Federal Preservation Tax Credits

Transcription

1 Federal Preservation Tax Credits

2 Federal Tax Incentives Historic Rehabilitation Tax Credits Since the program s inception in 1976, the Texas Historical Commission has reviewed more than 1,000 applications and certified over 500 projects. Since 1976, more than $1.3 billion has been invested in Texas through this federal tax incentive program. Fiscal Year 2011: $37 million in certified expenses in Texas $4 million in state and local taxes generated

3 Federal Tax Incentives The 20% Investment Tax Credit (ITC) program provides a 20% federal income tax credit for the certified rehabilitation of a certified historic structure. The program is administered jointly by: National Park Service (NPS) Internal Revenue Service (IRS) State Historic Preservation Offices (SHPOs) Who else is involved in a tax credit project in Texas? Developer/Owner Architect, preferably an architect with experience with historic buildings Historic Preservation Consultant Contractor(s)

4 The historic building must be listed or eligible for listing in the National Register of Historic Places, either individually or contributing to a historic district. Jefferson Davis Hospital, W. A. Dowdy, architect, Listed in the National Register during the tax credit process. Union National Bank, 220 Main Street, Houston, Mauran, Russell and Crowell, architects, Contributing to the Main Street/Market Square National Register Historic District.

5 After rehabilitation, the historic building must be used for an incomeproducing purpose for at least five years. Owner-occupied residential properties do not qualify for the federal income tax credit. Rice Hotel, Houston, 1913 and Rehabilitated as residential rental lofts.

6 The project must meet the substantial rehabilitation test. The cost of the rehab must exceed the pre-rehabilitation value (or basis) of the building. Assessed value of property and improvement (building) $1,500,000 Assessed value - land value = prerehabilitation value (basis) 1,500,000-1,000,000 = 500,000 Necessary expenditure to qualify for program $500,001 Qualifying expenditure Actual expenditures Tax credit (20% of $1,000,000) $500,001 $1,000,000 $200,000

7 Federal Tax Incentives Who Takes the Credit? The owner(s) of the building at the time it is placed in service are entitled to the tax credits. Long term leaseholders may also claim the credits if their lease exceeds 50 years. The building may be sold during construction but it is the owner at the time of completion that claims the credits. The credit is claimed in the tax year that the building is placed in service.

8 Federal Tax Incentives Claiming the Credit The tax credit is worth 20% of the eligible rehabilitation costs. This is a credit not a deduction! For example if the rehabilitation costs were $150,000 the credit would be $30,000. The credit itself is not capped, so if your costs were $100 million the credit would be $20 million. The credit can be carried back one year (by amending a prior tax return) and forward 20 years.

9 Federal Tax Incentives Application Process The tax credits are coordinated through the Texas Historical Commission before, during, and after construction. The National Park Service and IRS make the final determinations and approvals. Benjamin Apartments, Alfred Finn, architect, Abandoned building, Houston, Rehabilitated as offices, 2001.

10 Federal Tax Incentives Eligible Projects Income-producing use, or depreciable in IRS terms. Listed or eligible for the National Register of Historic Places, individually or as contributing to a district. The rehabilitation must meet the Secretary of the Interior s Standards for Rehabilitation. The historic integrity of the building must be preserved but restoration is NOT required! First City Building, Beaumont, 2008; $4.9 million rehab Rosales House, Austin, 2001; $107,000 rehab

11 Federal Tax Incentives Substantial Rehabilitation Eligible rehabilitation expenditures must exceed the greater of: $5,000 OR The adjusted basis of the building (generally the value of the building without the land) Coale Building, Beaumont, pre-rehab Coale Building, Beaumont, 2006

12 What expenses are eligible to receive credit in a rehabilitation project? Walls Partitions Floors Ceilings Chimneys Stairs Windows and doors HVAC systems Architectural & Engineering fees Historic Preservation Consultant fees Permanent coverings, such as paneling or tiles Plumbing and plumbing fixtures Electrical wiring and lighting fixtures Escalators, elevators, sprinkler systems, fire escapes Other components related to the operation or maintenance of the building

