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Credit Worthy News

Historic Preservation and the Tax Code

Posted by Katherine Ferguson on Wednesday, April 18, 2018

Appreciation of historic buildings comes in many forms: well-curated house museums; impressive civic spaces turned cultural hubs; highly-valued homes in historic districts; popular breweries in old warehouses and industrial spaces; grassroots campaigns to save endangered places; tax policy.

Yes, tax policy.

To commemorate the tax season that's upon us, here is a brief history of how and why historic preservation became a political issue and necessarily found it's way into the federal tax code:

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  • 1950s & 60s | After World War II, there was a dramatic increase in interstate highway building and the raising of undesirable buildings through a practice called "Urban Renewal" that was sanctioned by government policy. Historic preservation at this time was associated primarily with house museums honoring prominent historic figures. Tax code at this time favored demolition over preservation.
  • 1954 | The Revenue Act of 1954 expanded methods of accelerated depreciation for real assets as a way to counterbalance a mild recession of the era and stimulate the economy. The provision was only extended to new construction, thus disadvantaging maintenance, repair, and preservation of older buildings.

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  • 1963 | Pennsylvania (Penn) Station in New York City was demolished. This event is seen as a turning point in the preservation movement as the public began to view the preservation of monumental and architecturally significant buildings as important to the fabric of their communities.

  • 1965 | President Lyndon Johnson included historic preservation principles in his White House Conference on Natural Beauty. Under Johnson's administration, many social issues were addressed using tax policy and he remarked that "the greatest single force that shapes the American landscape is private economic development. Our taxation policies should not penalize or discourage conservation and the preservation of beauty." The Townscape Panel of the conference included two full paragraphs on the topic in its formal report.

  • 1966 | With Heritage So Rich was published as a product of the Townscape Panel meeting in 1965 and included a forward by First Lady, Lady Bird Johnson. Recommendations for the role of federal government in historic preservation included tax policy including deductibility of preservation expenditures and gifts of easements. Poet George Zabriskie contributed the essay "Window to the Past" that most directly advocated for tax reform that would save old buildings.
As long as we have a society in which the profit motive is operable, we cannot condemn property owners for wishing to profit from their holdings. We can, however, study tax laws at all levels, with the hope of adjusting them to permit profitable remodeling and retention of sound buildings of architectural and historical importance. [Zabriskie]
  • 1966 | The National Historic Preservation Act of 1966 (NHPA) was passed with a late addition for a mandated Advisory Council on Historic Preservation tasked with recommending studies including in such areas as "the effects of tax policies at all levels of government on historic preservation."

  • 1969 | To raise revenue in the wake of the Vietnam War, the Nixon administration passed the Revenue Act of 1969 which favored demolition for tax purposes, reducing the after-tax profitability and attractiveness of historic rehabilitation by comparison.

  • 1972 | Ernest Connally, head of the NPS Office of Archeology and Historic Preservation was given an audience with President Nixon and presented the dilemma of demolition of old buildings being advantaged through tax code versus the rehabilitation of them. As a result, Nixon included tax provisions in the Environmental Protection Tax Act of 1972 (EPTA). Owners who demolished certified historic structures would no longer be allowed to deduct the cost of demolition, demolition expenses were added to the adjusted basis of the property, and limited owners to a straight line method of depreciation on any new construction on the same site. This provision bolstered the interest in the National Register for Historic Places, which at the time had only existed a few years and contained approximately 2,800 properties.

  • 1973-1976 | After effective study and advocating by the National Trust for Historic Preservation and Preservation Action, Senator J. Glenn Beall of Maryland introduced S. 2347, the "Historic Structures Act of 1973." It was included in the Ford Administration's Tax Reform Act of 1976.
The time has clearly come for us to harness the constructive energies in our nation's tax system so as to bring private funds and commercial interests actively and enthusiastically into the field of historic preservation. The time has clearly come for the Congress to wipe away many of the existing tax incentives which run directly counter to our national goals. [Beall]
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  • 1981 | Reagan's Economic Recovery Act of 1981 bolstered historic preservation in the tax code by setting the federal historic rehabilitation tax credit (HTC) at 25 percent. In 1984, more than 3,200 projects received Part 2 approval.

  • 1986 | Despite President Reagan's vocal support of the historic tax credit program, his 1984 Tax Reform Act reduced the credit from 25 percent to 20 percent. This greatly reduced the number of applications and approvals through the remainder of the 1980s.

  • 1990s & 2000s | While the lowest number of Part 2 approvals were recorded in 1993, the program grew and thrived without significant changes despite recessions in the past few decades. State HTC programs also began to gain traction during this time and have created additional incentive for real estate developers to invest in local economies.

