Tax Credit Programs FAQ

Frequently Asked Questions

This page covers popular questions about both the state and federal tax credits that are overseen by the Texas Historical Commission.

Starting your application

Planning your project

Completing your project

 

Q. I’m interested in applying for tax credits for my building. What are my first steps?

A. Congratulations! Your first step is to find out whether your building currently has any pertinent federal or state historical designations. Properties that are federally designated on the National Register of Historic Places (individually, or as a contributing part of a National Register Historic District), can be eligible for state or federal tax credits. Additionally, properties that have the state designations of Recorded Texas Historic Landmark or State Antiquities Landmark can also be eligible for state tax credits.

If your building is not yet designated under any of these programs, you may submit Part 1 (federal) or Part A (state) of the tax credit application to request a determination on whether the building is eligible for historical designation. If the building is determined eligible, you may proceed with the tax credit process while the building is becoming designated. Be advised that the designation process, including research, may take up to 18 months; therefore, the process should be undertaken as quickly as possible. For more information on obtaining historical designations for state tax credit projects, view our Texas Historic Preservation Tax Credit Application Guide (for state projects), or see our page about the National Register of Historic Places. You may also contact Greg Smith in our History Programs Division for questions about individual buildings.

Second, make sure that your project will meet the basic requirements for the tax credit program you want to apply for. There are different minimum cost thresholds for both the federal and state programs, and your property must be an income-producing (business) use to qualify for either credit. Work must not be completed before the project is reviewed and approved by the THC. More information on project requirements can be found on our program pages:

Federal requirements: Federal Rehabilitation Tax Credit Program

State requirements: Texas Historic Preservation Tax Credit Program

Last, but certainly not least, contact the THC's Tax Credit Program Specialist to discuss your rehabilitation project. We can help you to assess whether your proposed project may meet the Secretary's Standards for Rehabilitation, and answer any questions you may have about the tax credit process.

Q. I already started working on my building. Can I still apply for tax credits?

A. If your project is underway but not completed, you may still apply. However, there are a series of challenges you should be aware of.

First, any major portions of the project that are completed and paid for are not eligible for tax credits unless you have already submitted an application for that work. Second, you will need to contact the THC right away to make sure that the work you've already started and the work you have planned is in line with the standards. Third, when you submit your Part 2 or Part B application, you will still need to provide comprehensive photos of the property—interior and exterior—showing its condition before any work was done.

For these reasons, we never recommend starting work before consulting with the THC.

Q. I already completed my project. Can I still apply?

A. In most cases, no. Applications must be submitted before completion of the project (or any major part of it).

However, if you completed a project between September 1, 2013 and January 1, 2015, then you may be able to apply for the state tax credit program retroactively. Contact us for more information.

Q. What are the differences between the federal and state tax credit programs?

A. The standards for architectrual preservation are the same for both programs, and we encourage concurrent application to both. However, there are many differences in eligibility requirements, financial details, etc. Please see our comparison chart for more information. Also note that the state tax credit is now available to non-profits. This takes effect for projects completed after January 1, 2016.

Q. What building uses are acceptable for a tax credit project? How can I find out if my proposed use will be eligible?

A. For either the state or the federal credit, properties may be repurposed for a primarily income-producing use. Common uses include rental apartments, business offices, hotels, restaurants, and retail. For the federal credit, the property must be at least 51 percent income-producing, and credits are only available for work completed on the income-producing portion of the property.

For the state credit, properties may also be used by official non-profit organizations, such as churches, museums, arts centers, etc.

We cannot pre-approve uses for specific projects; therefore, any individual questions about project eligibility should be directed to your tax attorney.

Q. Does it matter how my property is zoned?

A. No, all that matters for the tax credit program is the property's use. As long as your zoning allows you to achieve an appropriate rental or business use, then your zoning is appropriate to begin a tax credit project.

Q. Can my non-profit corporation qualify for tax credits?

A. Non-profit corporations may receive credits through the state program, either for income-producing properties, or for non-profit use properties beginning January 1, 2016. Remember that the state tax credit is freely transferable, so you may sell your credit if you are not liable for the business franchise tax.

Non-profits may only apply for the federal tax credit program by creating a business partnership with a for-profit financial backer, who becomes the recipient of the non-transferable income tax credit. Please contact your lawyer or accountant for advice on structuring such partnerships.

Q. Can my local governmental entity qualify for tax credits?

A. Governmental entities are currently eligible as recipients of the state tax credit if the project has an income-producing business use, or a non-profit business use. Government offices are not an eligible use. A building that the city or county leases to a taxable entity is considered income producing, and a building that a city or county leases to a non-profit entity is considered a non-profit use. Remember that the state tax credit is freely transferable, so the credit may be sold or transferred once it is obtained.

Governmental entities are not eligible to participate in the federal tax credit program.

