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The Historic Tax Credit Explained
Learn about the benefits and eligibility requirements of the Historic Tax Credit program.
What Is the Historic Tax Credit?
Investors who are rehabilitating or repurposing historic buildings may qualify for the Historic Tax Credit, or HTC. The HTC is a federal tax credit program which provides investors with a 20% credit against the costs of rehabilitating eligible historic structures. The program — in operation now for the last 40 years — has been responsible for the restoration of numerous historic properties, and has served as a catalyst for over $140 billion of private investment dollars being funneled into historic rehabilitation projects. The Historic Tax Credit Program is often confused with State Historic Tax Credits which are offered by 35 states and can be used against an investor’s state income tax liability.
How the Historic Tax Credit Program Works
Through the program, investors in qualified historic buildings are granted a 20% tax credit against rehabilitation expenses, though not all expenses qualify under the program guidelines. In fact, only designated qualified rehabilitation expenses (QREs) actually count. QREs generally include costs associated with all of the operational and maintenance components of a building, such as
Floors, walls, partitions, and ceilings
Doors, windows, stairs, and chimneys
Tiles, paneling, or other permanent coverings
Lighting fixtures, electrical wiring, and plumbing components
Elevators, escalators, fire escapes, sprinkler systems
In contrast, some common expenses do not qualify for the credit. These ineligible expenses include:
Cabinets, appliances, furniture, and tacked carpeting
New decks, porches, fencing, and landscaping
Planters, parking lots, signage, and sidewalks
Financing fees, feasibility studies, leasing costs
Structural demolition costs
Buildings listed in the National Register of Historic Places as certified historic buildings
Buildings situated in a registered historic district and certified by the National Park Service as historically significant
What is the Historic Tax Credit?
The Historic Tax Credit, or HTC, is a 20% federal tax credit designed to encourage investors to fund the substantial rehabilitation of historic structures. Since 1976, Historic Tax Credits have been responsible for creating $144.6 billion in private investment while preserving more than 43,000 historic structures across the country. With the credit, an investor can take 20% of the project’s qualified costs as a deduction from their federal income taxes.
The Historic Tax Credit (HTC) program is a federal tax credit program which provides a 20% credit against the cost of rehabilitating eligible historic structures. Over the last 40 years, the program has been responsible for the restoration of numerous historic landmarks, and has lead to more than $140 billion of private investment dollars being funneled into historic rehabilitation projects.
How does the Historic Tax Credit work?
The Historic Tax Credit Program works by granting investors in qualified historic buildings a 20% tax credit against rehabilitation expenses. Only designated qualified rehabilitation expenses (QREs) count, such as floors, walls, partitions, and ceilings; doors, windows, stairs, and chimneys; tiles, paneling, or other permanent coverings; lighting fixtures, electrical wiring, and plumbing components; and elevators, escalators, fire escapes, and sprinkler systems. Common expenses that do not qualify for the credit include cabinets, appliances, furniture, and tacked carpeting; new decks, porches, fencing, and landscaping; planters, parking lots, signage, and sidewalks; financing fees, feasibility studies, leasing costs; and structural demolition costs.
Property eligibility for the historic tax credit program includes buildings listed in the National Register of Historic Places as certified historic buildings and buildings situated in a registered historic district and certified by the National Park Service as historically significant.
What are the benefits of the Historic Tax Credit?
The Historic Tax Credit (HTC) is a 20% federal tax credit designed to encourage investors to fund the substantial rehabilitation of historic structures. Through the program, investors in qualified historic buildings are granted a 20% tax credit against rehabilitation expenses, though not all expenses qualify under the program guidelines. Qualified rehabilitation expenses (QREs) generally include costs associated with all of the operational and maintenance components of a building, such as floors, walls, partitions, and ceilings; doors, windows, stairs, and chimneys; tiles, paneling, or other permanent coverings; lighting fixtures, electrical wiring, and plumbing components; elevators, escalators, fire escapes, and sprinkler systems. Additionally, some development and financing-related fees still qualify — interest and financing on construction loans, for example — along with construction management, engineering, and developer fees that may also qualify for the tax credit.
What types of projects qualify for the Historic Tax Credit?
