Summary:

 House Bill 506 (HB 506) creates the Hotel Renovation Income Tax Credit and the Hotel Renovation Corporate Income Tax Credit, which provide financial incentives for hotel renovation projects in New Mexico. The credits apply to qualifying costs incurred between the bill’s effective date and January 1, 2035. The amount of the credit is 30% of qualifying costs for hotels that receive a LEED-NC silver certification and 20% for all other hotel renovation projects. The total aggregate amount of credits issued under both programs is capped at $30 million per year. The credits are non-refundable but may be carried forward for five years. HB 506 applies to taxable years beginning on or after January 1, 2025. 

Legislation Overview:

 House Bill 506 (HB 506) establishes two tax credits to incentivize hotel renovations in New Mexico. The Hotel Renovation Income Tax Credit applies to individual taxpayers, while the Hotel Renovation Corporate Income Tax Credit applies to businesses subject to corporate income tax. Both credits provide an amount equal to 30% of qualifying costs for projects that receive a LEED-NC silver certification and 20% for all other hotel renovation projects. To qualify, a project must renovate at least 40% of a hotel’s guest rooms or suites and may not involve new construction.

Before beginning a renovation project, taxpayers must apply for pre-certification from the Tourism Department, which will review the project’s scope, cost estimates, and expected completion timeline. Once the renovation is completed, taxpayers must apply for certification of eligibility within one year. The application must include an affidavit from a certified public accountant verifying the qualifying costs. The Tourism Department will issue certificates of eligibility in the order applications are received, up to the annual cap of $30 million in tax credits.

The credits are non-refundable, but any unused amount may be carried forward for five years. Married individuals filing separately may each claim half of the credit. Taxpayers with ownership interests in partnerships or limited liability companies may allocate the credit in proportion to their ownership stake. The credits cannot be claimed for expenses covered by the federal New Markets Tax Credit under Section 45D of the Internal Revenue Code. The Taxation and Revenue Department is required to include these credits in the annual tax expenditure budget. HB 506 applies to taxable years beginning on or after January 1, 2025.

Implications

HB 506 encourages investment in the renovation and modernization of hotels, which could enhance the quality of New Mexico’s hospitality industry and boost tourism. The tiered credit structure incentivizes energy-efficient and environmentally sustainable renovations by offering a higher credit percentage for projects that obtain LEED-NC silver certification. This approach aligns with broader state and federal sustainability initiatives while supporting economic development.

The program’s $30 million annual cap ensures that the state’s financial exposure is limited while allowing for a predictable number of projects to benefit each year. Because the credits are non-refundable, they primarily benefit taxpayers with sufficient tax liability to offset, making them less accessible to smaller hotel operators with limited taxable income. However, the five-year carryforward provision offers flexibility for businesses to utilize the credits over time.

The pre-certification requirement ensures that only viable projects receive the credit but may also introduce administrative hurdles that could delay renovations. The requirement for a certified public accountant to verify costs adds an additional layer of accountability but may increase compliance costs for applicants. The exclusion of projects that receive the New Markets Tax Credit prevents double-dipping but may discourage some developers from pursuing both federal and state funding sources.
 

Current Law:

 New Mexico does not currently offer a tax credit specifically for hotel renovations. Existing economic development incentives, such as the Job Training Incentive Program and the Local Economic Development Act, focus on job creation and business expansion rather than infrastructure improvements. Some commercial properties may qualify for federal tax incentives, including the New Markets Tax Credit and Historic Preservation Tax Credit, but these programs have different eligibility criteria and application processes.