that fall under this transition rule.

To qualify for the rehabilitation credit, a taxpayer must satisfy the substantial rehabilitation test in a 24-month period (or a 60-month period for phased rehabilitation). Under this test, the QREs during the measuring period selected by the taxpayer must be more than the taxpayer's adjusted basis in the building (and its structural components) or $5,000.

Measuring period extended

Under Notice 2020-58, if the 24- or 60-month measuring period for either the substantial rehabilitation test or qualifying for the transition rule ends on or after April 1, 2020, and before March 31, 2021, the last day for a taxpayer to incur the requisite QREs is postponed until March 31, 2021. As a result, a taxpayer may have a measuring period that is longer than 24 or 60 months.


The extension is structured very similar to other COVID-19 related deadline extensions and provides relief to taxpayers that had seen construction slow or stop due to the pandemic. This is important due to the cliff nature of the deadline.


Contact Information
For additional information concerning this Alert, please contact:
Tax Credit Investment Advisory Services Group
   • Michael Bernier (
   • Dorian Hunt (