Navigating Historic Tax Credits: How a Preservation Architect Can Maximize Your Investment
Bailey Edward has seen firsthand the benefits of historic tax credits for clients who choose to invest in historic properties. In this blog post, we will discuss the benefits of historic tax credits, the role of a historic preservation architect in navigating them, and how a preservation architect can maximize your tax credit investment
Introduction to Historic Tax Credits
Historic preservation is the practice of protecting and preserving buildings, objects, landscapes, and other artifacts of significance. Maintaining and celebrating our cultural heritage provides some economic benefits to communities and individuals.
Historic Tax Credits (HTCs) are federal and state tax incentives to encourage private investment in the preservation of historic buildings. In June of 2020, the House passed a $1.5 trillion infrastructure bill including a provision to increase the federal HTC from 20% to 30% for five years and provide several provisions to permanently increase the HTC to 30% for certain smaller projects. These tax credits can offest the cost of rehabilitating historic buildings, making it financially feasible for propertyowners to invest in historic preservation. 37 states have state historic tax credits which can be used in tandem with the Federal HTCs.
Secondly, HTCs increase the value of a property. This is because historic buildings are often highly desirable and can command premium price in the real estate market. By rehabilitating a historic building, property owners can increase its value and potentially generate a higher return on investment.
Finally, historic tax credits showcase our cultural heritage and celebrate the history of a community. Renovated buildings revitalize neighborhoods and promote economic development.
Bailey Edward wrote the successful National Register of Historic Places nomination for the Ravisloe Country Club and golf course in 2021. The Club is now eligible to apply for historic tax credits which could help the owners preserve the Club and grounds for visitors for years to come.
How can a Historic Preservation Architect Navigate your Historic Tax Credits?
Preservation architects play a critical role in navigating historic tax credits. These professionals have a deep understanding of the historic preservation process, including the regulations and guidelines that must be followed to qualify for tax credits.
Is your building eligible? First the prservation architect can tell you if your building is eligible to take advantage of HTCs. A building must be an income-producing landmark building either individually listed on the National Register of Historic Places, designated as a contributing building in a National Register Historic District, or a contributing building within a local district certified by the National Park Service for the purposes of taking the Federal Income Tax Credit. The preservation architect can prepare all the necessary documentation required to qualify for the tax credit and can administer the process. If the building is not certified, they can advise the owner and write a National Register of Historic Places Nomination.
Secondly, the building must be depreciable and used in a business or income-producing activity. The Historic Tax Credit cannot be used for an owner’s private residence (though this type of property could qualify for a Property Tax Assessment Freeze). In some instances, not-for-profit entities have overcome ineligibility by partnering with a for-profit entity. This type of arrangement, however, is unusual and requires legal consultation in addition to working with a preservation architect. Preservation architects have expertise in building design and construction. This allows them to develop creative and effective solutions for rehabilitating historic buildings to meet the criteria for tax credits. A preservation architect can oversee the rehabilitation process and determine qualified rehabilitation expenditures–how much money must be spent for the owner to get the credit. The preservation architect will also design the project to follow The Secretary of the Interior’s Standards for the Treatment of Historic Properties (“The Standards“). These guidelines must be followed in the rehabilitation process and all work must be approved by the State Historic Preservation Office. The preservation architect is adept at designing modern interventions, such as additions, as well as inserting new technologies into the structure so The Standards can be met.
By involving a preservation architect early in the process, property owners can ensure the rehabilitation plan is cost-effective, meets the necessary qualifications for tax credits, and preserves the historic integrity of the building. Early involvement can also help identify potential challenges and the architect can develop strategies for addressing them. These challenges can include identifying potential issues with the building code and developing strategies for compliance.
Maximize Your Tax Credit Investment
Your historic preservation architect can maximize your tax credit investment in several ways:
1. Navigate Federal, state, and local laws in addition to private actions, such as easements and trusts, that are used to protect historic resources. Your preservation architect understands these laws and how to abide by them for any historic tax credit application and future renovation.
2. Determine the historic preservation status and significance of your building, a requirement for the historic tax credit applications.
3. Identify all applicable tax credits and ensure the project meets the necessary criteria for qualification. Historic preservation groups, like your certified local government, National Park Service, and State Historic Preservation Office (SHPO), have different processes on the local, state, and federal level. Since SHPOs review Historic Tax Credit projects to assure their consistency with The Standards and the National Park Service provides the final “certification” necessary for each project, it is important to understand what each group needs. Your preservation architect helps navigate these groups’ requirements to ensure your application is accepted.
