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North Carolina Rehabilitates Historic Tax Credit

Posted by Richard Sidebottom on Friday, October 2, 2015
Richard Sidebottom
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NODA Mills | Charlotte, NC
NODA Mills | Charlotte, NC

For many years, North Carolina was the poster child for healthy historic tax credit programs (HTCs). It was a shining example of how a state program can spur private real estate and economic development. Numerous historic rehabilitations testify to the success of the former HTC and North Carolina Mill Tax Credit programs. Some impressive examples are Wake Forest Biotech Place in Winston-Salem, a master-planned development that transformed the former R. J. Reynolds Tobacco Company complex into offices and research laboratories, and the many abandoned mills around Charlotte brought back to life as affordable housing, breweries and mixed use developments. With a user-friendly state tax credit program and the outspoken support of a strong statewide preservation organization, Preservation North Carolina, the state was a hotbed for historic rehabilitations, with the sixth highest number of projects in the country just prior to. In 2014, 44 rehabilitation projects received Part 3 approvals with a total of more than $56 million spent by the private sector on qualified rehabilitation expenditures (QREs).

That is why it was so disappointing that the state HTC and the state Mill Tax Credit programs were allowed to sunset at the end of 2014. Even before the HTC was gone, a campaign driven by Governor Pat McCrory and Secretary Susan Kluttz of the Department of Natural and Cultural Resources was underway to reinstate some form of these instrumental revitalization programs for the Tar Heel State. According to the 2014 report, Decades of Success: The Economic Impact of Main Street in North Carolina, sponsored by the North Carolina Department of Commerce and North Carolina Main Street Communities, nearly 300 projects in Main Street districts alone used the historic tax incentive between its inception in 1998 and 2013, with private investment totaling over $190 million in rehabilitation costs.

Good news came in the last few weeks from the North Carolina legislature! A revised tax credit program combining the HTC and Mill Tax Credit programs was included in the budget bill recently passed by the legislature and signed by Governor McCrory. While final details of the program are subject to change, the program should begin on January 1, 2016 and will include the following:

RATES 

  • Income-Producing (combines Commercial & Mill)
    • Reduces base credit rate to 15%
    • +5% for mill ($3M spending requirement has been eliminated)
    • +5% for economically distressed counties
  • Home-owner Residential
    • Reduces to 15% credit
    • Applies a cap per project QRE @ flat project ceiling ($150K)
    • $10,000 minimum over 24 months

CAPS

  • Income-Producing (combines Commercial & Mill)
    • $0 to $10M base rate
    • $10M to $20M base rate reduced by 5%
    • Hard cap at $20M
  • Home-owner Residential
    • $150,000 cap

INSTALLMENTS
Can now be claimed all in one year. All credits claimable once building is placed into service with a 10-year carry forward.

TAXES CLAIMABLE AGAINST
Combined credits claimable against income taxes, grow premium taxes and corporate franchise taxes. 

The combination of the above results in a maximum per project cap of $4.5 million. This may not be as generous as the combination of the previous programs, but it will have a positive impact on a majority of the potential projects in the state and spur continued economic development. 

The North Carolina SHPO will be promulgating new regulations in the coming months and we will make sure to provide updates.

Contact us if you would like to know how these or other state HTCs can bring equity to your historic rehabilitation project. 

Topics: policy, North Carolina, HTC, MHA Southeast