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Credit Worthy News

Historic Preservation and Opportunity Zones

Posted by Katherine Ferguson on Friday, May 25, 2018

Sibley_Mill
Sibley Mill | Augusta, GA

Reviews of the new tax reform bill have been mixed. Historic tax credits were retained, but the terms of claiming the credit changed. Other tax incentive programs were modified or done away with entirely. Depending on whom you ask, these changes can be positive or negative.

One change of the tax reform of 2017 that has gotten a lot of attention is the addition of Opportunity Zones. This program was championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and advertises to inject economic incentives to combat geographical inequality. US Census Bureau statistics point to stagnation in primarily rural counties where jobs and businesses have dropped over the last decade. In the 1990s, more than 50 percent of all counties grew at the national rate. Now only 25 percent do.

What is an Opportunity Zone?

The Opportunity Zones program is set up to benefit investors who invest in new businesses and development in census tracts approved as an Opportunity Zone (OZ). The program is market-based and requires no public money. Up to 25 percent of a state’s low-income census tracts - determined by population, income, and local input - are designated by governors and approved by the U.S. Treasury and the IRS.

Any corporation or partnership may self-certify an opportunity fund as an investment vehicle for capital gains tax deferment on the sale of another investment. While IRS rules are still being written, there is not expected to be a minimum or a maximum on the funds. Time is the primary constraint as it is expected that the fund will have to invest 90 percent of its assets in OZ projects within six months. And currently these investments must be made by the end of 2019 to get the full benefit of a 15 percent reduction in deferred taxes for investments owned seven years as the program is due to sunset December 31, 2026. (Investments owned for five years are reduced by 10 percent.)

What does this mean for historic rehabilitation projects?

OZ funding will not be enough on its own to fund a project. Combined with incentives like historic tax credits, however, OZ funding can help fill the capital stack for projects in economically depressed areas. Because of this, we expect that there could be interest in historic rehabilitation in areas that previously may not have been fully feasible before.

It may not be possible to draw a straight line between OZ funding and HTCs, but there might be parallels. Many people in the industry have likened the program to New Markets Tax Credits (NMTC), a program that is occasionally twinned with HTCs to fund rehabilitation projects. They have been sibling programs, but do not directly correlate in terms of usage.

The new OZ approach may create opportunities for investments in historic assets that that NMTCs do not necessarily create. Theoretically, an individual, or small group of individuals, could form a corporation or partnership to make smaller investments in OZs. Because of the complexity of the NMTC structure, it isn’t often economically feasible for a small NMTC project, while smaller projects may dovetail nicely with a combination of HTCs and OZ investments.

In addition to new businesses, many states are focused on making funding available for workforce and affordable housing opportunities that can utilize the OZ program. Technical guidance from the IRS suggests that LIHTC, HTC, and NMTC projects will be qualified investments; however, there are expected to be exclusions for projects that include “sin businesses” like golf courses, country clubs, massage parlors, gambling venues, or stores where the principal business is sale of alcoholic beverages for consumption off premises.

We know that historic preservation is a function of community revitalization. If the program incentivizes investment in these communities as it is designed to do, it will make these projects all the more probable as new businesses are encouraged to move in. But the bottom line is that the potential impact of OZs is yet unknown. We must wait and see how guidance is structured and how investors will respond.

Stay tuned...

This article was written with help from George Morrison of McNair Law Firm, PA and information from the SC Dept. of Commerce.

Further resources:

IRS.gov Opportunity Zones FAQs

McNair Law Firm, PA Opportunity Zones FAQs

Topics: policy, Historic Tax Credits, Opportunity Zones

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

House Tax Reform Legislation Eliminates Historic Tax Credit

Posted by Katherine Ferguson on Thursday, November 2, 2017

A day late, but nonetheless what we expected. The House tax reform bill released this morning does, in fact, eliminate the historic tax credit. This push for tax reform is still in early days and no doubt there will be many changes, maybe even the retention of the historic tax credit, but advocacy is still of the utmost importance. Perhaps now more than ever.

TAKE ACTION NOW

The release of the proposed legislation means that we now know what we are asking for: DO NOT REPEAL THE HISTORIC REHABILITATION TAX CREDIT. It means supporters of historic preservation and believers of economic prosperity driven by historic rehabilitations need to be very specific about what this program has to offer and what we stand to lose. Last year alone, over 1,000 historic rehabilitations were completed; 109,000 jobs were created; $1.7 billion federal, state, and local taxes were generated; and these projects generated $6.2 billion in GDP.

Over the lifetime of the program (1978-2016) these numbers are staggering:

  • 42,293 projects have been certified
  • 2.4 million + jobs have been created
  • $29.8 billion federal taxes have been generated for $25.2 billion credits allocated (that's a $1.20:$1 ratio that proves the program is revenue positive)
  • $144.9 billion has been contributed to GDP

These aggregate numbers are impressive. But it is also the unique placemaking that comes from the reuse of historic buildings in your very own communities that demonstrate the real value of the historic tax credit.

Why are these historic buildings important to you and your community? What positive change and economic development opportunities have you seen from these projects where you live, work, or play? In what state would these places and neighboring properties be without development that was incentivized by the historic tax credit? What projects will not get developed in the future without this incentive?

Consider these questions and take action now before it is too late. We still have a ways to go before the bill becomes law. But House and Senate Republicans are promising an aggressive approach to passage and we must take this very seriously. Losing our historic tax credit would change the landscape of future development in towns and cities across the country, making it more equitable to drastically alter or demolish our historic places. Once gone, we can never replace them.

