The Road Ahead: Positioning the Historic Tax Credit for Positive Change

By Shaw Sprague posted 03-01-2018 13:35


As the preservation community takes stock of the impressive victory we achieved in preserving the federal historic tax credit (HTC) during the tax reform process, let’s keep up our engagement and continue to build momentum to position the HTC for positive change down the road. Additional changes to the tax code are all but certain in the months and years ahead, and we must be ready to seize on these opportunities.

View of the Capitol | Credit: Architect of the Capitol

As our 2017 advocacy success demonstrated, the preservation movement can overcome significant odds when it is united in purpose with partners who share our vision for stronger, healthier, and more sustainable communities. One measure of our success is the number of members of Congress who stood up—many for the first time—for the HTC and the social and economic opportunities that historic preservation offers. 

Despite everyone’s best efforts, however, we were unable to preserve the HTC in its original form. Elimination of the 10 percent rehabilitation tax credit and the new requirement that the 20 percent credit be taken over five years, instead of all at once, reduce the value of the program. This is, of course, a far better outcome than the direction Congress was headed. But for the last-minute intervention by several key champions, changes to the tax code could have easily resulted in the program’s practical obsolescence or elimination. 

Instead, we have a credit that will continue to incentivize the rehabilitation of our nation’s historic buildings and drive private capital back into our historic communities. And we have confirmed that the collaboration between the preservation community and the rehabilitation development sector is a powerful alliance that more members of Congress recognize as a positive social good today than at any point in the recent past. 

How then do we keep this momentum going? For many years, the preservation community has urged lawmakers to endorse several changes to the HTC that would facilitate investment in our smaller communities and make difficult rehabilitation projects easier for developers to undertake. These ideas are included in the Historic Tax Credit Improvement Act (HTCIA), H.R. 1159/S. 425, which currently has more bipartisan support than it has in a long time. 

While the prospects for moving this bill before the end of the 115th legislative session are unclear given the strained political environment in Washington, there may be other opportunities on the horizon to strengthen the HTC. As with most major reform legislation, Congress will need to work on making technical corrections to the tax bill. The chairman of the Senate Finance Committee has also introduced legislation to extend several tax provisions that require reauthorization in the near future. 

Our Senate champions have made clear that advancing the policy ideas in the HTCIA is still a priority, and the preservation community needs to make the most of the broad support that the HTC received during tax reform. Establishing a wide base of support for the HTCIA will improve our odds restoring value to the HTC and enhancing it to expand its use on Main Streets. To that end, one important provision offers a 30 percent credit for rehabilitation projects that have less than $2.5 million in qualified rehabilitation expenses and another allows smaller projects to transfer their HTCs to an outside investor in exchange for an equity investment. 

Artist James Shipman's in-progress collage on a wall of the Landmarks Preservation Resource Center in Hamnett Place | Credit: Rob Larson

In addition to enhanced incentives for smaller, Main Street–scale rehabilitation projects, the HTCIA also proposes to increase the value to the HTC by making changes to the way a building’s adjusted basis is calculated. The basis—that is, the cost of a property when acquired—increases or decreases over time depending on certain adjustments. Capital improvements, for example, increase basis, whereas the amount of federal historic tax credits decreases basis. The HTCIA proposes to reduce this basis calculation by half, resulting in a more valuable asset at the time the property is transferred. Experts calculate that eliminating the basis adjustment entirely would nearly offset the loss in value resulting from having to take the credits over five years. Other development credits, like the Low-Income Housing Tax Credit, do not require such reductions in basis, and the HTC should receive similar treatment. 

As preservationists assemble in Washington, D.C., for Preservation Advocacy Week next month, we should thank Members of Congress for their support of the HTC and let them know that enacting the HTCIA is still an important policy objective for your community. 

Shaw Sprague is the senior director for Government Relations and Policy at the National Trust for Historic Preservation.


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