IRS Determines State Tax Credits Are Taxable
On November 25, 2011, the Internal Revenue Service (IRS) released Chief Counsel Advice memorandum (CCA) 201147024 stating that the sale of certain Massachusetts state tax credits, including low-income housing and historic tax credits, to a third party by the original recipient is a taxable event.
The IRS said that the original recipient has no tax basis in the tax credit and that the original recipient’s gain on the sale of a nonrefundable credit is capital gain.
For the purchaser, basis for the tax credit is the cost of the tax credit and the purchaser must recognize taxable gain, if the tax credit is purchased for less than its face value, when the tax credit is used to satisfy state tax liability.
For more information and to determine the memorandum's impact, please contact our real estate experts at RubinBrown.
Click here to view the IRS memorandum.
