Alabama Extends Historic Preservation Tax Credit | Donelson Baker
Which structures are eligible?
The credit applies to Alabama properties that are at least sixty years old (with certain limited exceptions) and are certified by the Alabama Historical Commission (the Commission) as either (i) individually listed in the National Register historic places, (ii) eligible for listing on the National Register of Historic Places, or (iii) certified by the Commission as contributing to the historic significance of a registered historic district.
However, beginning in 2023, the credit will no longer apply to owner-occupied buildings used exclusively as a primary or secondary residence.
What tax incentive is available for qualifying structures?
The taxpayer may receive a refundable Alabama income tax credit of up to 25% of the actual qualifying rehabilitation expenditures incurred by the taxpayer for the rehabilitation of a certified historic structure.
What funding is available?
The law caps the total amount of tax credits that can be certified by the Commission in a year at $20,000,000. In the event that the cap is reached during a year, the Board will notify all owners with pending applications, and these pending applications will remain active from the date of the initial application and will be considered if additional credits become available or when a new tax year’s allocation of credits becomes available.
Of the $20,000,000 annual cap, $8,000,000 is set aside for rehabilitation projects located in less populated Alabama counties, defined as counties with a population of no more than 175,000. Applicants from these less-populated counties have until the end of the third quarter of the program year to submit applications before funds earmarked for projects in less-populated counties can be allocated to projects in more-populated counties.
What steps must the taxpayer take to obtain the credit?
Homeowners undertaking major rehabilitation work – that is, work for which the expense exceeds the greater of 50% of the owner’s original purchase price or $25,000 – must submit an application, application fee and a rehabilitation plan to the Board for review. The Commission will review the submissions and refer the project to the Historical Tax Credit Assessment Committee (the Committee) for review. If the project is approved by the Committee, the Commission will notify the taxpayer and issue a tax credit certificate, which must be filed with the taxpayer’s Alabama tax return. After the completion of the project, the taxpayer must also submit additional documents to the Commission.
What factors does the committee use to determine credit allocation?
The Committee takes into account the following criteria to decide whether or not to grant a request for Credit:
- the relative value of the proposed project to the particular community, including maintaining the historic fabric of the community;
- possible return on investment for the community in which the proposed project is located;
- geographical distribution of projects;
- likelihood that the project will continue without the credit; and
- the strength of local support for the proposed project.
Remember that opinions and advice regarding your particular legal issues, including the potential impact of the developments described above, depend on your specific facts and circumstances.