Preserving our history and cultural heritage is a task of paramount importance, and one way this is achieved is through the renovation and preservation of historic properties. These buildings tell are so important to our architectural and cultural heritage but oftentimes the costs associated with the craftsmanship as well as recreating the materials used in these historic properties can be very high. This is where historic tax credits come into play! Historic tax credits can be a powerful incentive that not only eases the financial burden but also fuels the revitalization of these incredible historic properties.
Understanding Historic Tax Credits
Historic tax credits are financial incentives provided by the government, both at the federal and state levels, to encourage the rehabilitation and preservation of historic properties. The idea behind these credits is simple: property owners or developers who invest in the restoration and renovation of qualified historic structures can receive a significant reduction in their tax liability.
For the federal tax credits, the Historic Preservation Tax Incentives program is administered by the National Park Service and the Internal Revenue Service. They offer two main types of tax credits: the Rehabilitation Investment Tax Credit (RITC), which is for income-producing properties, and the Historic Homeownership Tax Credit, which is for private residences. It should be noted that the federal tax credits for income producing properties must be spread over a 5 year period so if immediately reselling the property is the intention of the developer then federal credits may not be an option.
Benefits of Historic Tax Credits
The benefits of historic tax credits go beyond just the financial savings. Here is a list:
- Financial Incentives: Although the benefits do go beyond financial savings, that is the most obvious advantage. Property owners can receive a tax credit that covers a percentage of their eligible renovation expenses. The federal RITC offers a credit of up to 20% of qualified rehabilitation expenditures and the state is at 25% at the time of this article. That means you can get 45% of qualified expenses back in the form of tax credits. That’s a lot of money!
- Lower Renovation Costs: Historic tax credits can significantly reduce the overall cost of a restoration project. This makes it more financially feasible for property owners and developers to take on the challenging task of preserving historic structures. Larger renovation budgets are offset by the tax credits.
- Economic Development: Renovating historic properties creates jobs and stimulates local economies. These projects leads to increased business for construction companies, suppliers, and local businesses.
- Tourism and Community Revitalization: Tourism is such an important part of New Orleans revenue so everything we can do to help solidify and improve the mystique of the city is vitally important. This helps draw more visitors which generates more revenue. Plus, restored historic properties often become cultural landmarks.
- Environmental Benefits: Restoration of historic buildings can be more environmentally friendly than demolishing and constructing new structures. Reusing existing materials and infrastructure can reduce waste and energy consumption.
The Application Process
While the benefits of historic tax credits are evident, the application process is complex. Property owners or developers must adhere to specific guidelines to qualify for these incentives. Here is a breakdown of what all is involved:
- Determine Eligibility: Property owners must first determine if their building is eligible for historic tax credits. The property typically needs to be listed on the National Register of Historic Places or be contributing to a historic district. Age is also a big factor. State credits usually require a building to be at least 50 years old and federal is closer to the 100 range.
- Evaluate Costs: Calculate the eligible rehabilitation costs. Certain expenses may not qualify, so it’s essential to understand what can be counted towards the tax credit.
- Consult with Preservation Experts: It’s advisable to work with historic preservation consultants who are experienced in navigating the tax credit application process. They can help ensure that the project meets all the necessary requirements and should also be able to guide you through qualified and non-qualified expenses.
- Secure Necessary Approvals: Depending on the scope of the project and local regulations, various approvals may be required. These could include permits from local historic preservation boards or zoning authorities.
- Complete the Work: Once approvals are in place, the renovation work can commence. It’s very important to document all expenses and work carried out, as this documentation will be essential when applying for the tax credits.
- Claim the Tax Credit: After the renovation is complete, property owners or developers can claim the historic tax credit on their tax return. This is done through IRS Form 3468 for income-producing properties or Form 1040 for residential properties.
Challenges and Considerations
While historic tax credits provide valuable incentives for historic preservation, there are also challenges and considerations to keep in mind:
- Stringent Regulations: The guidelines for historic rehabilitation can be strict. Property owners must adhere to preservation standards, which can limit design flexibility. State credits will not let you alter the exterior of the building and federal is very strict about making sure everything is back to it’s original state. Of course sometimes this may not be possible due to safety hazards or parts of the property that are beyond repair/replacement, but the organizations will usually work with you under these extreme circumstances.
- Administrative Burden: The application process can be time-consuming and involves extensive documentation. Property owners must be prepared for the administrative workload.
- Ownership Obligations: In some cases, property owners must agree to certain ownership obligations, such as maintaining the property’s historic character for a specified period after the renovation.
- Eligibility Restrictions: Not all rehabilitation expenses may qualify for tax credits. Understanding what is eligible and what is not is critical to maximizing the benefits.
- Competition: In some regions, the demand for historic tax credits can be high, leading to competition for available credits. It’s essential to plan and apply early.
Historic tax credits have been instrumental in preserving and revitalizing countless historic properties across the United States. Here are a few success stories that highlight the power of these incentives:
- The Strand Theater, Shreveport, Louisiana: This historic movie palace, built in 1925, had fallen into disrepair. Thanks to historic tax credits, it was restored and now serves as a cultural hub for the community, hosting concerts, films, and other events.
- The Ellicott Square Building, Buffalo, New York: This 10-story historic office building underwent a significant renovation, preserving its incredible architecture. It is now home to a mix of offices, restaurants, and retail spaces, contributing to the revitalization of Buffalo’s downtown.
- The Fitzgerald, Baltimore, Maryland: Once a dilapidated hotel, The Fitzgerald was transformed into a luxury apartment building with the help of historic tax credits. The project not only preserved the building’s historic charm but also provided much-needed housing in downtown Baltimore.
These success stories demonstrate that historic tax credits can breathe new life into neglected properties, helping communities and preserving our cultural heritage.
Historic tax credits are a valuable tool in the arsenal of preservationists and developers seeking to restore historic properties. These incentives not only make financial sense but also contribute to economic development, community revitalization, and the preservation of our cultural heritage. By unlocking the past through historic tax credits, we ensure that our architectural and historical treasures continue to tell their stories for generations to come.
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