Historic Tax Credits in Texas: Combining the New State Credit with the Federal Investment Tax Credit Downtown Amarillo 17 December 2013 Ben Dupuy Anna Mod
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
SWCA is a natural and cultural resource consulting firm with 27 offices across the United States and Texas offices in Austin, San Antonio and Houston.
The federal government and 35 states have enacted historic rehabilitation tax credits. Until 2013, Texas did not have one.
Which Buildings Are Eligible Historic buildings (typically 50 years and older) Listed individually on the National Register of Historic Places or designated as a Recorded Texas Historic Landmark Certified as contributing to a historic district
Dispelling The Myth Regarding The National Register 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.
Which Uses Are Eligible Apartments Community Facilities Hotel Office Retail Theater Etc.
Which Rehabilitations Qualify Rehabilitations must meet the Secretary of the Interior s Standards for Rehabilitation* The Texas Historical Commission reviews projects for the federal Investment Tax Credit program and ensures applications meet the Standards. THC will administer the review and approval for the Texas Historic Rehabilitation Tax Credit projects *http://www.cr.nps.gov/locallaw/arch_stnds_8_2.htm
What Is The Texas Historic 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
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.
How Can Building Owners Realize Value From Credit Since the state credit is both transferable and allocable, a building owner (including entities that do not have Texas franchise tax liability) may either transfer or allocate the credit to an entity that has Texas Franchise Tax liability
The State Credit Is More Flexible Than The Federal Credit Basis Test State 25% Credit: a project needs Qualified Rehabilitation Expenditures of at least $5,000 Federal 20% Credit: a project needs Qualified Rehabilitation Expenditures of least the owner s basis in the building
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
Process For The Federal Credit Owner should consult with the Texas Historical Commission at the start of a project or a qualified historic preservation consultant with federal tax credit experience 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)
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
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
The Federal Investment Tax Credit (ITC) also known as the Historic Rehabilitation Tax Credits Since the program s inception in 1976, the Texas Historical Commission has reviewed more than 1,200 applications and certified over 525 projects. Fiscal Year 2007: $60 million Fiscal Year 2008: $92 million Fiscal Year 2009: over $100 million Fiscal Year 2010: over $78 million Fiscal Year 2011: over $21 million Fiscal Year 2012: over $75 million Fiscal Year 2013: over $11 million in certified expenses in Texas Since 1981, more than $1.3 billion has been invested in Texas through this federal tax incentive program.
What is the 20% tax credit for rehabilitating historic buildings? The 20% Investment Tax Credit (ITC) program began in 1976 and 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)
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
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
Coale Building, Beaumont Built in 1920s Beaumont Commercial Historic District National Register nomination expanded to include this building Rehabilitation began in 2002 Completed restaurant and club
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
Jeff Davis Hospital, Houston Built in 1924 Individually listed in the National Register Non-profit developer Completed as residential rental property in 2004 Combined with Low Income Tax Credits Built on top of cemetery and State Antiquities Landmark
Waco High School, Waco Lofts at Waco High Individually listed in the National Register of Historic Places Completed as residential rental property in 2008 Combined with Low Income Tax Credits Included school building, gymnasium and former music building
First State Bank, Houston Hotel Icon Contributing to the Main Street / Market Square Historic District Rehab cost = $35 million Tax credits = $7 million Office building with banking lobby converted to boutique hotel in 2005
Union Transfer and Storage, Houston Vine Street Studios Individually listed in the National Register of Historic Places Warehouse to office conversion Completed in 2001 Rehab cost = $3 million Tax credits = $600,000 Front addition added based on footprint shown on historic maps
Who is involved in a tax credit project in Texas? Developer/Owner Architect, preferably an architect with historic building experience Historic Preservation Consultant Contractor(s) Operator Texas Historical Commission (THC) in Austin The 20% rehabilitation tax credit equals 20% of the amount spent in a certified rehabilitation of a certified historic structure.
Four basic requirements to qualify Point 1: Listed or eligible for listing in the National Register of Historic Places, either individually or contributing to a historic district. Atchison, Topeka and Santa Fe Railway Company Depot E. A. Harrison, built 1909-1910 Listed in the National Register 1986 Santa Fe Building, 900 S. Polk Street E. A. Harrison, 1928-1930 Listed in the National Register 1996
Point 1: 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. Potential Polk Street Historic district
Point 2: After rehabilitation, the historic building must be used for an income-producing purpose for at least five years. Owner-occupied residential properties do not qualify for the federal income tax credit. Rice Hotel, Houston, 1913 and 1998. Rehabilitated as residential rental lofts.
Point 3: 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) Assessed value - land value = pre-rehabilitation value (basis) Necessary expenditure to qualify for program $1,500,000 1,500,000-1,000,000 = 500,000 $500,001 Qualifying expenditure Actual expenditures Tax credit (20% of $1,000,000) $500,001 $1,000,000 $200,000
Point 4: 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, 1924 Abandoned building, Houston, 1999 Rehabilitated for office use, 2001
Potential Historic Districts for Amarillo Potential Polk Street Historic district Potential Amarillo Central Business District Multiple Property Listing: Grouping of related significant properties Thematic historic context Allows owners to opt in or opt out No contiguous boundary Range of building dates up to early 1970s
What expenses are eligible to receive credit in a rehabilitation project? Some eligible items include: 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
What expenses are ineligible to receive credit in a rehabilitation project? Ineligible items include: Appliances Cabinets Carpeting (if tacked in place and not glued) Decks (not part of original building) Demolition costs (removal of a building on site) New construction costs Fencing Feasibility studies Financing fees Furniture Landscaping Leasing expenses Outdoor lighting remote from building Parking lot Paving Planters Porches and porticos (not part of original building) Retaining walls Sidewalks Signage Storm sewer construction costs Window treatments