Economic Recovery via Historic Tax Credits

4 min read

Legislative Proposals
The Historic Tax Credit Growth & Opportunity (HTC-GO) Act was introduced in the House (H.R. 2825) and Senate (S. 2615) in the spring and fall of 2019, respectively. The bills would:

  • Increase the credit from 20 to 30 percent for projects with rehabilitation expenses of less than $2.5 million;
  • Make it easier to meet the substantial rehabilitation test;
  • Create greater flexibility for nonprofit organizations to access HTC benefits; and
  • Eliminate the HTC basis adjustment requirement which will bring more value to all HTC projects by increasing the basis of rehabilitated historic buildings for building owners and eliminating the so-called 50(d) rules.

Several HTC provisions are in the House-passed Moving Forward Act (H.R. 2) including a temporary five-year increase to 30 percent and a 12-month extension on both the 24- and 60-month substantial rehabilitation periods. The bill would also permanently eliminate the HTC basis adjustment, halve the substantial rehabilitation test threshold from 100 to 50 percent of a building’s basis and eliminate most-tax-exempt use leasing restrictions, which would allow non-profit tenants to occupy more than 50 percent of the space. The Rehabilitation of Historic Schools Act (H.R. 158) was also included in the Moving Forward Act, which would allow buildings owned by public school districts to be eligible for historic tax credits for the first time.

Beyond the HTC-GO Act, the Senate has not included HTC provisions in any of its COVID-19 relief proposals and has not yet released an infrastructure package. The post-election legislative session may offer a potential avenue for tax legislation to advance.

IRS Guidance
In July, the Internal Revenue Service released Notice 2020-58, which extends the measuring period for the substantial rehabilitation test requirement to March 31, 2021 for projects with a test ending on or after April 1, 2020, and before March 31, 2021.

This change applies to credits claimed over a five-year period as well as deals in the Tax Cuts and Jobs Act of 2017 (TCJA) transition with one-year credits.

State Historic Preservation Offices
Because of Coronavirus many state governments are facing budget shortfalls from lost expected revenue. State Historic Preservation Offices (SHPOs) vary in furloughing of state employees, allowing employees to work from home, allowing electronic submission of applications and re-opening plans. States have the ability to waive their review of HTC applications and allow the National Park Service to complete the process, however they must elect to do so. To date, no states have made such an election, but some may choose to do so as states begin to make difficult budgetary decisions.

National Park Service
The Technical Preservation Services (TPS) office at the National Park Service (NPS) remains open, with staff teleworking. As of a June 25, 2020 update, “NPS continues to review hard-copy applications at this time, but there may be some additional delays in the review process. Upon completion of our review, a “notice of decision” will be issued by the NPS to the applicant electronically during this period. A copy of the official signed application will be mailed to you as soon as possible thereafter, but there may be up to a 1-to-2-week delay from the time you receive the electronic notice. Also, TPS and SHPO staff may not have immediate access to project files during this period.”

Economic Recovery
With most states and local governments lifting temporary construction bans, historic tax credits can play a crucial role in assisting in the economic recovery. Record low interest rates make it a great time to finance HTC projects. Research from the National Trust Community Investment Corporation indicates that each $1.00 in federal credit returns $1.20-1.25 to the federal government through tax revenue and that through 2016, the rehabilitation of 42,293 historic buildings has created more than 2.4 million jobs. The aforementioned legislative and regulatory reforms will help HTC projects contribute to the economic recovery of their local communities.

Kaitlyn Snyder is managing director of National Housing & Rehabilitation Association.