Monday, November 19, 2012

The 10% Tax Credit for Non-Historic Buildings

It may not come as much of a surprise to read this blog and hear a great deal of advocacy for the Federal and State Historic Tax Credit (HTC) programs. It is no secret that, as a preservation consulting firm, Preservation Studios specializes in securing HTCs for rehabilitation projects, and is very familiar with the successes made possible by these programs. 

Lagerhaus 95 at 95 Perry Street in Downtown Buffalo
utilized non-historic tax credits for its redevelopment.

Photo Courtesy of Buffalo Rising.
Unfortunately, just because something is old doesn't mean that the National Park Service (NPS), the agency that determines eligibility for tax credits, will think it is significant historically. It may be true that all buildings have a story to tell, but when it comes to public funds (or in this case, a decrease in national tax-revenue), some stories just aren't as important as others. 

The first legislation for HTCs in the United States began in 1976, and after several adjustments, the current laws were finalized ten years later in 1986. The plan allots a 20% tax credit for "historic" buildings that are on the National Register of Historic Places (established in 1966), as well as a 10% credit for buildings built before 1936 (or 50 years old at the time of the law's passing) that are non-historic.

The 10% non-historic credit dramatically increases the number of buildings eligible for rehabilitation tax credits. Part of this is that there are fewer requirements than for the Historic Tax Credit program; in addition to having been built before 1936, the building cannot have been moved, and must be used for non-residential rental purposes. Also, as long as 50% of external walls are retained as external walls (or 75% of external walls are retained as external and internal), and 75% of internal structural framework is retained in place, the building qualifies. 

This is incredibly beneficial for older buildings that may not have any particular significance architecturally or contextually, or that lack association with any historic figures. Interestingly, even projects in Historic Districts (which make them "historic" as per the National Register) can be eligible for non-historic tax credits. Since the program is easier to qualify for, the process is often faster than using the HTC program. Additionally, the simpler qualifications allow developers to pursue projects that would not be eligible under the HTC program due to their planned modifications. Developers wishing to pursue non-historic credits for a building in a historic district essentially have to complete a "reverse Part-One," of the HTC process, proving that the property should not be considered historic. 

Though the Non-Historic Credit is exceptionally valuable for rehabilitation projects, the requirement that buildings be built prior to 1936 is still limiting. Established in 1986, the law mirrored the National Park Service guideline that buildings need to be fifty-years old to be considered unless they were "extra significant." Recently, the fifty-year mark has been questioned in regards to National Register qualifications, as it often fails to save modern-architecture buildings that are increasingly under threat of demolition. 

The same consideration should be given to buildings that aren't historic in nature. By reworking the Non-Historic Tax Credit program to include qualifications based on a sliding 50-year scale, the IRS and the National Park Service could encourage redevelopment and reuse of buildings that are overlooked because either the rehabilitation cost is too high, as well as buildings that are not historic enough to qualify for the HTC program. 

When considering rehabilitation, historic significance is often not the most important factor. Many of these buildings, despite lacking individual significance, are important for the integrity of streetscapes. For developers, the cost of rehabilitation is often much higher than demolition, and buildings that maintain the density and identity of neighborhoods often get replaced with modern buildings inconsistent with the surrounding streets. The non-historic tax credit program encourages developers to pursue development projects that help protect this solidarity in building context. 

Right now the 10% non-historic credit is a great opportunity for developers who own buildings built prior to 1936, but the expansion of the program could prove a boon to not only development, but preservation efforts of landscapes and not just landmarks. 

(Be sure to check out our analysis of the CAPP Act, and how it addresses the short comings of the 10% non-historic tax-credit). 

Written by Derek King, Architectural Historian at Preservation Studios

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