Historic Tax Credit: How to Save on Taxes When Developing a Historic Building

September 29, 2017

Picture this: You’re a real estate developer looking for property to build a luxury apartment complex or retail center. What if you could deliver your dream project while revitalizing a historic building and claiming up to $10 million in tax credit earnings?

In Georgia, you can.

The Rehabilitation Tax Credit or Historic Tax Credit is a credit given to those that renovate qualified historic buildings.

Case in Point: Ponce City Market

More than ever, developers are paying attention to structures that have lined their streets for decades, discovering their new purpose through rehabilitation and improvement.

Atlanta has been buzzing about two large projects in the past couple of years, one on Ponce De Leon Avenue and another on nearby Krog Street. They are connected by the innovative beltline walking trail, itself made up of long-forgotten railroad tracks.

Developers have transformed century-old buildings into upscale, multifamily residential complexes and bustling shopping districts. Ponce City Market and Krog Street Market are filled with boutiques and eateries run by local fashion designers and celebrity chefs, not the chains found in malls along suburban highways.

Jamestown Properties, a real estate investment company, used millions in state and federal historic tax credits on Ponce City Market, a two million square foot former Sears distribution center.

“The historic tax credit program incentivizes the reuse of our historic buildings and was a vital tool in our redevelopment of Ponce City Market, enabling us to preserve the 90-year-old structure and tackle the largest adaptive reuse program in the Southeast,” said Matt Bronfman, Jamestown principal and CEO of Jamestown, owner of Ponce City Market.

Developers across Georgia are discovering opportunities to reclaim the value locked in these underused historic assets. But many fail to recognize that certain projects qualify for the Georgia Historic Tax Credit (HTC) program. By using a historic structure for an upcoming development, you can earn up to $10 million in state tax credits, while developing goodwill in your community.

Changes to the Rehabilitation Tax Credit

The Georgia HTC program isn’t new per se, but major changes were passed in 2015. The new law streamlined the program and increased the potential reward. It also created two additional categories for large projects that effectively raised the maximum credit.

Projects completed prior to 2017 were limited to a maximum credit of $300,000. Beginning in 2017, a total of $25 million per year is available for large qualifying projects under these two new buckets:

  • A $5 million credit based on qualified rehabilitation expenditures.
  • A $10 million credit if the sum of their qualified rehab expenditures, employment or annual payroll requirement is more than $5 million.

Qualifying for the Historic Tax Credit

To qualify, the rehab must be made on a “certified structure” within a national historic district. Qualifying properties must be listed on or eligible for the National Register of Historic Places or the Georgia Register of Historic Places. Properties can also be certified by the Department of Natural Resources as contributing to the historic significance of a Georgia Register Historic District.

Keep the following in mind when applying:

  • Taxpayers claiming the credit must submit an application for pre-approval.
  • The credit may be claimed in the year the project is completed.
  • Credits accumulated for income-producing certified structures may be sold or transferred, and any unused credit can be carried forward for 10 years.

Homeowners Can Be Eligible

Taxpayers redeveloping a historic home are also eligible, but the limits are different.

In revitalizing a certified historic home, you can claim a tax credit equal to 25 percent of the qualified rehab expenditures incurred in the tax year the project is completed. If the historic home is located within a “target area,” or a qualified census tract, the taxpayer can claim an additional credit equal to 5 percent of the qualified rehab expenses.

With good guidance and proper planning, the process is not as daunting as it seems, and the payoff is worth the effort.

Contact your tax adviser for more information on how to apply and whether your state offers similar credits.

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