  • P2017 | The Tax Cuts and Jobs Act of 2017 included the first major change to the HTC since 1986. Projects acquired and started after December 31, 2017 must now take the 20 percent credit in equal installment over five years versus taking the credit in full the year the project is placed in service. While this change will have an affect on future projects, the retention of the 20 percent credit is continuing to stimulate the rehabilitation of historic buildings around the country.

Acknowledgements: For a deeper look at the history of historic preservation and tax policy, read When Preservation Came to the Tax Code, a Spring 2013 ForumJournal article by Andrew Potts.

 

Topics: federal HTC

National Park Service Releases 2017 HTC Report

Posted by Katherine Ferguson on Tuesday, March 13, 2018

As historic preservation advocates spend the week on Capitol Hill for Preservation Action's Advocacy Week, the National Park Service has released the Federal Tax Incentives for Rehabilitation Historic Buildings: Annual Report for Fiscal Year 2017

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Among the impressive findings for 2017:

  • Over $5.8 billion of private investment was certified (Part 3).
  • Almost 107,000 jobs were created.
  • There was a 16 percent increase in Part 2 approvals, representing an estimated $9.07 billion in QREs.

With FY 2018 well underway, and even with the late 2017 tax law changes, we expect that these trends will continue to show the positive effects of the historic tax credit program on our nation's historic buildings. 

Topics: federal HTC, National Park Service

State Historic Tax Credits with Equal Installment Structures

Posted by Katherine Ferguson on Friday, February 23, 2018

DSC_0024.jpgCigar Factory | Charleston, SC

Making headlines around the country, the big change to the federal historic tax credit has people talking and speculating. The tax credit itself was saved, which was welcomed with a collective sigh of relief from preservationists, developers, architects, and community leaders across the nation; however, the effect of one major change requiring owners to take the credit over five years instead of the first year has been the speculation of national and local news media and industry leaders over the last two months. 

We don't have all the answers on what the outcome of the change will be yet, but in the February 2018 issue of the Novogradac Journal of Tax Credits, we examine how state historic tax credit programs that have equal installment strcutures have fared and what we can learn from them. 

Read the full story here | 
What State HTCs with Equal Installment Structures Tell Us About the New Federal HTC Rules

 

Topics: State HTC, Novogradac Journal of Tax Credits

The Historic Advisor | Winter 2018

Posted by Katherine Ferguson on Thursday, February 15, 2018

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INSIDE THIS ISSUE | With new rules in place for the federal historic tax credit in the new year, we take a look at the history and future of the program. This edition of our quarterly newsletter also features historic rehabilitation projects currently underway, state HTC news, recent project honors, and exciting team news.

    
 

Topics: Historic Tax Credits, The Historic Advisor

HTC Watch | Tax Reform One Step Closer

Posted by Bill MacRostie on Tuesday, December 19, 2017

Hill_Christmas| Architect of the Capitol

The tax reform conference committee issued its report late Friday afternoon and the 20% HTC taken over five years was included, a provision that was introduced in an amendment by Sen. Bill Cassidy (R-LA) which reinstated the 20% rate from 10% as contained in the original version of the Senate bill. (The 10% credit for non-historic pre-1936 buildings has been completely eliminated.) Overall, this is good news for the historic rehabilitation industry and historic communities across the country. The next step will be the reconciled version of the bill to be voted on by the House and Senate this week, with signature by the President looking likely before Christmas. 

While the five year provision is not ideal, it appears the federal historic tax credit will continue to be a viable program, and hopefully there will be opportunities in the near future to improve the law. (An important note: should the bill pass as is expected, those wanting to qualify for the current federal HTC program must have the "taxpayer" claiming the credit as owner of the building by the end of 2017.)

An unexpected positive development in the conference report was the inclusion of the option for 60-month phased projects under the transition rule. This was a glaring omission from the earlier versions of the bill, which only addressed the 24-month basis test counting period and created uncertainty for current and future phased projects, and was an issue lobbied by the Historic Tax Credit Coalition (HTCC).

Many thanks are due those of you that stood with the HTCC to voice your support for the tax credit. We encourage you to reach out and thank the legislators that have been champions for the incentive in critical ways, such as Sen. Bill Cassidy (R-LA) and Sen. Tim Scott (R-SC). The need for our advocacy is far from over, but we could not have gotten to where we are now without the efforts of all involved.

Follow us on LinkedIn and Twitter for the latest on this and other historic tax credit news.  

Topics: federal HTC, tax reform