13 What expenses are ineligible to receive credit in a rehabilitation project? Appliances, Furniture, and Cabinets Carpeting (if tacked in place and not glued) Decks (if not part of original building) Demolition costs (removal of a building on site) New construction costs Fencing Feasibility studies Financing fees Landscaping, Retaining walls, Planters Leasing expenses Parking lot Paving and Sidewalks Porches and porticos (not part of original building) Signage Window treatments

14 Federal Tax Incentives Reconstruction The act or process of depicting, by means of new construction, the form, features, and detailing of a non-surviving site, landscape, building, structure, or object for the purpose of replicating its appearance at a specific period of time and in its historic location. Preservation The act or process of applying measures necessary to sustain the existing form, integrity, and materials of an historic property. Restoration The act or process of accurately depicting the form, features, and character of a property as it appeared at a particular period of time. Includes the removal of features from other periods in its history and reconstruction of missing features from the restoration period.

15 Federal Tax Incentives Rehabilitation The act or process of making possible a compatible use for a property through repair, alterations, and additions. Includes preserving those portions or features of the building which convey its historical, cultural, or architectural values. Rehabilitation not only encourages the repair of historic buildings, it allows appropriate alterations to ensure their efficient contemporary use. Examples include the continued use of hotels, stores, and private residences, as well as the adaptation of vacant schools into apartments, warehouses into offices, and industrial buildings into commercial space.

16 What is the application process? Part 1 - Evaluation of Significance typically a 30 day review at state level and 30 day review at federal level. Times may vary. Part 2 - Description of Rehabilitation typically a 30 day review at state level, 30 day review at federal level, can be submitted at the same time at the Part 1 Part 3 - Request of Certification of Completed Work typically a 30 day review at state level, 30 day review at federal level In addition to the ITC application process, the building must be listed on the National Register of Historic Places. This can be done before, during or after the rehabilitation. NRHP listing takes about 18 months to two years plan ahead. IRS is sent information about whether the ITC application is completed and the building NRHP listed.

17 Part 1 Evaluation of Significance The Texas Company Building, 1915, Houston Warren and Wetmore, architects Not listed on National Register of Historic Places, determined eligible and listed prior to participation in the tax credit program.

18 Wright Building Cleburne, Johnson County

19 Vandergriff Building Arlington, Tarrant County

20 Vandergriff Building Arlington, Tarrant County

21 Part 2 Description of Rehabilitation

22 Part 3 Request for Certification of Completed Work Jefferson Davis Hospital Houston

23 Secretary of the Interior s Standards for Rehabilitation The rehabilitation work must be done according to the Secretary of the Interior s Standards for Rehabilitation. 10 basic principles created to help preserve distinctive character Allow for change to meet new needs Apply to historic buildings of all types, periods, styles and sizes Apply to both interior and exterior of the building Apply to related landscapes features and site and environment as well as attached, adjacent or related new construction Benjamin Apartments, Alfred Finn, architect, Abandoned building, Houston, Rehabilitated as offices, 2001.

24 Secretary of the Interior s Standards for Rehabilitation Standard 1: Choose an appropriate use. A property shall be used for its historic purpose or be placed in a new use that requires minimal change to the defining characteristics of the building and its site and environment. Union Building, Fort Davis, pre-rehabilitation. Jeff Davis County Library, post-rehabilitation.

25 Secretary of the Interior s Standards for Rehabilitation Standard 2: Preserve character-defining features. The historic character of a property shall be retained and preserved. The removal of historic materials or alteration of features and spaces that characterize a property shall be avoided. Moore and Tyler Groceries, Tyler. Heavy timber framing left exposed in apartments.

26 Secretary of the Interior s Standards for Rehabilitation Standard 3: Maintain true historical development. Each property shall be recognized as a physical record of its time, place, and use. Changes that create a false sense of historical development, such as adding conjectural features or architectural elements from other buildings, shall not be undertaken. One-room schoolhouse, ca After rehabilitation as a residence.

27 Secretary of the Interior s Standards for Rehabilitation Standard 4: Consider later changes as potentially significant. Most properties change over time; those changes that have acquired historic significance in their own right shall be retained and preserved. Alamo Portland & Roman Cement Works, Converted to San Antonio Sunken Garden, People s National Bank Building, Tyler, Original design and later alterations by Alfred Finn.

