On October 1, 2009, Senators Blanche Lincoln (D-AR) and Olympia Snowe (R-ME), along with Reps. Allyson Schwartz (D-PA) and Pat Tiberi (R-OH), reintroduced H.R. 3715 and S. 1743, our bill that would make beneficial changes to the federal rehabilitation tax credit and provide a greater incentive for the reuse of historic and older buildings. It would also encourage building owners to achieve substantial energy savings in building rehabilitations with graduated increases in the historic tax credit based on the level of efficiency achieved. The measure is a redrafted version of the Community Restoration and Revitalization Act (H.R. 1043 and S. 584), which was introduced in the last Congress.
The federal rehabilitation tax credit is one of the nation's most successful incentives for the rehabilitation of historic and older buildings. Over the last 32 years, it has been extremely successful in attracting capital to historic areas in cities and towns throughout the country, generating over 67,000 jobs, strengthening property values, and creating affordable places to live. The credit is responsible for developing more than 35,600 projects nationwide, leveraging over $50 billion in private investment – a record $5.6 billion last year alone. It is a powerful economic development and reinvestment catalyst that – with the changes outlined in the bill – would have even greater potential to revitalize America's urban and rural areas.
One of the key provisions of the reintroduced bill would place greater emphasis on achieving energy savings in building rehabilitations through greater use of energy-efficient materials, systems, and appliances. In addition, the measure as a whole would increase the tax credit’s value as an incentive, and reusing historic and older buildings is inherently sustainable. Forty-three percent of all carbon dioxide emissions in the United States comes from the operation of buildings. They are the source of 72% of all electricity consumption in America. The reuse, recycling, and preservation of older and historic buildings in and of itself conserves the energy expended to construct them and reduces the use of additional energy and natural resources required by new construction. Over the past ten years alone, the historic tax credit has rehabilitated over 217 million square feet of commercial and residential space. It can do more, however. Over 1.3 million historic buildings are listed in or contribute to historic districts in the National Register of Historic Places, with thousands of contributing resources added each year. The National Park Service estimates that 20% of these buildings would qualify for the historic tax credit.
View a summary of the proposed amendments below, or download a more thorough analysis for additional information.
Enabling Smaller Rehabilitation Projects - Section 2 of the bill.
Increase the federal historic tax credit from 20% to 30% for "small projects" with $7.5 million or less in qualified rehabilitation expenditures.
The historic tax credit is difficult for individuals and small businesses to use largely due to the high transaction costs of syndication. Allowing a deeper credit of 30% for historic rehabilitation projects of $7.5 million or less in total development costs would ensure enough equity to make the historic credit work for smaller projects, many which are located in rural Main Street communities and urban commercial areas that are most in need of reinvestment.
Providing Downtown Housing in Historic Buildings - Section 3 of the bill.
Permit the 10% non-historic credit for older buildings to be used for rehabilitating residential rental property.
The 20% portion of the historic tax credit is currently available for the rehabilitation of any income producing property, including residential rental property. However, housing is not allowed under the 10% portion of the credit. This change would correct that.
Using a Practical Definition for "Older Building" - Section 4 of the bill.
Use the common definition of an older building as one that is at least 50 years old in determining eligibility for the 10% non-historic rehabilitation credit.
Preservation policy routinely uses 50 years old or older as a threshold for classifying older and historic buildings. In 1986 when Section 47 was amended, Congress recognized this standard by establishing 1936 as the placed-in-service requirement for the 10% non-historic older buildings portion of the credit. Rather than use a fixed date to determine eligibility, it would be a better public policy approach to define an older building as one that is simply "50 years old or older."
Rehabilitating Qualified Non-Profit and Public Historic Buildings - Section 5 of the bill.
Allow for certain leasing arrangements with non-profits and other tax-exempt entities that are now precluded.
The tax-exempt use rules now penalize many community revitalization-oriented historic tax credit projects by disallowing tax-exempt tenants. In 1986, Congress rightly sought to correct a situation that could result in abuses in "sale leaseback" situations but in the process disqualified other types of leases that allowed appropriate tax-exempt use of tax credit projects. This proposal would continue to disallow the lease abuses Congress wanted to address but would allow certain types of tax-exempt leases.
Facilitating Smaller Projects through Transferability - Section 6 of the bill.
Allow for the transfer of historic tax credits to another taxpayer for projects under $5 million qualified rehabilitation costs.
By making the historic tax credit trasnferable in limited circumstances, property owners without much income could sell the credit and use the proceeds for the quity required by a bank to enable them to finance renovation on their building.
Encouraging Moderate Rehabilitation through Reducing the Substantial Rehabilitation Requirements – Section 9 of bill
Under current law historic tax credits can only be used if the property being developed meets certain requirements for substantial rehabilitation. During a 24-month period selected by the taxpayer, rehabilitation expenditures must exceed the greater of $5,000 or the full adjusted basis of the building and its structural components. The adjusted basis is generally the purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken. This proposal would allow the historic tax credit to be claimed if rehabilitation is fifty-percent and not one-hundred percent of the adjusted basis.
Making Historic Buildings as Energy-Efficient as They Can Be - Sections 8 and 10 of the bill.
Encourage building owners who are rehabilitating historic buildings to achieve substantial energy savings and allow graduated increases in the credit based on the scale of energy efficiencies achieved.
The amendment would provide a boost in the historic credit of an additional $2.00 to $5.00 per square foot depending on a range of energy savings starting at 30% and graduating up to 50%. The added incentive could not exceed half of a building's total rehabilitation expenditures. If a building owner should fail to meet the 30% energy savings goal, but attains a base reduction of at least 25%, he or she can receive a partial credit. Section 10 of the bill would allow for twinning of the Renewable Energy Tax Credit with the historic tax credit to achieve the highest possible energy reductions. It would employ a methodology for their coordination that is similar to the way in which the historic tax credit is allow to be used with the Low-Income Housing Tax Credit.
Allowing State Historic Tax Credits to Work More Effectively with the Federal Credit – Section 11 of bill.
Specify that state historic tax credits should not be considered federal income for tax purposes.
Many states have historic tax credits that can be combined with the federal historic tax credit. To ensure the maximum amount of resources are targeted to offset the cost of restoring historic structures, state historic tax credit proceeds would not be taxed by the IRS and considered federal income unless the taxpayer elects to report it as such. Furthermore, the transfer or disposition of a state historic tax credit should not reduce the federal tax credit's qualified rehabilitation expenditures or trigger any recapture of income.