4. Balance historic and other project type requirements. Land use laws, building codes, and real estate laws affect what can be done to historic properties. Your preservation architect can inform you of building requirements, codes, laws, as well as provide you with construction cost estimates, spending thresholds and restrictions.
5. Develop a comprehensive and cost-effective rehabilitation plan maximizing the available tax credits. This can include identifying areas where costs can be reduced without sacrificing historic integrity and developing strategies for phasing the project to maximize tax credit availability.
6. Combine historic integrity with modern functionality by developing solutions meeting the needs of modern occupants while preserving the historic character of a building. They can manage the entire process from the application to design, consultant coordination, and construction management to ensure the project is completed on time and within budget.
Examples of Successful Historic Tax Credit Projects
Bailey Edward and our staff have completed numerous Midwest HTC projects. One example involves 19 contributing buildings in Cincinnati’s Over-the-Rhine National Historic District in Ohio where we provided federal and state historic tax credit consulting services. Currently, these buildings are used for Section 8 housing and recently had updates to their exterior and interior spaces. Bailey Edward conducted historic research, documented each building, prepared the HTC application and submission materials for both the state and federal tax credits, and coordinated with the client and the Ohio State Historic Preservation Office.
Tax credit submissions require three parts. Part 1 includes the initial application form with specific descriptions, conditions, character-defining features, and photos keyed to a plan. Part 2 defines the proposed rehabilitation work and includes photos and architectural drawings. Part 3 of the application gets submitted once all work on the project is complete and includes photographs of the work keyed to a plan. After the State Historic Preservation Office reviews and approves the application, the owner can then submit the tax credits when they file their taxes.
Related Midwest requested Bailey Edward’s historic tax credit services for their Over-the-Rhine Section 8 housing. The tax credits will enable the restoration of the historic buildings and safeguard the community’s historic assets as it undergoes a neighborhood revitalization.
A second example highlighting successful HTCs features the historic O’Rourke Building in Moline, Illinois. The building is a former Sears Roebuck & Company warehouse built in 1917 and is part of the downtown Moline Historic District. This project was a successful Public-Private Partnership that combined construction of a new Multi-Modal Station and a private build-out of a hotel, restaurant, and retail facilities. The Historic Tax Credit consultant reviewed and documented the significant features of the property, advised the owner and architectural team how to comply with The Standards so the key rehabilitation and programming items could be constructed. Our staff worked closely with the State Historic Preservation Office from the beginning to the end of the project to find acceptable design details for doors, windows, flooring, and character-defining features.
Developers of the 1917 O’Rourke Building optimized Historic Tax Credits. The former Sears Warehouse building in Moline, Illinois was rehabilitated into retail, restaurant space, and a boutique hotel. The project team included Benjamin Historic Certifications, Moline Promenade Investors, LLC., Legat Architects, Solis Russel Construction Co., Quad City Metrolink, and the Illinois Department of Transportation.
Finding the Right Historic Preservation for Your Project
When selecting a preservation architect for your project, choose a professional with successful project examples and award-winning design skills. It is a benefit to find a one-stop shop having skills as an HTC advisor who can navigate the complex tax application process and a design architect who repeatedly produces elegant intervention details within historic properties. The preservation architect should have worked with various state historic preservation offices with successful qualifying design approvals.
Bailey Edward is expert not only in the type of designs and details that need to be present in qualified historic projects, but we have built strong relationships with the historic tax credit community and can facilitate and make the application process run smoothly. We provide both architectural and regulatory advisory services and are committed to helping owners find additional equity for their historic properties.
Conclusion: The Value of a Preservation Architect in Historic Tax Credit Projects
In conclusion, historic tax credits provide a wide range of benefits to property owners who choose to invest in historic preservation at the federal and state levels. By working with a preservation architect, property owners can maximize their tax credit investment, overcome common challenges, and ensure their project meets all necessary qualifications for tax credits.
If you are considering a historic tax credit project, we encourage you to work directly with a preservation architect who can move your protect through the regulatory channels so you can get the most out of your investment.
Contact us today to learn how Bailey Edward can help you to navigate historic tax credits and maximize your investment in historic preservation.
Resources
Tax Incentives for Preserving Historic Properties (U.S. National Park Service) (nps.gov)
Contact a State Historic Preservation Office (U.S. National Park Service) (nps.gov)