The CAPP Act: Making Rehab Tax-Credits Better

Over the last few months, the Preservation Exchange has looked at a variety of issues regarding Historic Tax Credits. We addressed misconceptions about the program. We talked about small changes that would help improve the program. Recently, we talked about the less-well known 10% non-historic tax-credit.

In case it's not clear, we're a pretty big supporter of the program. 

Today, Senator Charles Schumer was in Buffalo to help raise awareness about a proposed amendment to the law called the CAPP Act. The Creating American Prosperity through Preservation (CAPP) Act* looks to make several adjustments to IRS and National Park Service guidelines to dramatically alter the landscape of National and State rehabilitation tax credit programs. 

*A similar act was proposed in 2009. The Community Revitalization and Restoration Act had many of the changes found in this new bill, but failed to pass in Congress. 

The Hotel Lafayette, a Historic Tax-Credit Project
Photo courtesy of Buffalo Rising

The Federal Historic Tax-Credit program was established in 1976 as a way to help fund rehabilitations of buildings of a certain age, and by 1986, was essentially a two-part program. The first was a 20% tax credit for rehabs of buildings listed on the National Register of Historic Places. The second part of the program was a 10% credit for buildings that were not historic, and while half as valuable as the historic credits, it had far fewer restrictions for what type of modifications were acceptable. 

The program has successfully assisted the rehabilitation of 38,000 buildings, creating over 2.2 million jobs, and lead to over $100 billion in private investment throughout the country. Despite these successes there are still some very reasonable criticisms to consider, including the fact that the 20% tax credit is more beneficial for larger projects than smaller, the requirement that a building be built before 1936 to be eligible for the 10% track, and a lack of support for state-based tax programs. 

The CAPP Act will address all of these issues, as well as feature a few other interesting additions. First and foremost, it will increase the cap for tax credits from 20% to 30% on rehabs costing less than $7.5 million, with the hope that it will increase the number of projects completed in smaller communities. While Rocco Termini's Hotel Lafayette headlines the list of larger tax-credit successes, legislators are hoping to draw investors to smaller projects to harnass historic buildings' ability to anchor neighborhood growth.

One of the most dramatic changes to the tax credit program would be to finally change the 10% program to a sliding 50-year requirement, something that should have been part of the original 1986 Reform Act to begin with.  Though many other requirements of the non-historic credits are easier for developers, the 1936-rule was not only limiting, but likely allowed many buildings to be demolished that may have been saved otherwise. 

The Act will also add a 2% increase on the tax-credit cap for every 30% increase in energy efficiency that buildings experience after the rehab. This promotion of energy and cost-saving technology is something that a younger generation of more holistically-minded preservationists have advocated for. 

Lastly, the CAPP Act will eliminate Federal taxation on State tax-credit incentives, as 30 States have enacted complementary programs to the Federal tax-credits. Federal taxes on State-based credits diminish their value for investors who buy and sell credits as part of their financing for larger projects. This is extremely important for developers who don't plan on keeping the tax-credits themselves, especially in States like New York, where the State Historic Tax-Credit is also 20%. If the Capp Act passes, certain historic properties in New York would be eligible to apply for up to 50% worth of tax credits based on the project. 

Senator Schumer already knows how beneficial these proposed changes can be for preservation projects around the country. His choice of Buffalo highlights the city's reputation of an example of what preservation efforts can yield, with the Lafayette and Larkin Complex being excellent poster-children for the Historic Tax-Credit program.

His choice to tour the Statler this afternoon shows what still can be done in Buffalo, and how with the passing of the CAPP Act, the city can add another gem to its preservation credentials. 

Written by Derek King, an Architectural Historian at Preservation Studios.