Benefits of Historic Tax Credits
By Amber Jones, Historic Preservation Tax Credit Consultant
Imagine you could get money back on maintaining, improving or rehabbing your home or business. Do you pay Federal and State income taxes? If you own or purchase an historic property, it may be eligible for Historic Tax Credits through the National Park Service and the Arkansas Historic Preservation Program, which can be used to offset taxes owed, dollar for dollar, to the federal government and the state of Arkansas.
The Federal Rehabilitation Tax Credit, otherwise known as the Historic Tax Credit, is one of the most powerful historic preservation tools we have. Recognizing the cost associated with rehabilitating historic buildings, the Historic Tax Credit provides a 20 percent income tax credit to developers of income producing properties such as office buildings, retail establishments, rental apartments and others.
The Arkansas Rehabilitation Tax Credit, modeled after the federal program, was established in 2009 with historic property owners earning 25 percent back on expenditures of approved projects. Homeowners are capped at $100,000 projects with the maximum tax credit earned at $25,000. Until the last legislative session, business owners were capped at $500,000, with projects earning a maximum $125,000 tax credit. This past year, the cap was raised for income producing properties to $1.6 million, earning a $400,000 Arkansas Tax Credit maximum per project. Private homes are still capped at $100,000 projects.
Since the state historic preservation tax credit was created in 2009, 406 projects, representing $168,847,432 in private investment, have received a total of $19,977,283 in credits through the state program.
The federal program and the Arkansas program can be “twinned” together, for eligible income-producing projects, earning 45 percent back in Historic Tax Credits—with the state program capping out at the first $1.6 million. Properties in Hot Springs National Park are eligible for 25 percent Federal and 25 percent State, earning 50 percent back in tax credits on the first $1.6 million spent.
Raising the cap on income producing properties is an effort to create more opportunities for significant rehabilitation projects like Hotel Pines in Pine Bluff, the Arlington Hotel in Hot Springs and larger buildings around the state. These types of historic preservation projects generate economic activity and ignite community revitalization. Many owners hope to see the cap removed entirely, like the Federal Tax Credit program, which has no cap. It is expected that this change will increase rehabilitation activity across the state. There are no current plans to remove the state cap.
2016 was a record-setting year for historic tax credit use at the federal level. Activity increased by 32 percent over the last year—the greatest year-over-year increase in the program’s history. A banner year brings the cumulative totals of the credit’s economic impact since 1986 to 42,293 buildings rehabilitated, almost 2.5 million jobs created, and $29.8 billion in federal taxes generated. This last number is particularly significant because it confirms the historic tax credit is a revenue generator for the U.S. Treasury (tax credits issued over this same period total $25.2 billion).
The Historic Tax Credit guarantees every $2 in tax credits leverages $10 in private investment. Recent studies show the actual private expenditure is closer to $12.60 for every $2 in tax credits, AND there are 25 percent MORE jobs created in rehabilitating a historic building than building a highway or repairing a bridge.
Historic Tax Credits remain one of the best incentives for rehabbing historic properties and as studies show, perhaps the best return on investment for community revitalization.
To-Do's for Historic Tax Credit Application
1. Contact Arkansas Historic Preservation Program (AHPP), Tax Credit Coordinator, with the address of your building to see if it is eligible for the tax credit program.
2. Take photos of your project/building before work starts. Specific "before" photos are required for the Part 1 and Part 2 applications, as well as floor plans and possibly architectural drawings.
2. Turn in your Part 1 and Part 2 applications well before your project starts construction. Plan on thirty days from the date you turn your project applications in to hear back about which aspects of your project are approved, or approved with conditions.
3. After receiving approvals on your Part 1 and Part 2, you may begin work on your project.
4. Save your project receipts.
5. Once your project is completely finished it's time to do the Part 3 application and claim your Historic Tax Credits. Take "after" photos to turn in with a copy of your project receipts with the Part 3 application.