In December 2000, Congress passed legislation to create 40 Renewal Communities (RC) along with a new round of Empowerment Zones. The Renewal Community is a new kind of initiative that promotes partnership among federal, state and local governments and community organizations. The RC approach is to stimulate economic development in the nation's most distressed communities through the benefit of special tax incentives.
Usage of the various tax incentives offers existing RC businesses the opportunity to maintain and create new jobs, generate tax savings, and encourage the reinvestment of the savings into business expansion. Also, the RC tax incentives can be an economic tool that can be beneficial in attracting new businesses into an area that is being promoted for residential and commercial growth.
The City of Detroit received an 8-year RC designation beginning January 1, 2002 through December 31, 2009. Located in the northeast section of the city, the approximately 25-square mile RC area consists of 59 census tracts comprising 191,065 residents and 2,785 businesses.
Detroit Renewal Community Map
The RC focuses on marshalling hte support and commitments of state and local government, and forming alliances with business and local community based organizations. This initiative does not provide federal funds. Instead, it offers federal tax breaks. The tax incentives can help to reduce the federal tax liability of businesses, increase the expense limits of business assets, permits the issuance of tax-exempt bonds and provide for exemptions from capital gains taxation for properties that are sold.
Also, the wage credits for businesses can assist in encouraging job development and retention. This in turn can help RC residents to become gainfully employed and economically self-sufficient. The increased business activity that results from these actions will provide economic growth and benefits to the RC area.
Nationwide, the RC tax package represents a net worth of $22 billion in available tax relief that can create jobs, grow businesses, clean brownfields and build homes. The numerous tax incentives are available and designed to encourage businesses to locate or expand operations and to hire residents of the RC.
Businesses have the opportunity to use tax incentives that range from wage credits, deductions, environmental clean up, capital gains and new market tax credits to new low income housing tax credits. The emphasis is to bring a community together through public and private partnerships to attract the investment necessary for sustainable economic and community development for both residents and businesses.
Starting January 1, 2002 through December 31, 2009, the Renewal Community provides the usage of the following tax incentives:
- Employment Credit: Federal tax credits up to $1,500 (each year) for existing employees and new hires living in the RC.
- Work Opportunity Tax Credit: Federal tax credits up to $2,400 for new hires from groups that have high unemployment rates or special employment needs.
- Welfare to Work Credit: Two-year credit against Federal taxes for hire of long-term family assistance recipients.
- Increased Section 179 Deduction: Allows a business to claim an increased deduction if it qualifies as a RC business.
- Commercial Revitalization Deduction Deduction of either one-half of qualified revitalization expenditures (QREs) in the first year a building or all QREs on a prorated basis over 10 years.
- Environmental Cleanup Cost Deduction (Brownfields): Deduct qualified cleanup cost of hazardous substances in certain areas (brownfields) in the tax year that business pays or incurs the costs.
Qualified Zone Academy Bonds
- State or local government can issue bonds at 0 percent interest cost to finance public school programs with private business partnerships.
- Zero Percent Capital Gains Rate for RC Assets: The holder, for a minimum of 5 years, of an RC asset acquired between January 1, 2002, and December 31, 2009, will not have to include in its gross income any qualified capital gain from the sale or exchange of the asset.
- New Markets Tax Credit: Equity investors in qualified Community Development Entities (CDEs) can obtain a tax credit against Federal taxes of 5 to 6 percent of the amount invested for each of the years the investment is held, for up to 7 years of the credit period.
- Low-Income Housing Tax Credit: 10-year credit against Federal taxes for owners of newly constructed or renovated rental housing that sets aside a specific percentage of units for low-income persons for a minimum of 15 years. The credit varies for new construction and renovation.
OWE LESS TO THE IRS
“Owe Less to the IRS” is an education and awareness campaign coordinated by the Planning and Development Department's Empowerment Zone and Renewal Community programs. The campaign aims to raise awareness of tax incentives available to Detroit businesses. Through a series of communications and outreach efforts and events, it aims to cause businesses to take action to secure their share of as much as $20 billion in national tax savings available through 2009.
For Additional Information
To obtain more information about the Renewal Community and its tax incentives, you may visit the following web sites:
Publication 954-Tax Incentives for Distress Communities
HUD Booklet - Tax Incentive Guide for Businesses.
Detroit Renewal Community Contact Information: