What are Historic Tax Credits?
Historic Tax Credit Info & Overview
The purpose of the Historic Tax Credit (HTC) program is to promote preservation and economic development by making adaptive reuse of historic structures financially feasible. HTC programs exist at both the federal and state levels. Tax Credits are offset against taxes owed, either at the federal or state level depending on the program being used.
Federal Historic Tax Credit
20% program
Overview: the Federal historic tax credit (Federal HTC) is a 20% tax credit related to the renovation of certified historic structures. The Federal HTC is based upon the qualified rehabilitation expense (QRE) incurred in a renovation project. Generally, QRE includes hard renovation costs as well as certain soft costs like architecture fees.
To qualify, a project must go through a three part approval process:
Part I: (a) listed on the National Register of Historic Places, or (b) be a contributing structure located in a historic district.
Part II: the renovation must comply with the Secretary of Interior’s Standards for Historic Rehabilitation. These standards allow for fairly significant building modifications as long as the historic character of the building is preserved. Compliance with the applicable standards is reviewed by the applicable State Historic Preservation Office and the National Park Service.
Part III: after a project is completed, photos are submitted to confirm a project followed the plans approved in the Part II application.
HTC Monetization: Often project sponsors either do not pay tax that can be offset by the Federal HTC or cannot efficiently utilize the tax credits. As a result, they will seek to monetize or syndicate these Federal HTCs with a third-party investor. That investor will utilize the tax credits in exchange for making an equity contribution into the project.
Investors may carry Federal HTCs back one year and forward 20 years to fully utilize the credits. The Federal investor must remain as a partner in a project for a minimum of 5 years after construction, which is the compliance period for the Federal HTC program.
There are a number of strategies that project sponsors can undertake to achieve their overall project objectives while maximizing the benefit from the use of Federal HTCs in the most efficient manner possible. With BW&A’s years of experience in working with this program, we can help ensure your project is able to get the most of out your HTCs.
State Historic Tax Credit programs
Over 30 states throughout the U.S. have historic tax credit programs that can be used in conjunction with the Federal HTC program. State programs vary, but typically permit investors to use the applicable tax credits beginning in the year when a project is completed. BW&A has experience with most state HTC programs and therefore, will be able to help maximize a project’s benefit from the use of these programs.
State HTC characteristics:
Monetization Process: Some state HTC programs provide for certificated credits, which essentially allow credits to be bought and sold. Other states require investors to be partners with the project sponsor in a similar manner to the federal HTC.
Availability: some States have statewide or project level caps on the amount of HTCs that are available. This can impact the total net benefit that a project will receive from its State HTCs.
Timing: States have different rules as to when a credit can be used can vary. Some States require projects to use credits over a several year period. Others states with statewide caps require projects to take credits in years after a project is completed.
Tax Offsets: State tax credits can offset a variety of different types of taxes. Depending on the State, taxes that can be offset may include personal and corporate income, premium and franchise tax to name a few.
Please contact us if you would like to discuss available programs in your state or have an interest in monetizing your tax credits.
Investors will often make investments in projects in exchange in part for their ability to take advantage of the Federal Tax Credits and/or State Tax Credits. Brian Wishneff & Associates works with a large number of investors that have interest in a wide variety of projects, and can therefore ensure the highest pricing for your project.
If you have a project for which you are interested in using HTCs to help facilitate the renovation, please feel free to contact BW&A to discuss the specific application of these programs to your building.