The Planning Lady

Despite all the evidence that historic tax credits, at either the state or federal level, easily pay for themselves and then some, they always seem to be under constant threat. With the current climate of cut funding as fast as possible, it’s no surprise that the economic driver for local communities that is the federal historic tax credit is in need of support.

History of Federal Historic Building Incentives

The first federal tax incentives for historic buildings were introduced in 1976 with the passage of the Tax Reform Act that year. In 1979 Congress introduced a 10% tax credit for rehabilitation of buildings 20 years or older. Two years later the program was broken into three parts: a 15% credit for buildings 30-39 years old, a 20% credit for buildings 40 years or older, and a 25% credit for certified historic structures (i.e. listed in the National Register of Historic Places). This three tiered system was refined into two in 1986 with a 10% credit for old, but not certified historic buildings built before 1936 and a 20% credit for certified historic structures. This credit was maintained until 2017 when the Tax Cuts and Jobs Act slashed the 10% pre-1936 building credit.

Benefits of Historic Tax Credits

As mentioned, there have been many studies done at all levels to showcase that these tax credits pay for themselves. The National Park Service, the federal agency responsible for managing the projects from the historic side (IRS manages the financial aspect) reports annually on the economic impact of the federal Historic Tax Credit (HTC). According to the 2022 report, “Since the program’s inception in 1976, the NPS has certified the rehabilitation of more than 48,000 historic properties throughout the United States, with the HTC leveraging over $235 billion in private investment in historic rehabilitation and generating more than 3.2 million jobs. Other benefits include:

• Reducing the financing gap: historic properties often have higher rehabilitation costs, so a tax credit devoted to their preservation helps fill in gaps in financing structures.
• Creating Jobs: historic rehabilitation projects typically require a variety of skilled trades, such as carpenters, masons, and artisans, creating job opportunities in the local economy.
• Preserving cultural heritage: rehabilitating historic buildings for new uses supports older neighborhoods and contributes to community history and culture.
• Creating sustainable development: rehabilitating historic buildings is often more sustainable than demolishing and building new structures. It reduces waste and preserves valuable architectural features.
• Revitalizing neighborhoods: while overlapping with cultural heritage, preservation of old buildings can contribute to revitalization of economically distressed neighborhoods by encouraging the redevelopment of underutilized historic properties. This in turn leads to improved infrastructure, increased property values, and economic growth in the area.
• Supporting Affordable Housing: the HTC is often used in combination with the Low Income Housing Tax Credit (LIHTC) to create affordable housing in old buildings like abandoned warehouses. Together, these tax credits create more affordable housing units in walkable, urban areas connected to services and jobs.

These are just some of the many benefits to historic preservation projects that often rely on the HTC for their success. Which is why it is always baffling that they end up on a list of programs to cut or alter.

Proposed Changes

The start to 2025 came with a push to pass a significant tax bill during this legislative session as a number of tax provisions in the 2017 Tax Cuts and Jobs Act (TCJA) are expiring at the end of this year. Early concerns were that the HTC would be under threat, however Senators Cassidy (R-LA) and Warner (D-VA) and Representatives LaHood (R-IL) and Suozzi (D-NY) reintroduced the Historic Tax Credit Growth and Opportunity Act (HTC-GO) to protect it. This bill has been introduced or reintroduced in four consecutive sessions now.

New provisions include returning to a one-year delivery of the HTC (which has been five years since the 2017 TCJA), as well as a boost from 20% to 30% in credit and the ability to transfer credits for smaller and rural project. This bill would improve the HTC, making the credits (often a challenge to use for smaller projects) easier to use.

At this point in the session, both the Senate and House bills are still in their respective committees, Committee on Finance and the Committee on Ways and Means respectively. With actions pending in the coming week(s) the future of the HTC is uncertain.