The Historic Tax Credit (HTC) program is available for development projects attempting to apply for historic tax credits. Eligible properties are generally multifamily apartment buildings, office buildings, warehouses, and industrial buildings, though a wide variety of structures are potentially eligible. Non-commercial properties like bridges, monuments, and railroad cars do not qualify.
In order to qualify, properties should have a good chance of generating income and creating jobs in the surrounding community. Through the program, investors in qualified historic buildings are granted a 20% tax credit against rehabilitation expenses, though not all expenses qualify under the program guidelines. Qualified rehabilitation expenses (QREs) generally include costs associated with all of the operational and maintenance components of a building, such as floors, walls, partitions, and ceilings; doors, windows, stairs, and chimneys; tiles, paneling, or other permanent coverings; lighting fixtures, electrical wiring, and plumbing components; and elevators, escalators, fire escapes, and sprinkler systems.
In contrast, some common expenses do not qualify for the credit. These ineligible expenses include cabinets, appliances, furniture, and tacked carpeting; new decks, porches, fencing, and landscaping; planters, parking lots, signage, and sidewalks; financing fees, feasibility studies, leasing costs; and structural demolition costs. It should be noted that some development and financing-related fees still qualify — interest and financing on construction loans, for example — along with construction management, engineering, and developer fees that may also qualify for the tax credit.
For more information, please refer to the Secretary of the Interior's Standards for Rehabilitation.
How can I apply for the Historic Tax Credit?
In order to apply for the Historic Tax Credit, you must first ensure that your development project meets the Secretary of the Interior's Standards for Rehabilitation. Additionally, the property must be a multifamily apartment building, office building, warehouse, or industrial building that has a good chance of generating income and creating jobs in the surrounding community.
Once you have determined that your project meets the eligibility requirements, you can apply for the Historic Tax Credit by submitting an application to the National Park Service. The application process includes submitting a completed application form, a narrative description of the project, and supporting documentation.
It should be noted that some development and financing-related fees still qualify — interest and financing on construction loans, for example — along with construction management, engineering, and developer fees that may also qualify for the tax credit.
Which Buildings Qualify?
Property eligibility for the historic tax credit program includes:
Rehabilitation Rules for the HTC Program
Developers attempting to apply for historic tax credits must bear in mind that in order to be approved, their project plan must be consistent with the Secretary of the Interior's Standards for Rehabilitation. The purpose behind the standards for rehabilitation is to ensure that a developer makes as few changes as possible to the building — an effort to retain the key historical and architectural elements of the property — essentially ensuring the majority of the work done is restorative in nature.
Properties eligible for the HTC program are typically multifamily apartment buildings, office buildings, warehouses, and industrial buildings, though a wide variety of other structures are also potentially eligible. A crucial factor, however, is that properties should have a good chance of generating income and creating jobs in the surrounding community in order to qualify — non-commercial properties such as bridges, monuments, and railroad cars do not qualify for the credit.
Investing in Opportunity Zones with HTC
The Opportunity Zones program, which was created as part of the Tax Cuts and Jobs Act of 2017, is one of the most popular federal tax incentive programs available for commercial real estate. The program has designated 8,700 Qualified Opportunity Zones across the country — these zones being representative of low-income areas nominated by state or territorial governors and approved by the U.S. Treasury. By investing in real estate located in Opportunity Zones utilizing Opportunity Funds (specialized investment vehicles which must keep at least 90% of their assets invested in Opportunity Zones), investors can defer their capital gains taxes for a set period of time.
In regards to the historic tax credit program, many opportunity zones also overlap significant historical areas — meaning there is great potential to combine these two tax incentive programs to maximize investment yields. In cities like New Orleans, for example, registered historic districts overlap Opportunity Zones in multiple areas, making the area a prime target for HTC/Opportunity Fund redevelopment.
Combining HTC With Low-Income Housing Tax Credits (LIHTCs)
In addition to combining benefits from Opportunity Fund investments with Historic Tax Credits, investors may also combine Historic Tax Credits with Low-Income Housing Tax Credits (LIHTCs) if the historic property serves a multifamily purpose. While the benefits of combining these incentives are quite impressive, in order to qualify, investors must be willing to make either a portion or all of the building’s units affordable.