The State has long encouraged the private preservation of historic structures, but has offered precious little monetary support towards such efforts. With the Historic Property Reinvestment Act, now pending before the State Legislature as Assembly Bill No. 896 and Senate Bill No. 2030, the State is finally proposing a significant new tax credit program to encourage the rehabilitation of qualified historic properties.
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The Act applies only to “qualified historic buildings,” which it defines as those with an individual listing on the State or National Registers of Historic Places, or those that lie within a locally designated historic district and are deemed by the district to be contributing to the district’s significance. The latter designation must be certified by the State Historic Preservation Office in order to prevent abuse of the tax credit program.
The Act will provide homeowners and business entities an economic incentive to fund the rehabilitation of such buildings by allowing a portion of the rehabilitation costs to be off-set by a credit against personal income tax or corporate business tax (as applicable). To further promote historic preservation efforts among those who are unable to themselves benefit from the credit, such credits may be transferred by purchase or assignment. Analogous tax credit transfers have successfully lured private capital into public needs housing projects.
In order for a project to qualify for the tax credit program, the rehabilitation must not commence until the tax credit application is approved. The project must also be substantial such that the total rehabilitation cost shall not be less than 50 percent of the property’s equalized assessed value. A further limitation provides that interior rehabilitation costs shall not exceed 50 percent of the total rehabilitation cost.
Up to 25 per cent of the total rehabilitation costs can be recovered by this tax credit, with a $25,000 cap for each qualified property within any ten year period. The credits will be available on a first come, first served basis since the total allowable credits are limited. For fiscal year 2008, $15,000,000 in credits will be available, increasing to $25,000,000 in 2009, $40,000,000 in 2010 and $50,000,000 in 2011 and thereafter. Of the total credits available, 2/3 will be allocated to business entities, with the remainder available to individuals.
A qualified individual applying for such a credit must either own or occupy the property as his/her principal residence for a period of 12 consecutive months following the completion of the rehabilitation. Furthermore, if the property is sold or the structure’s historic status is somehow lost within five years after completing the rehabilitation, the credit will be proportionally disallowed, from 100% during the first year down to 20% during the fifth and final year. If a disallowed project’s tax credit is sold or assigned to others, the entity holding the tax credit certificate will be liable to pay the recaptured credit.