The Rehabilitation of the North Carolina Historic Tax Credit

Novogradac Journal of Tax Credits
December 2015 | Volume VI - Issue XII

By: Bill MacRostie, MacRostie Historic Advisors, LLC

Christmas came early for developers of historic properties in North Carolina when Gov. Pat McCrory signed the state budget that once again included historic tax credits. The previous programs sunset at the end of 2014 and developers and state leaders alike bemoaned the loss of tax credits that had revitalized many communities and vacant properties in the state and had incentivized millions of dollars in economic development. Though pronounced dead by many in the state Legislature, extraordinary lobbying by Gov. McCrory, Secretary of Cultural Resources Susan Kluttz and many others in the preservation and development communities resulted in a revived bill signed into law on Sept. 20. The new law, created in Article 3L of the North Carolina Revenue Code, is effective Jan. 1, 2016 and sunsets Jan. 1, 2020.

The Details

The new program combines the once-separate North Carolina Income-Producing Historic Tax Credit and Mill Rehabilitation Credit. (Note: the Articles 3D and 3H programs were not repealed and SHPO anticipates continued review of legacy projects for rehabilitation expenses incurred before Jan. 1, 2015 with certain projects grandfathered through 2023.) The new law, while not as generous as the old programs, still provides a significant incentive for historic rehabilitation. As with the old laws, the credit piggybacks on the federal credit and requires National Park Service (NPS) certification to qualify.

The base credit for income-producing projects is now 15 percent of qualified rehabilitation expenditures (QREs) up to $10 million and 10 percent for QREs between $10 million and $20 million. For larger projects, QREs in excess of $20 million do not earn credits.

In addition to the base credit, the  new  law  features two 5 percent bonuses on QREs up to $20 million for properties located in tier 1 or 2 distressed counties, and/ or manufacturing- or agricultural-related properties that have been at least 65 percent vacant for two years before certification. With the bonuses included, there is an overall project cap of $4.5 million.

The five-year credit carryforward contained in the  prior law is replaced with the ability to claim the entire credit in the year the project placed in service, which is advantageous from a syndication perspective. The new law also contains a 15 percent homeowner historic credit with a $22,500 project cap.

At the time of this writing, drafts of the rules were out for public comment. Temporary rules have been promulgated by the North Carolina Division of Historical Resources and should have an effective date of Jan. 1, 2016. The draft included revised review fees with projects of $1 million to $4,999,999 having a fee of $5,250 and a fee of $7,750 for projects of $5 million and above.

The Economic Impact

Supporters of the state HTC recognize that the failure to renew the previous programs had less to do with the success of the programs and more to do with the political debate about tax reform in general. Nevertheless, the economic impact of such incentives, demonstrated by projects under the former law, were integral in persuading legislators to back the bill.


In Winston-Salem, Wexford Science & Technology LLC is partnering with Wake Forest University to invest nearly $400 million to date in rehabilitating the former home of R.J. Reynolds Tobacco Company. This biotech and life sciences center, called Wake Forest Biotech Place, is a model for university-related public-private development, transforming a blighted portion of downtown Winston- Salem and bringing nearly 2,000 jobs with it.

Dan Cramer, senior vice president at Wexford, who oversees projects all over the country, both new construction and historic rehabilitations, acknowledges the inherent risks in historic rehabilitations that make these tax incentives integral to the project. “Without the tax incentives we would very likely not take them on,” Cramer says. “And in Winston-Salem, the state credit really completes the capital stack in a vital way. Without the state portion of the credit, I don’t believe the subsidy would have been deep enough to make the [Wake Forest] project feasible.”


Downtown Durham has been dramatically transformed in the past 15 years due in large measure to the federal and state HTC programs. The American Tobacco campus, Brightleaf Square and the Golden Belt campus all have office, residential and retail/restaurant uses downtown that contribute to vibrant living and working neighborhoods that are especially attractive to Gen Xers and Millennials.

 Like many states experiencing industrial dislocation, these projects capitalized on a 21st-century need in North Carolina. Preservation North Carolina president Myrick Howard said, “We had empty buildings because of NAFTA, loss of the textile industry, loss of the furniture industry, loss of the tobacco industry. We thought we would try out a state historic credit program and see how it worked.” The results are clear and dramatic in Durham and throughout the state.

Development Opportunities

While these types of large historic rehabilitation projects will be impacted by lower and more restrictive rates, investors and developers alike see the new bill as a win, with its streamlined set of rules and the ability to take tax credits in one year versus five.

 “This new program will open the doors to new investors in the North Carolina market and provide the much-needed capital for many projects to move forward,” said Scot Butcher, principal at Tax Incentive Finance, a firm that specializes in tax credit syndication. “The $4.5 million- per-project tax credit cap is a very reasonable medium for property owners and developers, and it effectively safeguards the state resources to be used equitably.”

Developer Ken Reiter, of Durham-based Belmont Sayre, was able to certify many of their current properties under the old North Carolina Mill Rehabilitation Credit. Those certifications will expire at the end of 2022, but the threat of losing the HTC program outright in the state had him looking at projects in other states with HTC programs. “Developers will just pack up and go elsewhere,” Reiter said. “While North Carolina was looking at losing their credit, South Carolina was enhancing theirs. So we were looking at South Carolina, Georgia, Texas, even Illinois.”

Reiter was also actively involved in advocacy efforts, knowing that the outcome was going to directly affect his business that almost exclusively works with historic mill properties and uses the credit. He admits that at the end of the day, the new credit may not seem as valuable, but it will still help to get projects done. “Our view was that if you’re going to pass something, pass something that works,” he said. “The new bill is obviously less, but I think that it is effective and the economic benefit will be realized.”

Federal and State Credits

A quick glance at statistics for the federal HTC program shows that the states with the best state credit programs consistently come out on top in terms of use of the federal credits, proving that the piggybacking nature   of the programs is real and valuable. Myrick Howard  of Preservation North Carolina said, “We were among the first states to adopt a workable [tax credit] program, and its success has kept North Carolina in the top five nationally for the last decade for the use of the federal tax credit.”

The Takeaway

State HTCs have played a huge role in North Carolina’s economic development during the past several years. Especially when states are viewed as competing for finite investment dollars, an effective state tax credit program can mean the difference between a vibrant addition to downtown and a continuing white elephant dragging down the local economy. State tax credits fall in and out of favor with legislatures depending on the volume of credits issued and the temperature of the state’s economy.

Though not as lucrative as the previous combined credit programs, it’s a huge win to save the credit and have it as a platform for the future. Once they are gone, other states have experienced, they are nearly impossible to get back. The revised North Carolina HTC will continue to draw developers to the state and will still have a positive impact on the state economy while preserving its important historic assets.

This article first appeared in the December 2015 issue of the Novogradac Journal of Tax Credits.

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