Historic Preservation and the Tax Code

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:

 

  • 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.
     
  • 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]
  • 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.