Texas New Historic Rehabilitation Tax Credit. Presentation to the Texas Downtown Association November 7, 2013

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1 Texas New Historic Rehabilitation Tax Credit Presentation to the Texas Downtown Association November 7,

2 Most Important Take-Away Texas downtowns from small towns to big metros have a valuable new economic development tool, but it will take downtowns sharing the news with building owners and developers to unlock the opportunity 2

3 Stonehenge Capital Company Stonehenge is a nationally respected finance company with an extensive track record of assisting building owners and developers access financing for their projects via state historic rehabilitation tax credits 3

4 State Historic Rehabilitation Tax Credits The federal government and 35 states have enacted historic rehabilitation tax credits, but, until this year, Texas did not have one 4

5 House Bill 500 During the 2013 legislative session, the Texas Historic Rehabilitation Tax Credit was enacted as part of House Bill 500 5

6 The Texas Downtown Association Many organizations throughout the state were supportive of the legislation creating the Texas Historic Rehabilitation Tax Credit The Texas Downtown Association was among the legislation s strongest supporters 6

7 Which Buildings Are Eligible Historic buildings (typically 50 years and older) Listed individually on the National Register of Historic Places* or designated as a Texas Landmark, or Certified by the Texas Historical Commission as contributing to a historic district *Listing of private property on the National Register of Historic Places does not prohibit under federal law or regulation any actions which may otherwise be taken by the property owner with respect to the property 7

8 Which Uses Are Eligible Apartments Community Facilities Hotel Office Retail Theater Etc. 8

9 Which Rehabilitations Qualify Rehabilitations must meet the Secretary of the Interior s Standards for Rehabilitation* The Texas Historical Commission administers the standards for the Federal Historic Rehabilitation Tax Credit and will administer the standards for the Texas Historic Rehabilitation Tax Credit * 9

10 What Is The Credit The credit is 25% of a project s Qualified Rehabilitation Expenditures The credit is applied against Texas Franchise Tax liability Qualified Rehabilitation Expenditures are typically expenses incurred in rehabilitating a building from the shell inward, exclusive of acquisition 10

11 How Can Building Owners Realize Value From Credit Since the state credit is both transferable and allocable, a building owner may either transfer or allocate the credit to an entity that has Texas Franchise Tax liability 11

12 The State Credit Is More Flexible Than The Federal Credit Basis Test To be eligible for the state credit, a project needs Qualified Rehabilitation Expenditures of at least $5,000 To be eligible for the federal credit, a project needs Qualified Rehabilitation Expenditures of least the owner s basis in the building 12

13 The State Credit Is More Flexible Than The Federal Credit Transferability The state tax credit allows a building owner to transfer the tax credit to another entity, such as a business that can utilize the tax credit against its Franchise Tax liability. Stonehenge purchases historic tax credits from building owners.* While the federal tax credit is not transferable, a building owner can benefit from federal tax credit investment in other ways *The state credit also allows for a state tax credit to be allocated to a partner in the project. Stonehenge also assists building owners wishing to utilize this option. 13

14 Process For The State Credit Owner should consult with the Texas Historical Commission at the start of a project Once rehabilitation is complete and the building is placed in service, owner will apply to the Texas Historical Commission for a Certificate of Eligibility Building owner will submit information regarding the building s historic status and the rehabilitation, including before and after photos The Texas Historical Commission will issue a Certificate of Eligibility Building owner submits Certificate of Eligibility and audited cost report to the Comptroller in conjunction with a Franchise Tax report 14

15 Process For The Federal Credit Owner should consult with the Texas Historical Commission at the start of a project Part 1 Evaluation of Significance (application for certification of a building s historic status) Part 2 Description of Rehabilitation (application for certification of a building s proposed rehabilitation meeting the Secretary of the Interior s Standards for Rehabilitation) Part 3 Request for Certification of Completed Work (application for credit based on Qualified Rehabilitation Expenditures expended by the time the building is placed in service following a rehabilitation) 15

16 Additional Details For The State Credit A project must be placed in service on or after September 1, 2013 The state credit can be applied for beginning January 1, 2015 The state credit may be carried forward for five years 16

17 Rulemaking For The State Credit The Texas Historical Commission and the Comptroller have rulemaking authority Both agencies are awaiting an opinion from the Attorney General Rules should be complete by next summer 17

18 Most Important Take-Away Texas downtowns from small towns to big metros have a valuable new economic development tool, but it will take downtowns sharing the news with developers and building owners to unlock the opportunity 18

19 Contact Stonehenge wants to talk with building owners and developers looking to access financing for their projects via the Texas Historic Rehabilitation Tax Credit Ben Dupuy (202)