I'm always shocked to find that my savvy developer clients ignore, or are simply unaware of, my favorite tax incentive for the renovation of commercial and owner-occupied residences in Louisiana: the Restoration Tax Abatement (RTA). While RTAs don't seem to excite developers nearly as much as their tax credit counterparts, overlooking an opportunity to receive an RTA could cost your project hundreds of thousands of dollars. Now do I have your attention?
RTAs are the equivalent of property tax piece of mind because the RTA freezes both the state and local ad valorem property tax assessment at the rate of tax prior to the renovations for a full five years after the renovation is complete. And in most parishes, that period can be extended for an additional 5 years. This freeze can save the project big bucks, allowing valuable time to realize profitability.
Prior to applying for an RTA, there are some important considerations. The first is a cost-benefit analysis. If your renovation project is small (under $100K), it's possible the RTA incentive is simply more trouble than it is worth. However, even with small numbers- clients are often still better off with a frozen assessment than with an unknown future assessment. Be sure to take into consideration that in some circumstances, you can request an additional extension of the RTA for 5 years. Now we're cooking with bacon! Even substantial renovations of residential property will show significant value from a frozen assessment over a ten-year term. Note, however, that New Orleans residences will probably not qualify for an extension.
The second consideration is timing – in order to apply for an RTA, you must not have begun construction. Applicants are automatically disqualified if they have begun construction without first filing an advance notice with the LED. It is also important to determine whether the local governing authority has any additional requirements over and above the state requirements. For example, in Orleans Parish, all RTA applicants are required to establish a plan of bidding out the construction job that attempts to utilize 35% of Disadvantages Business Entities (DBEs) in the project. Without creating a DBE plan to achieve this goal, your RTA application in New Orleans will most likely be denied. Speaking of scorecards, the New Orleans City Council committee charged with reviewing and recommending approval or denial of an RTA uses a complex scoring system in determining whether to recommend approving or rejecting an RTA application. Understanding this scoring process is critical to ensuring the project will receive approval.
Lastly, consider your timing. Since the RTA has to be approved by both the state and the local governing authority, the timeline and process requirements need to be carefully plotted and monitored. Any misstep can end up leading to disqualification. I always recommend before filing your advance note with the LED, that you contact the person in charge of the RTA Program in your parish to ensure that the property meets the minimum qualifications for receiving an RTA. It needs to be located in a qualifying district and in some parishes, at least, the property cannot have received a prior RTA in the past 20 years.
Hopefully, I've let the cat out of the bag on Louisiana RTAs. Encouraging the redevelopment and renovation of properties across our state benefits all Louisianans.