by Brian Lever
Every year, hundreds of projects around New England benefit from state and federal historic tax credits. From small-scale facade restorations to large mills being rehabilitated into housing or other uses, you have probably seen them without thinking about how they are funded. Since 1976, the federal government has provided billions of dollars in historic tax credits to incentivize the rehabilitation of historic buildings with nearly 50,000 projects across the country benefiting to date. Since the early 2000s, states across New England have followed suit creating their own programs, with some adding extra bonuses for affordable housing creation or projects in opportunity zones. State credits vary from state to state but typically provide 20-25% of qualified construction costs in state tax credits, while the federal government provides a flat 20% tax credit on qualifying hard and soft costs. Every state in New England has a state historic tax credit except for New Hampshire, which may soon. Taken together, these programs and other tax credits like solar, brownfield and affordable housing tax credits provide the incentives often needed to attract redevelopment of challenging properties. Reducing project costs through mixing and matching credits or taking all possible credits is always a possibility.
The Saint Joseph Roman Catholic Church rectory in Salem, Mass. was successfully converted into 13 units of market rate housing in late 2023.
The state and federal historic tax credit programs have similar basic requirements: The building has to be income producing – it could be a museum that charges an entry fee, a business, or rental property, among other uses. The building has to be historic, meaning either listed in the National Register of Historic Places or determined eligible for listing. Many buildings are or can be determined eligible for National Register listing upon proper documentation. Finally, the rehabilitation needs to comply with the Secretary of the Interior’s Standards for Rehabilitation of Historic Properties (the Standards). Meeting the Standards is determined through an application process to the State Historic Preservation Office (SHPO) and National Park Service (NPS), who review existing conditions and detailed proposed plans.
Often people ask, what I am going to do with the credits? A $5 million rehabilitation project generating upwards of $2-2.25 million in federal and state tax credits can be more than many people can use to offset income taxes owed. This is where selling or syndicating the credits come into play, where you partner with an investor who pays you cash in exchange for the credits such as a bank, utility or insurance company, or even a private investor. This means that even nonprofits who may not pay income taxes can benefit.
From carriage houses to apartment and industrial buildings and even libraries and cultural facilities, any type of historic building can qualify. Aside from historic preservation, the historic tax credit programs are an economic development benefit and job creator. Successful tax credit projects include affordable housing, mixed-use, commercial buildings, market rate housing, health centers, manufacturing centers and movie theaters, among other uses. Historic tax credits have provided vital funding to make these projects happen, enlivening downtowns, preserving historic buildings, and enriching community life in cities and towns.
Brian Lever
Brian Lever is associate – Preservation Planning at Epsilon Associates.
