Texas Gears Up for Start of State Historic Tax Credit Program

4 min read

Texas officials are preparing for the startup of the state’s new historic rehabilitation tax credit program, which industry participants suggest should be attractive to developers.

On May 23, the Texas Historical Commission (THC) published proposed regulations for the new state historic preservation tax credit program in the Texas Register for a 30-day public comment period. The rules describe the application and review process, the information that must be submitted to qualify for and receive the tax credit, eligible and ineligible project expenses and costs, review fees, and other aspects.

The proposed rules will be presented to the Commission for adoption at the end of July, according to THC division director Sharon Fleming. The necessary forms for the program will be completed by year end, she said.


25% Tax Credit

The new tax credit was established by state legislation enacted in June 2013 and becomes effective January 1, 2014. The legislation and proposed rules authorize a tax credit equal to 25% of qualified rehabilitation expenditures for a certified historic structure placed in service on or after September 1, 2013. A certified historic structure is defined as a structure on the National Register of Historic Places, a Recorded Texas Historic Landmark, a State Antiquities Landmark, or a building certified by THC as contributing to the historic significance of a federal or local historic district. Rehab expenditures must exceed $5,000. There is no cap on either the maximum credit amount per project or the amount of credits that can be reserved annually.

To qualify a structure and the rehab work and ultimately receive the tax credit, sponsors will be required to complete and submit three application forms to THC – Parts A (Evaluation of Significance), B (Description of Rehabilitation), and C (Request for Certification of Completed Work). This process is similar to submission of Parts 1, 2, and 3 for the federal historic tax credit.

The rules outline different submission requirements for projects seeking both federal and state tax credits and those applying for only state tax credits.

The tax credit will be issued to the owner of the rehabilitated building in the form of a certificate that may be transferred. The Texas credit, which will offset state franchise tax liability, will be claimed in one year and may be bifurcated from the federal historic tax credit.


Ongoing Application Reviews

THC will accept applications on an ongoing basis rather than holding application cycles. According to Fleming, the Commission will likely review applications in the order in which they were received. However, she indicated expedited review may be possible for applications for projects previously reviewed under the federal historic tax credit program.

According to THC’s proposed rules, if a rehabilitated certified historic structure is placed in service on or after September 1, 2014, but before January 1, 2015, the application may include eligible costs and expenses for the project incurred up to 48 months prior to the date the property is placed in service. If a federal Part 1 has been filed before January 1, 2015 for purposes of the federal tax credit, state Part A must be filed on or after January 1, 2015.

If a rehabilitated certified historic structure is placed in service on or after January 1, 2015, Part A must be submitted before the building is placed in service. The proposed rules urge sponsors to submit Parts A and B “at the earliest possible date.”

Scot Butcher of Tax Incentive Capital, a Providence, R.I.-based syndicator of federal and state tax credits, described the proposed rules as “well drafted” and said, “We’re very bullish on the Texas program. We think it’s great. The projects that we’ve looked at in Texas are sizable in scale.”

The areas of heavy demand for Texas’ historic tax credit may be foreshadowed by the usage pattern for the federal historic tax credit. According to Fleming, an analysis revealed that three-quarters of projects certified for federal historic tax credits in Texas have been in the cities of Dallas, San Antonio, Houston, and Fort Worth.

(Proposed rules: http://tinyurl.com/pwlaqww)