Financial Incentives for Historic Renovations
Written By:
Karen Starika
Some of our projects consist of the
renovation of historic hotel properties, and frequently our clients are not
aware that there are additional economic advantages they can obtain as a
result of their efforts. There are several historic tax credit incentive
programs available to owners and developers who rehabilitate historic
structures, as opposed to doing a contemporary renovation.
The first step is to establish whether or not
you really have an historic building. Often, though it would appear to be a
venerable and notable structure, it may not actually have any historic
status at all. Designations are typically obtained by either the private or
public efforts of individuals who submit properties or neighborhoods for
consideration. If no one has taken the effort, then a perfectly qualified
building may not have the status to which it is entitled.
There are several levels of historic
designations for buildings. There is the National Historic Landmark
status, where the property has a high degree of historic integrity and
potential national significance with relation to some comprehensive aspect
of American history.
A building can also be listed in the
National Register of Historic Places,
where properties are either associated with events
that have made a significant contribution to history, are associated with
significant persons in the past, and/or illustrate a distinct architectural
style or construction methodology.
There are buildings that are located in the
National Register’s List of Historic districts,
(identified as an historic district by the National Register), or a building
could be located in a certified state or
local historic district (identified as an
historic district by the state or city).
If your seemingly historic structure has none
of these designations, but appears to have qualifications for listing, it
might be advisable to suggest that the owner explore the feasibility of
applying for that designation.
Not only are there economic advantages
through possible eligibility for the federal tax credits, it would make the
property available for historic preservation grants and loans administered
by non-profit and private foundations. Listing also provides the building
with a measure of protection from impact by government agency or private
undertakings. Additionally, historic significance can increase the public’s
interest in a project, which could result in increased occupancy rates in
hotels.
If you have a property
with some form of historic designation, you can recommend that the owner
consider an application to some of the available tax incentive programs.
The Federal Historic Preservation Tax
Incentives program (1986 Tax Reform Act) allows a twenty percent tax credit
for the substantial rehabilitation of historic income-producing properties.
The tax credit for certified rehabilitation of certified historic structures
is a 20% reduction of taxes owed. In general, a dollar of tax credit
reduces the amount of income tax owed by one dollar. The 20% credit equals
twenty percent of the amount spent in a certified rehabilitation.
The rehabilitation must be a substantial one
and must involve a depreciable building. A “certified rehabilitation” is
one that the National Park Service has approved as being “consistent with
the historic character of the property or neighborhood.” The project must
not destroy, damage, or cover defining historic features or materials.
There is a 10% rehabilitation federal tax
credit that applies to non-historic, commercial buildings built before
1936. There are typically state or local tax incentives offered for
historic preservation as well. Start your research with your project’s
local historic, zoning, and planning officials. You can also recommend
contracting an historic consultant; the money that the owner can ultimately
save through those services typically more than offsets their professional
fees.
Your client will ultimately appreciate your
efforts to save the project money, as well.
Karen Starika
JN+A
1300 Piccard Drive, Suite 100
Rockville, MD 20850
301-670-1635
301-670-9643 FAX
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