Over 42,293 historic properties have been preserved in the United States because of the historic tax credit (HTC), according to the National Trust for Historic Preservation. This alone has created $28.9 billion in federal tax revenue; all through the use of $25.2 billion in tax credits. It’s also created around 2.4 million in jobs across the nation.
Tax incentives at the federal and state levels are given out to owners of older buildings in hopes that they will use them to restore them. The credit is intended to incentivize historic preservation, and therefore does not apply to expansions or new constructions on old buildings. Getting a HTC and trying to maintain it takes time and money, but it’s worth the effort.
Learn more about the HTC, what it offers, the qualifications, and how to stay protected with insurance.
Historic Tax Credit
The HTC thrives off a 20 percent tax credit that has survived the most significant rewrite of the tax code in more than 30 years. Multiple administrations have targeted the tax credit, including the Trump administration, as recent as last year. But the HTC has prevailed time and time again, showing exactly how important it is to our communities to restore historic properties.
Things have been tweaked to the tax credit, like that it has to be claimed at 4 percent per year over a five-year period, according to Architectural Resources Group. There was also a 10 percent tax credit that was eliminated for non-historic old homes.
There are other rules to the federal tax credit that one needs to be aware of:
- The property must be income-producing;
- You cannot dwell on the property;
- The property must be at least 50 years old with minimal changes made;
- If the property is being restored, then it must be associated with significant historic events or people or display aspects of architectural history, according to HouseLogic (this does not historic properties being revamped into multi-use spaces);
- The combined hard and soft costs (also called qualified rehabilitation exposures, or GREs), which are the eligible costs on which the tax credit is based, must exceed the developer’s adjusted basis in building;
- Depending on where the property is located, there may be a renovation cost cap.
How it Can Be Taken Away
Unfortunately, the HTC can be taken away if it no longer meet the qualifications. If the historic property has been severely damaged and needs renovations that change the foundation of the property, you can no longer qualify for the HTC. When that happens, historic tax insurance exists to protect you from backlash, by ensuring that you are completely covered if you lose that credit and all the costs associated with it.
Historic Tax Credit Insurance
If something happens and you lose your HTC, then historic tax credit insurance can make sure you’re protected in the event of loss, rebuilding and recapturing your tax credit. NTIS has specifically designed insurance coverages meant to eliminate the risk of losing a HTC. Losing a tax credit could put an organization out of business, which is why it’s best to prepare for the worst possible scenario.
This coverage is very important and worth providing to your big historic property clients. It’s not necessary that you know the intricacies of these coverages, let our program handle that. Knowing that these coverages are available is what matters.