Enterprise Zone Vacant Commercial Building Rehabilitation Tax Credit

The Enterprise Zone Vacant Commercial Building Rehabilitation Tax Credit helps businesses redevelop commercial property and rehabilitate vacant buildings. Businesses can earn a state income tax credit for 25% of rehabilitation expenses, up to $50,000 in tax credit per building. You may carry forward this tax credit for up to five years.

The Colorado legislature created the Enterprise Zone (EZ) Program to encourage development in economically distressed areas of the state. The 16 designated enterprise zones have high unemployment rates, low per capita income, or slow population growth.

Local enterprise zone administrators manage their respective enterprise zones.

We recommend reviewing the Enterprise Zone Income Tax Credit Guide for the complete eligibility requirements.

Overview

Type: Tax credit

For: Businesses located in enterprise zones

Amount: 25% of rehabilitation expenses, up to $50,000 in tax credit per building

Application deadline: Rolling

OEDIT division: Business Funding and Incentives

To use this map, type in your address in the top left-hand corner. You may need to scroll out to identify whether or not you are located within an enterprise zone. If your location is highlighted in a color, you are located in an enterprise zone. If your location is in a checkered colored area, it is located in an enhanced rural enterprise zone.

Visit the Colorado Information Marketplace for enterprise zone map resources.

Eligible businesses

Both new and existing businesses located in enterprise zones may qualify for the credit. For businesses that open in the middle of a tax year, you will need to prorate the credit based on the number of full calendar months during the year that the business operated in the zone.

Businesses need to be legal under both state and federal law. For example, businesses in the marijuana industry do not qualify for this tax credit.

Building requirements

We recommend that you confirm that the property is vacant before you begin work. Please contact your local enterprise zone administrator.

Building is defined as any structure built for permanent use as a house, factory, that is valued separately for general property tax purposes. Identifying what makes the building is important for determining the $50,000 limit on the tax credit.

A building is defined as a:

  • structure that is subdivided into multiple ownership units, such as office condominiums, is still considered one building unless the subdivision occurred more than twenty years ago.
  • single business entity consisting of related structures on the same site, that is valued as one unit for property tax purposes – such as an old motor court – is considered one building.

Commercial building is defined as any building that produces income. There is no time limit that the building needs to be used commercially. However, if the commercial use is too short, an argument may be made that the building wasn’t truly renovated for commercial use and the credit would not apply. If the building is mixed-use, only the costs directly associated with the commercial part of the project will qualify for the tax credit.

The building needs to be vacant for two years before remodeling begins. The building may not have been used for any income-producing activity. Using the yard outside of a building will not affect the vacant status.

Qualified rehabilitation expenditures

Qualified rehabilitation expenditures are expenses necessary to restore a building for commercial use. Qualified rehabilitation expenditures include but are not limited to:

  • exterior improvements and repair
  • structural improvements
  • mechanical improvements
  • electrical improvements
  • demolition
  • carpentry
  • sheetrock
  • plaster
  • painting
  • ceilings
  • fixtures
  • doors
  • windows
  • sprinkler systems for fire protection
  • roofing and flashing
  • tuckpointing
  • cleaning

These expenses are not qualified rehabilitation expenditures:

  • appraisals
  • architectural
  • engineering and interior design fees
  • legal, accounting, and realtor fees
  • loan fees
  • sales and marketing
  • closing costs
  • building permits
  • use and inspection fees
  • bids
  • insurance
  • project signs and phones
  • temporary power
  • bid bonds
  • copying
  • rent loss during construction
  • acquisition
  • interior furnishings
  • new additions, except as may be required to comply with building and safety codes
  • total demolition followed by new construction
  • excavation
  • grading
  • paving
  • landscaping
  • repairs to outbuildings

You may estimate your qualified rehabilitation expenditures during pre-certification. To calculate the final tax credit amount for certification, a Certified Public Accountant (CPA) that is not affiliated with the owner or qualified tenant needs to approve the expenses.

If your certified expenses are more than the amount of tax credits you reserved during pre-certification, we will issue an overage for the difference. This is subject to annual limits and property limits up to the $1 million allowable per property per year. If your certified expenses are fewer than the tax credits you reserved during pre-certification, we will calculate your tax credit based on your actual expenses.

Once you determine that your business is in an enterprise zone, there are three steps to claim this tax credit.

1. Complete the pre-certification application on the OEDIT application portal. You will need to pre-certify each business location. You will need to apply for pre-certification in advance of the activity that is eligible for the credit.

  • Log in to your account or create a new account. To protect your personal information, we manually add new users to the portal, so it may take several days to activate your account. Review this Enterprise Zone Pre-certification How-To Guide (PDF).
  • Pre-certify each year. You can pre-certify up to three months before the start of the business’ tax year. You can pre-certify at any time during the tax year; however the business is only eligible to earn enterprise zone tax credits for the period certified.
  • The local enterprise zone administrator will review and approve your pre-certification application.

2. Complete the certification application on the OEDIT application portal.

3. File Colorado income taxes and include certification documents.

  • Once the certification application is approved by the local enterprise zone administrator, you will receive via email a tax credit certificate that you need to submit with your Colorado income tax return. You can also access the certificate in the OEDIT application portal. This certificate replaces Colorado Department of Revenue forms DR0074, DR0076, and DR0077.
  • Complete and submit the Colorado Department of Revenue form DR1366 and the EZ Tax Credit Certificates with your Colorado income tax return. 
  • Partnerships need to also complete and submit the DR0078a for distribution of the credits.

Amend your enterprise zone record

If you misreported or need to modify your enterprise zone certification application, you can amend or reset your certification by submiting the amendment form. To amend or submit certification applications for years 2014 or earlier (formatted YY-XXXXXX) you need to use the Enterprise Zone Legacy Application System.

Amend your EZ record

Transfer ownership of your enterprise zone record

If your business changed accounting firms, you will need to transfer your pre-certification and certification records. A business owner or authorized company official will need to submit the transfer form.

Transfer your EZ record

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