The tax credits apply specifically to preserving historic properties and have generated billions of dollars in historic preservation activity since the incentive’s inception in 1976.
The federal credit is a two-tier credit for buildings subject to tax depreciation:
- a 20 percent tax credit for the certified rehabilitation of certified historic buildings, OR*
- a 10 percent tax credit for the rehabilitation of non-historic, non-residential buildings originally constructed before 1936.
*A property may be eligible for the 20 percent credit or the 10 percent credit but not both. The credit is based on the eligible qualified rehabilitation expenditures (“QREs”) that relate to the renovation of the building.
The federal credit is generally earned and available entirely in the year the property is placed in service. However, there are special situations for projects that are completed in phases. The program is administered by a combination of the National Park Service, state historical preservation societies, and the Internal Revenue Service.
Many states have historic tax credit programs as well. State credits are commonly 20 percent to 25 percent and often mirror the qualifications for the federal 20 percent credit. However, each state has its own criteria and unique characteristics that make maximizing the benefit complicated. Some states have total annual caps, per project caps, and different structures regarding who can ultimately use, allocate, or sell the credit.
The historic rehabilitation tax credit is generally available to the ownership entity of the property. There are a multitude of financial and construction requirements that owners, developers, investors, and lenders need to plan for to appropriately take advantage of historic tax credits.
Leveraging deep knowledge of federal and state historic rehabilitation tax credit programs, Baker Tilly provides solutions in the following areas:
- Financial modeling
- Pairing historic tax credits with other applicable credits and incentives
- Qualified rehabilitation expenditure analysis
- Sourcing and securing equity and debt
- Investor solicitation and response review
- Attorney collaboration
- Development support and advisory services
- Market study analysis
- Economic impact analysis
- Construction budget review and analysis
- Construction cost audit
- Cost certification
- Annual audit, financial statements and tax returns