Small Historic Tax Credit (HTC) Project Legislation May Be Coming Soon
In many cities across the country, a single historic renovation project can be the catalyst to launch a citywide revitalization. The federal HTC Program created by Congress in 1976 incentivizes the restoration and preservation of historic buildings. The Program is jointly managed by the National Park Service (NPS) and the Internal Revenue Service (IRS), in partnership with State Historic Preservation Offices. Any building at least 50 years old or that contributes in a significant way to a community’s historic or architectural heritage may be eligible to apply for HTCs to enhance funding. The truth is, most historic restoration projects are not feasible without the additional support of financing from federal and state HTCs. Funding from the Federal HTC Program is great for those who know how to navigate the process of applying for tax credits and finding an investor to fund their tax credit equity. But what if your project doesn’t meet the size parameters that are required by most investors?
There are a lot of fixed transaction costs that go into financing a deal. From modeling financial projections and securing opinions from qualified tax credit accountants and attorneys, to working with many layers of financing, smaller projects require just as much due diligence by the investor as larger projects. These costs have been a roadblock to many smaller income-producing properties looking for tax credit equity.
Legislation has been introduced in Congress over the past several years to make changes and enhancements to the federal HTC Program that would make it easier for smaller income-producing properties to utilize HTCs. Recent proposals started in 2017 with the HTC Improvement Act, which further encourages building reuse and redevelopment in small, midsize and rural communities. In 2018, the HTC Enhancement Act was introduced with the goal of reducing or eliminating the basis reduction of a building by the amount of the tax credit, bringing the program in line with the Low-Income Housing Tax Credit (LIHTC), which does not require a basis adjustment. Legislation introduced in the House recently is a combination of the two, called the Historic Tax Credit Growth and Opportunity Act (HTC-GO). The legislation aims to improve and enhance the HTC by bringing more value to the credit and improving access for smaller rehabilitation projects.
So, what will HTC-GO do for income-producing historic properties costing under $2.5 million?
- Eliminate the HTC Basis Adjustment requirement, bringing more value to those HTC projects by increasing the basis of the building. That will provide additional depreciation and other tax benefits, attract more capital from tax credit investors, and reduce any tax due upon sale.
- Increase the credit from 20 to 30 percent for qualifying projects.
- Allow the transfer of the credits as a tax certificate, rather than requiring a complex partnership structure.
- Make it easier to meet the substantial rehabilitation test.
- Create greater flexibility for nonprofit organizations to partner with developers in redevelopment projects.
These changes would bring monumental change to the HTC program, especially for smaller income-producing properties. Clocktower Tax Credits, LLC has a deep Federal HTC Investor base in addition to our diverse pool of state Tax Credit investors to assist developers. With Clocktower’s expertise in both Historic programs’ quirks and necessary steps for a successful closing, we have the ability to help any historic rehabilitation project.
For developers with prospective rehab projects seeking Federal and/or State HTC equity, please contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com.