Historic Tax Credits (HTC) in commercial real estate are 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.

In addition to the federal Historic Tax Credit, many states offer State Historic Tax Credit programs, which allow investors to offset a certain amount of their state income taxes if they invest in the substantial rehabilitation of eligible historic buildings. In most cases, State Historic Tax Credits are combined with the federal Historic Tax Credit in order to maximize a property’s investment yield.

Historic Tax Credits (HTC) benefit commercial real estate investors by providing a 20% federal tax credit for the substantial rehabilitation of historic structures. This encourages investors to fund the rehabilitation of historic structures, and in turn, creates $144.6 billion in private investment while preserving more than 43,000 historic structures across the country. In addition, many states offer State Historic Tax Credit programs, which allow investors to offset a certain amount of their state income taxes if they invest in the substantial rehabilitation of eligible historic buildings. In most cases, State Historic Tax Credits are combined with the federal Historic Tax Credit in order to maximize a property’s investment yield.

In order to qualify for the Historic Tax Credit, rehab and improvement expenses need to be more than either $5,000 or the owner's adjusted basis of the building and its structural improvements. A sponsor can calculate adjusted basis by taking the property’s purchase price and subtracting land costs, previous improvements, and previous depreciation. This expenditure needs to occur either over a 24-month period, or a 60-month period for “phased developments.” The project’s sponsor is allowed to determine when this period begins.

In order to qualify, a building must comply with the Secretary of the Interior's Standards for Rehabilitation, which should help encourage an “efficient contemporary use” while retaining parts of the building “which are significant to its historic, architectural, and cultural values." These rules include preserving “distinctive features, finishes, and construction techniques” as well as “examples of craftsmanship that characterize a property.” Overall, minimal changes should be made to the historic elements of property, and improvements should not be made which mislead , or create a “false sense of historical development.”

While multifamily rental properties qualify for the program, an apartment building or home cannot be solely the private residence of the owner— other tenants must also rent the property. A single-family home could be eligible for the HTCs, but it would generally need to be converted into multi-unit residential or commercial space, or be repurposed as a community center, educational center, or another type of income-producing property. Only traditional multifamily residential and commercial buildings are permitted— monuments, bridges, railroad cars, and other miscellaneous structures are not eligible.

In order to qualify for the HTC program, a building must fall into one of several categories. It may either be listed in the National Register of Historic Places as a certified historic building. Alternatively, a building may qualify if it’s located in a registered historic district and has been certified by the National Park Service as a historically significant structure. In addition, other commercial (i.e. non-residential) structures built before 1936 may also qualify. However, unlike certified buildings, non-certified buildings only qualify for a 10% Qualified Rehabilitation Expenditures credit.

HTC projects are generally intended to become income-generating properties that help revitalize the local economy. For instance, an older warehouse or outdated office building could be converted into a mixed-use property, a hotel, a community center, or even a modernized factory or industrial property.

The Historic Tax Credit (HTC) is a great way to fund the substantial rehabilitation of historic structures. The main advantage of using HTCs is that investors can take 20% of the project’s qualified costs as a deduction from their federal income taxes. This can be combined with state Historic Tax Credits in order to maximize a property’s investment yield. However, there are some drawbacks to using HTCs. For example, the process of applying for the credit can be lengthy and complex, and the credit is only available for certain types of historic structures. Additionally, the credit is subject to recapture if the property is sold within five years of the credit being claimed.

In order to qualify for the Historic Tax Credit, a building must fall into one of several categories. It may either be listed in the National Register of Historic Places as a certified historic building, or it may qualify if it’s located in a registered historic district and has been certified by the National Park Service as a historically significant structure. In addition, other commercial (i.e. non-residential) structures built before 1936 may also qualify. However, unlike certified buildings, non-certified buildings only qualify for a 10% Qualified Rehabilitation Expenditures credit. HTC projects are generally intended to become income-generating properties that help revitalize the local economy. For instance, an older warehouse or outdated office building could be converted into a mixed-use property, a hotel, a community center, or even a modernized factory or industrial property.

In order to qualify for the Historic Tax Credit, rehab and improvement expenses need to be more than either $5,000 or the owner's adjusted basis of the building and its structural improvements. A sponsor can calculate adjusted basis by taking the property’s purchase price and subtracting land costs, previous improvements, and previous depreciation. This expenditure needs to occur either over a 24-month period, or a 60-month period for “phased developments.” The project’s sponsor is allowed to determine when this period begins.

In addition, the building must comply with the Secretary of the Interior's Standards for Rehabilitation, which should help encourage an “efficient contemporary use” while retaining parts of the building “which are significant to its historic, architectural, and cultural values." These rules include preserving “distinctive features, finishes, and construction techniques” as well as “examples of craftsmanship that characterize a property.” Overall, minimal changes should be made to the historic elements of property, and improvements should not be made which mislead , or create a “false sense of historical development.”

While multifamily rental properties qualify for the program, an apartment building or home cannot be solely the private residence of the owner— other tenants must also rent the property. A single-family home could be eligible for the HTCs, but it would generally need to be converted into multi-unit residential or commercial space, or be repurposed as a community center, educational center, or another type of income-producing property. Only traditional multifamily residential and commercial buildings are permitted— monuments, bridges, railroad cars, and other miscellaneous structures are not eligible.

Historic Tax Credits (HTC) can be used to finance commercial real estate projects by providing investors with a 20% federal tax credit for the qualified costs of the project. To qualify for the HTC program, a building must either be listed in the National Register of Historic Places as a certified historic building, located in a registered historic district and certified by the National Park Service as a historically significant structure, or be a commercial (non-residential) structure built before 1936. HTC projects are generally intended to become income-generating properties that help revitalize the local economy, such as a mixed-use property, a hotel, a community center, or a modernized factory or industrial property.