Rehabilitation credit (historical preservation)

What is the Rehabilitation (Historic Preservation) Credit?

The Rehabilitation (Historic Preservation) Credit is a federal tax credit designed to encourage private sector preservation of the nation’s historic structures. It offers a credit of 20% of expenses for substantial rehabilitation of buildings for commercial or income-generating purposes, according to a summary from the US National Parks Service. Those taking advantage of the credit are required to preserve the “historic character” of the property. Recently, attention has focused on the racial imbalance of sites designated as historic, although organizations are making efforts to rectify the imbalance.

Key points to remember

  • The Rehabilitation (Historic Preservation) Credit is a tax credit offered by the US government to encourage the preservation of historic properties in the country.
  • Properties identified as historically significant may be eligible for a 20% credit on rehabilitation expenses.
  • Credit is partly a tool for reviving the American economy.
  • Preservationism presents a disparity with respect to properties related to the history of minority populations that have been considered important enough to be preserved.

Understanding Rehabilitation Credit (Historic Preservation)

The Rehabilitation (Historic Preservation) Credit is administered through the Federal Historic Preservation Tax Incentive Program. Established in 1976, the program attempts to preserve historic properties while economically revitalizing rural areas and stagnant main streets across the country. It has encouraged the rehabilitation of about 46,000 properties, worth about $181 billion, since the program’s inception, while creating 2.9 million jobs, according to the National Parks Service’s 2020 annual report. (the latest available). The majority of projects given the go-ahead under the program were relatively small, with 46% under $1 million and 19% under $250,000.

Eligible expenses

Not all expenses can be covered by credit. As a general rule, construction costs related to structural elements, such as walls, floors and stairs, are eligible, while the costs of other elements, such as cabinets, sidewalks and pavement, are not. , according to the National Park Service. “Soft costs,” such as engineering or architect fees, may also be eligible.

In administering the program with the Internal Revenue Service (IRS), the National Parks Service also relies on state historic preservation offices. For example, in California, which had total rehabilitation costs of $621.3 million between 2016 and 2020, the program is administered in cooperation with the California Office of Historic Preservation’s Architectural Review and Incentive Unit. .

Other historical preservation expenses may also be amortized. For example, tax benefits are available for historic preservation easements, according to the IRS.

10% credit removed by Congress

A 10% tax credit was also available for properties that were not designated as “historic” but were established prior to 1936. However, this program was terminated by the Tax Cuts and employment at the end of 2017. The law also made changes to the 20% credit.

Legislative changes

The Rehabilitation (Historic Preservation) Credit suffered significant legislative restriction under the Trump presidency, but several other legislative proposals in recent years have sought to expand it. In 2017, the US Congress changed it and eliminated a 10% credit that was available for properties that were in use before 1936 but were not designated as historic. The changes, made by the Tax Cuts and Jobs Act, spread the 20% credit over five tax years.

Two more recent proposals have looked at both expanding access and increasing credit, which proponents say is an effective tool for job creation. In 2021, the House of Representatives and the Senate introduced two different versions of the Historic Tax Credit Growth and Opportunity Act which, if passed into law, would increase the tax credit to 30% (for expenses less than $2.5 million in the House version and less than $3.75 million, capped at $750,000, in the Senate version) and easier access to credit.

“Historic tax credits have been incredibly effective in Western New York in promoting economic opportunity through the rehabilitation of historic buildings and the revitalization of communities,” said Rep. Brian Higgins, D-NY, who is listed as co-introducer of the House bill. He went on to add, “Using these credits during the ongoing pandemic is more important than ever as they create a pathway to rebuild our economy, grow local jobs and reinvigorate our community.”

The National Conference of State Historic Preservers, a professional organization for state preservation officials, called the credit “one of the most powerful historic preservation tools we have.” The association also said that even if legislative attempts to expand it and make it easier to access fail, they are likely to become models for future legislation.

President Joe Biden’s Build Back Better plan, which passed the House but is currently stalled in the Senate, includes $25 million in historic preservation appropriations.

Prior to FY2014, only 8% of historic sites on the National Register of Historic Places had ties to Black, Latinx, Native American, or Asian American history, according to a 2020 Congressional Research Service report.

Historic preservation and minorities

Historical preservation has not always sought to preserve properties related to the country’s minority history. Sara Bronin, a professor at Cornell University, an authority on historic preservation law, wrote in a 2020 op-ed that the National Register of Historic Places, the designation that qualifies a property for a historic preservation tax credit , primarily reflects white history. Indeed, the first Latinx commemoration, Bronin says, was the César E. Chávez National Monument, which was not included until eight years before his article was published.

Bronin argues that an “overly technical and legalistic approach to determining what merits designation” has limited the inclusion of minority sites. The law requires sites to be listed for their historical significance and integrity, but interpretations of historical significance have tended to focus on association with rich white historical figures and architectural styles tied to white ancestry, according to Bronin.

Activists say the architectural significance requirement has prevented the preservation of historically significant buildings, such as slave quarters. In the absence of protections, these properties were intentionally destroyed for a variety of reasons, including racial terrorism in the years following reconstruction, as well as more modern efforts to build highways, gentrify, and provide urban renewal.

Other authors, such as Michael DeHaven Newsom, have written that historic preservationism actually displaced black residents by driving up housing prices and forcing black landowners to sell their land in Washington’s wealthy Georgetown. DC, in the 20th century. Newsom hinted that this also happened in Philadelphia and Charleston, SC Similar stories exist for other minority groups. Andrew Dolkart, for example, has written that the United States has been slow to preserve LGBTQ+ spaces, only gaining momentum in recent years.

However, efforts are being made to correct the imbalance of American preservationism. The National Trust for Historic Preservation, for example, launched the African-American Cultural Heritage Action Fund in 2017 to preserve black history. The fund has attracted $70 million and helped preserve 200 projects to date.

How does the rehabilitation credit (historical preservation) work?

Those who meet IRS rules for “certified rehabilitations” on a historically designated property can claim the tax credit. They must preserve the historic character of the property, as well as other requirements. They can claim it on Form 3468, Investment Credit when filing taxes.

Who is eligible for the credit?

The IRS says individuals; companies; partners, shareholders and beneficiaries of an intermediary entity; and estates and trusts can claim the credit, provided they own an interest in the building in question or, in some cases, rent the building.

Is the credit worth it?

Tax credits are a popular way to reduce taxes while incentivizing behavior, and the Rehabilitation (Historic Preservation) Credit has been described as one of the best tools available to encourage private sector preservationism, allowing companies and individuals to recoup the costs of preservationism, which revitalizes communities. It also boosts the economy, having created 2.9 million jobs in 2020. However, there are many eligibility requirements.

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