28 Secretary of the Interior s Standards for Rehabilitation Standard 5: Protect distinctive construction and craftsmanship. Distinctive features, finishes, and construction techniques or examples of craftsmanship that characterize a property shall be preserved. First City Building, Beaumont, Concrete screen wall. Socorro Mission, El Paso County, ca Hand-hewn beams, carved brackets, and adobe walls.

29 Secretary of the Interior s Standards for Rehabilitation Standard 6: Repair rather than replace. Deteriorated historic features shall be repaired rather than replaced. Where the severity of deterioration requires replacement of a distinctive feature, the new feature shall match the old in design, color, texture, and other visual qualities and, where possible, materials. Replacement of missing features shall be substantiated by documentary, physical, or pictorial evidence.

30 Secretary of the Interior s Standards for Rehabilitation Standard 7: Avoid destructive physical and chemical treatments. Chemical or physical treatments, such as sandblasting, that cause damage to historic materials shall not be used. The surface cleaning of structures, if appropriate, shall be undertaken using the gentlest means possible.

31 Secretary of the Interior s Standards for Rehabilitation Standard 8: Protect significant archeological resources. Significant archeological resources affected by a project shall be protected and preserved. If such resources must be disturbed, mitigation measures shall be undertaken. Fort Davis, adobe ruins.

32 Secretary of the Interior s Standards for Rehabilitation Standard 9: Make alterations and new additions compatible. New additions, exterior alterations, or related new construction shall not destroy historic materials that characterize the property. The new work shall be differentiated from the old and shall be compatible with the massing, size, scale, and architectural features to protect the historic integrity of the property and its environment. Rosales House, Austin. Rear addition. Arnold s Bakery (Shoehorn), East 11th St., Austin. Side addition.

33 Secretary of the Interior s Standards for Rehabilitation Standard 10: Make new additions reversible. New additions and adjacent or related new construction shall be undertaken in such manner that if removed in the future, the essential form and integrity of the historic property and its environment would be unimpaired.

34 Federal Tax Incentives Small Project Obstacles for 20% Credit Lack of existing National Register Historic Districts places an enormous burden on many small commercial owners. Cities should undertake survey projects and National Register nominations for districts to benefit a large number of property owners. S.H. Kress Store, Longview, 2006 Part 1 application denied, Not individually eligible and no downtown historic district

35 Federal Tax Incentives Small Project Obstacles for 20% Credit Lack of awareness about the credits Spread the word Financing and lack of capital to get a project off the ground since the credits are collected at the end Intimidating application and IRS requirements The THC staff can walk applicants through the process if consulted early. The IRS has a few specialized agents knowledgeable about the credits. Lack of a state tax credit There is a sales tax exemption on labor for National Register listed buildings, available through the Comptroller s Office. Do it yourself preference for application and construction Small projects need professional assistance. Encourage the use of historic preservationists and architects to improve the application, design, and final project. Timeliness of application submission prior to construction. Consult with THC early and apply before undertaking construction.

36 Federal Tax Incentives Federal 10% Credit for Non-Historic Buildings This is a simplified credit for income-producing, non-residential buildings constructed prior to To qualify, the building must NOT be listed on the National Register or within a National Register District unless it is certified by NPS as non-contributing. (This is the only THC or NPS involvement in this credit.) This credit is intended for non-historic buildings; however, an eligible building that is NOT listed on the register may choose this credit at the owners discretion. A rejected 20% project may not utilize the 10%.

37 Moore and Tyler Grocery Buildings, Tyler Built in 1912 Rehabilitation began in 2007 Filed as two separate tax credit applications Completed as residential apartments in 2008 Rehab cost = $4.9 million New construction cost = approx. $250,000 Tax credits = nearly $1 million

38 First City Building, Beaumont Built in 1962 Beaumont Commercial Historic District National Register nomination amended to extend the period of significance and boundaries Rehabilitation began in 2006 Completed as office and retail in 2008 Rehab cost = $4.9 million New construction cost = $30,000 Tax credits = nearly $1 million

39 Rosales House, Austin Listed as contributing to the Hyde Park Historic District Rehabilitation began in 1998 Completed as residential rental property in 2001 Rehab cost = $107,000 New construction cost = $28,000 Tax credits = $20,000

40 Federal Preservation Tax Credits