By Paul Heckman, Tax Partner | Real Estate & Construction Industry Team
*Note: This article was first published on May 15, 2013 and may not reflect the current Virginia Real Property Investment Grant requirements and application process.
A relatively unknown but useful grant established by the Commonwealth of Virginia is the Enterprise Zone Program’s Real Property Investment Grant. The Program was created in 1982 and recently updated in 2005. The main goal of the Program is to incentivize businesses and individuals to invest in real property in distressed localities around the Commonwealth. To qualify, the property must be located within an “Enterprise Zone”; localities must apply for that designation with the Commonwealth. The investment in real property must be for either renovations/ expansions to existing structures or new construction.
The buildings must be commercial, industrial or mixed- use (includes residential usage, but 30% of the floor space must be devoted to commercial, office or industrial use). Investments that qualify for the grant include costs associated with interior, exterior, structural, mechanical or electrical improvements to the building. These investments should be depreciated as real property in order to qualify.
The grant awarded is equal to 20% of the excess above the $100,000 threshold, up to a maximum award of $100,000 for investments less than $5 million. For investments greater than $5 million, the grant awarded is equal to 20% of the excess above the $100,000 threshold, up to a maximum award of $200,000. For new construction, the grant awarded is equal to 20% above the $500,000 threshold, with maximum awards being determined as previous stated. Also, no building/facility shall receive more than $200,000 per a five-year period.
Depending on demand for the grant in a year, the amount of grant received could be subject to proration if the demand exceeds budget levels. In the past two years, this has not been the case as applicants have received the full amount on their grant application. In years where the awards were prorated, historically, one could expect to receive between 50 to 65% of the total amount on their grant application.
In practice the authors have seen businesses considering relocation, actively seek out relocation into an enterprise zone to assist with financing the costs of renovations. Also, businesses already located in a zone have included the projected grant award into planning to determine if renovations or an expansion are feasible.
Most of the localities in the Richmond metropolitan area offer smaller rebates or grants for a variety of investments in real property. These vary locality by locality but can include building façade grants, paving and parking lot sealing grants, landscaping grants, building demolition grants, machinery & equipment rebates and real estate tax abatement/exemptions. A county’s Department of Economic Development can supply more in-depth details and compliance information.
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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.