Tax Increment Financing (TIF) Districts
TIF financing allows a developer or property owner to receive a portion of the increased real estate taxes generated from a rehabilitation or new construction project. Funds can be provided through two methods:
Pay as you go method
A fixed annual dollar amount can be paid directly to the developer based on the amount of the yearly real estate tax increase generated by the project.
Through a bonding process, the City can provide funds during construction. The City borrows money by selling bonds, which are repaid by the increased real estate taxes generated by the development process
What makes a project a good candidate for TIF assistance?
- Substantial increase in real estate taxes after construction
- New construction or substantial rehabilitation
- Adding building square footage
- Low present real estate value
- Vacant buildings or land
The Opportunity Zones program offers three tax incentives for investing in low-income communities through a qualified Opportunity Fund:
- Temporary Deferral
A temporary deferral of inclusion in taxable income for capital gains reinvested into an Opportunity Fund. The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is disposed of or December 31, 2026.
- Step-up In Basis
A step-up in basis for capital gains reinvested in an Opportunity Fund. The basis is increased by 10% if the investment in the Opportunity Fund is held by the taxpayer for at least 5 years and by an additional 5% if held for at least 7 years, thereby excluding up to 15% of the original gain from taxation.
- Permanent Exclusion
A permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an Opportunity Fund if the investment is held for at least 10 years. This exclusion only applies to gains accrued after an investment in an Opportunity Fund.
River Edge Redevelopment Zone (RERDZ)
The River Edge Redevelopment Zone program provides the following incentives to companies:
Property Tax Abatement
The City portion of property taxes on a parcel may be abated for a period of three years unless the property is in a TIF district or an area designated as a Redevelopment Area under the Industrial Jobs Recovery Law. The amount of the abatement cannot exceed the amount attributable to the construction of improvements or the rehabilitation of existing improvements on the parcel.
Investment Tax Credit
River Edge Zone businesses may claim an extra 0.5% of the cost (“basis”) of qualified depreciable property placed in service in the River Edge Zone as a credit on their state income taxes. This credit is in addition to existing 0.5% investment tax credit allowed all manufacturers in Illinois on state income taxes. Contact the City’s Department of Community Development for State’s definition of “qualified” property.
Sales Tax Exemption
Any building materials used in new construction or rehabilitation of properties located within the River’s Edge Zone and permanently attached to the real estate may be sales tax exempt if a retailer is provided with a Certificate of Eligibility signed by the Zone Administrator and a Purchaser’s Statement.
Individuals, corporations, partnerships, trusts or estates receiving dividends declared by corporations which are located exclusively in Illinois River Edge Zone and which conduct essentially all of their business in the River Edge Redevelopment Zone, may deduct such dividends on state income tax.
Environmental Remediation Tax Credit
Allows for a credit against state income taxes for some non-reimbursed eligible costs for remediation work done on a site in the Zone resulting in a “No Further Remediation Letter” being issued and recorded. This requires a joint review by the Illinois Environmental Protection Agency (IEPA) and the IL DCEO. The property must be in IEPA’s Site Remediation Program to receive the NFR letter. The credit is 0.25 for each dollar spent for non-reimbursed remediation expenses. The credit can be transferred with the property and carried forward for 5 years.
Property Tax Abatement
Property tax abatement is available on City of Rockford portion of increased taxes due to improvements to land or buildings, if a 2:1 benefit to cost ratio or an alternate 15:1 ratio of total investment costs to EAV is met. Maximum abatement is four years and is only available by application from commercial or industrial projects with job creation. For example, with new construction on formerly vacant land, new building value may be abated for 3 years. Application must be completed and submitted to the City’s Department of Community Development.
NOTE: Abatement does not apply to City taxes currently paid on property – just to City taxes assessed on increases in the value of improvements constructed. Land value cannot be abated.
Investment Tax Credit
Enterprise Zone businesses may claim an extra 0.5% of the cost (“basis”) of qualified depreciable property placed in service in the Enterprise Zone as a credit on their state income taxes. This credit is in addition to existing 0.5% investment tax credit allowed all manufacturers in Illinois on state income taxes. Contact the City’s Department of Community Development for State’s definition of “qualified” property.
Sales Tax Exemption
Any building materials used in new construction or rehabilitation of properties located within Rockford’s Enterprise Zone and permanently attached to the real estate may be sales tax exempt (8.25%) if a retailer is provided with a Certificate of Eligibility signed by Rockford’s Zone Administrator and a Purchaser’s Statement (both available from the City’s Community Development Department). If materials are purchased outside the State of Illinois, they must be delivered to the address of the property located in the Enterprise Zone boundary for the certificate of eligibility to be valid. This is the only Enterprise Zone incentive also available to home-owners. Contact the City’s Community Development Department at 987-5632 for the proper forms and procedure to follow to obtain this exemption.
NOTE: You must present both a completed, signed and dated Certificate of Eligibility and Purchaser’s Statement to the building supplies retailer.
Illinois Enterprise Zone Business Participation Loan Program
The Illinois Department of Commerce and Economic Opportunity (DCEO) may participate in small business loans up to 25% of the total amount of a project, but not less than $10,000 or more than $750,000. Businesses locating in (or expanding in) the Enterprise Zone can contact their local banker about the program. Applicants should proceed with the prescribed paperwork required for a private bank loan, and that lender then applies to DCEO for participation. DCEO’s rate can either vary or it may be fixed, but this loan allows the bank to offer the borrower a lower “blended” interest rate than on a loan without the State’s participation. The bank may retain 0.5% of the DCEO rate to cover servicing costs or they may pass along the points to the borrower.