The same can be said of the historic tax credit. Once gone, an effort to replace what is lost could have uncertain outcomes. We know what Gerald Ford's administration began and Ronald Reagan continued and supported works. We know that its foundation is strong and its bones are good. We know it should not be demolished.

Join us as we stand with the Historic Tax Credit Coalition and others throughout the country to support this historic tax credit. Your contribution of words and support could make all the difference.

Check out this list of important Republican legislators to contact today.

 

Topics: HTC, Historic Tax Credits, tax reform

President Reagan Supported the Historic Tax Credit. Do You?

Posted by Katherine Ferguson on Thursday, October 26, 2017

In 1984, Ronald Reagan was outspoken in his support of the historic tax credit. Today, the historic tax credit is in jeopardy. Just this morning, House Ways and Means Chairman Kevin Brady announced the scheduled release of a House tax reform bill on Wednesday, November 1, and, as we understand it, the bill will NOT include the federal historic tax credit. 

The time is now to voice your support for the federal historic tax credit. As tax reform takes center stage in our nation's capital, the Historic Tax Credit Coalition, the National Trust for Historic Preservation, and many other advocates of this important economic development and preservation tool are speaking up. Please join us!

Contact us with any questions you have about these or other historic tax credit matters. And stay tuned for more information and updates about federal HTC reform in the coming weeks.


Thank you!     
The MHA Team

Topics: Historic Tax Credits, tax reform

HTC Watch | Urgent Tax Reform News

Posted by Katherine Ferguson on Tuesday, October 3, 2017

Well. We wish we had better news.

Last Wednesday, the Republican leadership in Congress and the Administration released a Tax Reform framework that excluded the federal HTC. Regarding tax credits, the document said:

“The framework explicitly preserves business credits in two areas where tax incentives have proven to be effective in promoting policy goals important in the American economy: research and development (R&D) and low-income housing. While the framework envisions repeal of other business credits, the committees may decide to retain some other business credits to the extent budgetary limitations allow.”

Make no mistake, the exclusion of the historic tax credit in this preliminary language is concerning.

There is good news though. Advocates of the federal HTC still have time to work to preserve the credit. But for how long is unknown. It is imperative that those that are interested in saving the program make their voice heard now and reinforce the proof that the HTC is also effective in promoting policy goals as well as having a positive impact on the American economy by stimulating investment and increasing the tax base over time, creating jobs, and preserving historic resources.

The House Ways & Means Committee and Senate Finance Committee Republicans will be integral in the retention of the federal HTC in any tax reform proposals.

House Ways & Means Committee |

Kevin Brady, Texas's 8th, Chairman
Sam Johnson, Texas's 3rd
Devin Nunes, California's 22nd
Pat Tiberi, Ohio's 12th
Dave Reichert, Washington's 8th
Peter Roskam, Illinois's 6th
Vern Buchanan, Florida's 16th
Adrian Smith, Nebraska's 3rd
Lynn Jenkins, Kansas's 2nd
Erik Paulsen, Minnesota's 3rd
Kenny Marchant, Texas's 24th
Diane Black, Tennessee's 6th
Tom Reed, New York's 23rd
Mike Kelly, Pennsylvania's 3rd
Jim Renacci, Ohio's 16th
Pat Meehan, Pennsylvania's 7th
Kristi Noem, South Dakota's at-large
George Holding, North Carolina's 2nd
Jason T. Smith, Missouri's 8th
Tom Rice, South Carolina's 7th
David Schweikert, Arizona's 6th
Jackie Walorski, Indiana's 2nd
Carlos Curbelo, Florida's 26th
Mike Bishop, Michigan's 8th

Senate Finance Committee Republicans |

Orrin Hatch, Utah, Chairman
Chuck Grassley, Iowa
Mike Crapo, Idaho
Pat Roberts, Kansas
Mike Enzi, Wyoming
John Cornyn, Texas
John Thune, South Dakota
Richard Burr, North Carolina
Johnny Isakson, Georgia
Rob Portman, Ohio
Pat Toomey, Pennsylvania
Dean Heller, Nevada
Tim Scott, South Carolina
Bill Cassidy, Louisiana

 

If any of these elected officials are in your Congressional delegation, please seriously consider contacting them to register your support on this issue. If you are from other areas, we encourage you to voice your support as well. Here is how you can help today (and tomorrow, and the next day):

WRITE
The easiest way to advocate for the federal HTC is to work through the Historic Tax Credit Coalition. If you are able to contact any of the above committee members, please email Michael Phillips (mphillips@ntcic.com) at the Coalition. Based on your location, the Coalition team can send you the contact information for your federal legislators along with a form letter that you can cut, paste, and forward. Add a word about how you have witnessed the economic benefits of historic tax credits in your state.

(The National Trust for Historic Preservation has some good statistics and studies if you want to fortify your case.)

CALL
If you want to take it further, pick up the phone and use your voice. Tell your representatives why you support the historic tax credit. Ask that they represent you and your community when they consider any tax reform.

REPEAT
Already sent emails and called? Do it again. If you haven’t heard back from your outreach after three days, repeat your effort. 

Contact us with any questions you have about these or other historic tax credit matters. And stay tuned for more information and updates about federal HTC reform in the coming weeks.

Thank you!

Topics: Historic Tax Credits, tax reform