Preserving the Past: Unpacking Historic Tax Credits

Preserving the Past: Unpacking Historic Tax Credits

Historic preservation goes beyond the architectural beauty of a building. It is an important way to transmit the understandings of the past to future generations and preservation of the history helps tell these stories. The federal government realized the importance of these historic sites and implemented the Federal Historic Preservation Tax Incentives program that will encourage private sector investment in the rehabilitation and re-use of historic buildings. At a state-level, 37 states have adopted the state historic tax credit program and are transforming underutilized historic buildings to create more inclusive and resilient communities.

What are Historic Tax Credits?

Historic Tax Credits (HTC) are a federal tax credit program that provides investors with a 20% credit against the costs of rehabilitating eligible historic structures. This program was established in 1978 and has facilitated the rehabilitation of over 42,000 certified historic buildings. Administered through the National Park Service, Internal Revenue Service (IRS) and State Historic Preservation Offices, it has created over thousands of jobs and turned out to be the nation’s most successful and cost-effective community revitalization program. At the state-level, Historic Tax Credits complement the federal program by providing additional incentives, leading to even greater financial benefit for property owners. 70% of states have adopted some form of historic tax credit incentive to support building reuse and the preservation policy.

What Does This Mean for Property Owners, Developers and Investors?

Let’s take a look at HTCs on a federal level. Property owners can claim tax credits for up to 20% of qualified rehab expenses and this can offset the cost of rehabilitation to make projects financially viable for owners. As for developers, HTCs will incentivize developers to renovate, restore, and reconstruct the historic buildings. No other tax credit provides as much incentive to preserve and restore historic sites as the federal HTC. Now, for tax equity investors, they are the ones who provide the upfront capital necessary to these rehabilitation projects in exchange for tax credits. By doing so, this is allowing the investors to offset their own tax liabilities while supporting the restoration of a historic site.

What are the Economic and Social Benefits?

At Foss & Company we like to say that HTCs are preserving our past and building our future. One of the biggest benefits for the economy, according to National Park Service, is that the program contributed more than $13.8 billion in output terms of goods and services to the U.S. economy as well as generating over 122,000 jobs. Historic preservation not only shows our nation’s history, but it supports community revitalization, job growth and encourages property owners to utilize the rehabilitation of historic sites. Keeping these buildings gives the opportunity to maintain a sense of continuity and identity in communities that foster a connection to the past, and it also provides the opportunity to educate the community on the culture and history by maintaining their historic characters.

Why are HTCs so Important?

Historic Tax Credits are viable in restoring a community’s historic site without losing its connection. It not only benefits the economy by creating thousands of jobs, but it keeps the community together by preserving history. Property owners are now seeing the value of federal HTCs and how it is a financial incentive that’ll support investment in historic buildings and become an income-producing use. For investors and developers, it is important to engage with experienced professionals, including architects and tax credit specialists such as Foss & Company, who are well-versed in historic preservation and tax incentives. Foss & Company conducts lengthy due diligence on all potential projects to ensure they align with our investor’s goals and risk tolerance. For developers, we streamline the closing process through our industry leading “one stop shop” approach.

Since 1983, Foss & Company has been a leader in the tax equity space, having deployed over $8 billion in tax equity on behalf of our institutional investor partners. With our experience in tax equity, we have helped in the development of many historic rehabilitation projects. We understand how to make these deals work as we are well versed in underwriting, asset management and construction requirements for projects across the country. Investors and developers who come to Foss & Company can be confident that they are dealing with an experienced sponsor and high-quality projects.

To learn more about preserving the past by utilizing the Historic Tax Credits, listen to our podcast today: