How the Tax Cuts and Jobs Act of 2017 Affects Historic Properties
March 19, 2018
In December 2017, Congress passed the Tax Cuts and Jobs Act of 2017, which kept intact the 20% Historic Tax Credit (HTC) program, while eliminating the 10% older building tax credit provision.
The Act also modified the terms under which owners could realize the tax credit, which previously could be claimed in whole once a project was completed.
The tax credit must now be claimed at a rate of 4% annually over a five-year period. Although this change somewhat reduces the value of the tax credit to investors, the HTC program still provides significant financial incentives to investors.
Over the next few weeks, I’ll be describing this and other changes in detail in a series of blog posts and a guide. Today, I’d like to give you the lay of the land and give you a sense of what’s at stake.
In small towns, large cities and other communities across the country, people are standing in front of aging buildings, some beloved local landmarks, some seemingly obsolete, and others simply worn out. Many concerned owners and communities are wondering what do to with these neglected resources and how to pay for the work involved.
Since 1976, more than 40,380 such buildings have been given new life using federal historic tax credits to help with project financing, and in the process are transforming the built environment and instilling a new sense of pride and vitality in communities large and small.
For example, the Knapp’s Centre, a long-vacant department store in downtown Lansing, Michigan, is once again an anchor in its community, serving the needs of retail, office and residential users. In Toledo, a mid-century, 30-story glass office tower has been recast as a multi-use building with retail, office and residential uses. The once derelict American Brewery, originally built in 1887, is now a symbol for resilience for East Baltimore as a headquarters for a nonprofit organization.
Rehabilitation tax credits have helped fund the reuse of historic buildings, leveraging $113 billion in private investment to develop a diverse array of income-producing buildings. The program also boosts jobs, enhances property values in older communities, creates affordable housing, and supplements revenue for all levels of government. In fact, at the federal level the program used $23.1 billion in tax credits to generate $28.1 billion in federal revenue—so the program more than pays for itself.
Reusing aging buildings—often referred to as adaptive reuse—can be a financially challenging undertaking, but can produce results that are transformative. Fortunately, federal rehabilitation tax credits can help by bridging the gap between available financing and actual project costs. Knowing how the program works can make the difference, and make seemingly unfeasible projects not only possible, but economically compelling.
In my next post, I’ll explore the tax credits that are available under the program and what it takes for a building to qualify.
For recommendations on how to determine whether your building is eligible for the program, how to apply, and how to ensure you receive the credits download the guide here.