|Businesses making investments in tangible personal property, used exclusively in an enterprise zone for at least one year, may claim an ITC credit against their Colorado income taxes equal to 3% of the investment amount. Only equipment purchases qualify for the investment tax credit. Investments in land or structures, or expanding inventory do not qualify.
This credit can be taken in any year not to exceed 100% of the taxpayer’s state income tax liability up to $5,000 and 50% of the state tax liability above $5,000.
The value of investments must be reduced before the 3% ITC rate is applied if the depreciable life of the asset falls into certain categories.
Unused tax credits can be carried backward up to 3 years or forward up to 12 years.
If I lease the property can I take the credits?
The owner of the property may claim the credit or elect to pass on the investment credit to the lessee of the property if the leased property qualifies as a new Section 38 property. A lessor cannot pass on the credit for used property to the lessee. Non-corporate lessors and S-Corporation lessors are eligible for the Enterprise Zone investment credit only if:
The investment tax credit will not be allowed when a tax-exempt organization sells depreciable property to pass the tax benefits to the new owners and then leases back the property.
- Leased property has been manufactured or produced by lessor, or
- Term of the lease is less than 50% of the January 1, 1986 Asset Depreciation Range (ADR) class life for recovery property (useful life for other property) of the leased property, or
- The lessor’s business expense deductions (other than rental payments and reimbursed expenses) related to the property are more than 15% of the rental income from the property for the first year of the lease.
For more detailed information, refer to Department of Revenue publication FYI Income 11.