A Historic Tax Break

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The Medallion

By Andy Rhodes, Managing Editor, The Medallion

Many of Texas’ commercial property owners are eligible for a new state tax credit worth 25 percent of eligible costs for rehabilitation projects.

In 2013, the Texas Legislature passed House Bill 500, which established a state tax credit to assist the rehabilitation of certified historic structures. Administered by the Texas Historical Commission’s (THC) Texas Historic Preservation Tax Credit Program, this incentive requires the proposed work to meet the Secretary of the Interior’s Standards for Rehabilitation to qualify for the credit. In the absence of a state income tax, the credit is applied against a business’ franchise tax liability. The state credits can be sold or transferred to other investors.

Certified historic structures include properties that are currently listed in the National Register of Historic Places, either individually or as part of a historic district, or designated as Recorded Texas Historic Landmarks or State Antiquities Landmarks. The eligible rehabilitation costs for the project must exceed $5,000 to qualify, and the rehabilitated building must be put into an income-producing business use.

THC officials anticipate many project applicants will seek to pair the new tax credit with the existing 20 percent federal historic preservation tax credit. The federal tax credit requirements differ from the state tax credit requirements on some key points. For the federal program, projects must meet a higher cost threshold to be considered a substantial rehabilitation, and only National Register properties are eligible as certified historic structures.

Agency staff members report that several proposed rehabilitation projects in Texas would greatly benefit from the new state tax credit. For example, San Antonio’s downtown Joske Building—considered Texas’ oldest department store—is restoring its iconic Art Deco exterior and renovating five interior floors for retail space. Project representatives report the proposed $23 million development includes eligible rehabilitation costs exceeding the required benchmark.

THC Executive Director Mark Wolfe says, “This type of project is a win-win for everyone involved—the applicant saves money on construction costs, and Texas’ historic buildings receive appropriate preservation practices.”

Wolfe adds that many of the state’s historic buildings and businesses have already benefitted from the existing federal tax program, and they stand to gain even more if state credits are added to the mix. He notes that since the federal program’s inception nearly three decades ago, over 500 Texas rehabilitation projects have been responsible for providing more than 29,000 jobs, $1.28 billion in rehabilitation costs, $814 million in income, and $254 million in tax credits to individuals and businesses.

These economic benefits are expected to increase when property owners combine the state and federal tax incentives, as evidenced in the 34 other states where both options exist. For example, the most recent available reports show that spending on completed rehabilitations through the federal program in Massachusetts totaled $527 million, compared to $38 million in Texas.

“This just goes to show how much a state program can influence the use of the federal program,” Wolfe says. “We expect a busy year ahead as many Texans take advantage of these incentives, which will help improve our state’s economy and, in the process, support historic preservation." 

This article was originally published in the Winter 2015 issue of The Medallion.

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