In our digital world of immediate gratification and “get-it-now” mentality, it’s good to know that things of the past still have value. When you think about news that is outdated the minute it is released, it’s encouraging to see that some things that have endured the test of time still have merit. In particular, we appreciate historic structures, not only for their architecture and craftsmanship but also for their sense of place. They help define a city, a neighborhood, and/or even particular cultures by the stories that can be told about the people that inhabited them. This is uniquely valuable and irreplaceable even if the buildings themselves are no longer fit for use.
Nevertheless, new life can be breathed back into these historic structures by architects, engineers, construction firms, and developers energized to take them on. Their efforts are admirable in light of the high costs of renovating these properties. The financial burden can be eased, however, with the benefit of historic tax credits designed to incentivize developers interested in taking on these expensive and complicated projects.
Why Tax Credits?
Essentially historic tax credits were created to work to the benefit of all involved because they attract investment and initiatives to bolster historic sites in commercial areas. Reviving old warehouses, schools, factories, hotels, and other properties results in new housing, office spaces, and retail establishments which breathe new life into urban sites. Jobs are created, property values are bolstered, and state and local governments get a lift in revenue from increased business, income, and property taxes. The increase in projects also provides additional opportunities for architects, engineers, and construction companies interested in opting for this type of work.
What is a Historic Tax Credit?
First off, let’s define what a historic tax credit is not. It is not an income tax deduction which would lower taxable income. A tax credit differs in that it reduces the amount of tax owed dollar for dollar. In the case of historic tax credits (20% or 10%), they’re applied as follows:
- The 20% rehabilitation tax credit equals 20% of the amount spent in a certified rehabilitation of a certified historic structure.
- The 10% rehabilitation tax credit equals 10% of the amount spent to rehabilitate a non-historic building built before 1936.
These are the current tax credits for preservation, established by the Tax Reform Act of 1986 (PL 99-514; Internal Revenue Code Section 47 [formerly Section 48(g)]). Because they are associated with the Internal Revenue Service, they are subject to change so it’s wise to get professional advice before making any assumptions about credits to be applied to any potential historic rehab projects.
Why Should You Work with an Architectural Consultant Team Early in your Process?
Navigating the three-part process may seem daunting, but working with a team of experts that are experienced with Historic Tax Credits will put your project on the right track.
Part 1 – Evaluation of Significance begins the application process. Your team will be able to provide a clear description of the building’s appearance, develop a comprehensive statement of significance and provide photographs and maps to depict what has been described.
Upon application approval, the next step for you and your team will be to complete Part 2 – Description of Rehabilitation/Preservation work. This requires an understanding of the architectural features of the building, and what impact the design will have on these features. Part 2 submission can be quite lengthy and will require photographic, as well as drawing, submission.
The last step in this 3-part process is the Request for Certification of Completed Work. You and your team are in the home stretch and will await Historic Tax Credit approval from the National Park Service.
How do the Federal and State Partnerships Work?
The rehabilitation and preservation of historic properties is supported on both the federal and state levels through these tax credits. The Federal Historic Preservation Tax Incentives Program is administered by The National Park Service in conjunction with the Internal Revenue Service and State Historic Preservation Offices.
The Secretary of the Interior, through the National Park Service, determines whether or not a historic, income-producing property is eligible for the 20% tax credit. If a building is designated as a “certified historic structure,” the State Historic Preservation Offices and the National Park Service monitor the reconstruction work for compliance with the Secretary of the Interior’s Standards for Rehabilitation. These standards apply to buildings of all styles, periods, sizes, types, and materials (both interior and exterior), as well as landscape features and the site’s environment. The IRS will then define which rehabilitation expenses qualify for the tax credit.
How VIP Shares its Vision for Historic Building Reconstruction
Clearly, there is value in reviving historical structures for all parties involved. The benefits expand from the developer to the integrated design-build firm to the community where the building is located. VIP Structures has a strong portfolio of rehab projects in the Central New York area and can advise and work as a space consultant to anyone interested in such an initiative. For more information on VIP Structures, contact us below or continue to browse our blog.