Q. How much money do I need to spend in order to qualify?

A. For the federal program, you must spend at least the amount of the adjusted basis of the building, or $5,000.00, whichever is greater, for your qualified rehabilitation costs. The adjusted basis refers to the monetary value of the building (not including the land) at the time of application, considering any prior improvements and/or depreciation. Contact an assessor or accountant to determine your adjusted basis. This amount also must be spent within a 24-month period to pass the Substantial Rehabilitation Test.

For the state program, the minimum expenditure for qualified rehabilitation costs is $5,000.00, regardless of the value of the building. There is no specific time period when this must be spent, but it must be for projects completed after submittal of a Part B, not before.

Q. What parts of the building and site are reviewed?

A. All parts of the historic building, both interior and exterior, are reviewed using the Secretary of the Interior’s Standards for Rehabilitation. All changes are assessed to make sure the project conforms to these standards in the context of the tax credit requirements.

Site and landscape work, work to noncontributing structures and outbuildings, new additions, and new construction on the site are also reviewed, but only in relation to how they affect the historic building.

Q. How do I know what I can do to my property?

A. The best way to find out is to consult with the THC.

There is no quick answer, as every property is different. The Secretary of the Interior’s Standards for Rehabilitation are general guidelines that can be applied to all projects, and staff at the THC and NPS are trained and experienced in interpreting these guidelines to fit individual cases. It's important to note that any changes to both the building's interior and exterior are reviewed to determine whether the Standards for Rehabilitation have been met.

In general, the standards require a project to minimize the amount of changes to a property, and prioritize the retention of historic features, materials, and spaces that define its character. For any feature of the building, its visibility and significance determines how much of a priority it is and how much change might be acceptable. Any proposed changes outside the building, such as new additions or site work, also need to be appropriate to the building even if they are not qualified rehabilitation expenditures. Upon request, the THC staff can informally or formally work with you to help you develop a project that is determined to meet the Standards for Rehabilitation.

Q. What expenses count as Qualified Rehabilitation Expenditures (or QREs)?

A. Generally speaking, expenses that are directly used for rehabilitating the historic building itself are eligible. Eligible costs generally include work performed on anything from the skin of the building inwards, including windows, roof, floors, ceilings, walls, plumbing, electrical, elevators, and HVAC. Many soft costs, such as architects’ fees, are eligible as well.

Costs that do NOT count toward the QREs include furnishings that are not part of the building, work on the site and landscape, new additions, new construction, and costs of purchasing the property. Note that all work on the property is still reviewed, even if it does not count toward your QREs.

See a longer list of allowed and disallowed Qualified Rehabilitation Expenditures.

Q. What happens if I have to make changes to my project during construction?

A. If the project changes at any time, you must submit an amendment form to the THC so the new version of your project may be reviewed and approved.

Q. How do I know when my project is done? What does “placed in service” mean?

A. When 1) the items that you proposed in Part 2/B and associated amendments are demonstrably complete, and 2) you are able to return the building to use, then your rehabilitation project is considered complete and you may submit your Part 3/C: Request for Certification of Completed Work. If the building was continuously used and operated throughout the rehabilitation, then your project is complete when the proposed items are complete, and (if applicable) the portion of the building that was under construction is able to be used.

The Placed in Service date is a date supplied by the applicant, reflecting the date that the project was completed. If you received a Certificate of Occupancy, you may choose to use that date assuming that all the QREs submitted are for work undertaken after the building was most recently taken out of service.

Important: For the state tax credit, you are required to submit documentation to prove your Placed in Service, or completion date. You must submit either 1) a Certificate of Occupancy, or 2) an architect's Certificate of Substantial Completion, form G705, which includes signatures of the architect, contractor, and owner associated with all work for which the credit is requested. The form must reference a set of construction documents, and/or include a detailed description of work that clearly matches the scope addressed in the tax credit application.

Q. When do I receive the tax credits?

A. In the federal program, when your Part 3: Request for Certification of Completed Work is approved, you are eligible for tax credits in the amount specified by the NPS and IRS. You may claim them on your income tax return beginning in the year the project was completed, and carry the credit forward up to 20 years.

The state program has a few additional steps in this process. When your Part C: Request for Certification of Completed work has been approved by the THC, you will receive a Certificate of Eligibility, which will become one part of an application to establish your credit with the Texas Comptroller of Public Accounts. The submittal of this certificate for franchise tax credit is further described in the rules for this program developed by the Comptroller. Submission to the Comptroller will require an audited cost report and further application materials: visit the Comptroller's tax credit information page for further guidance on this program.

Q. After I complete the project, can I sell my property?

A. The federal tax credit program has a five-year recapture period after completion of the project, during which you cannot sell the property or make inappropriate changes. If you must sell the property within that time, you will forfeit part or all of your tax credits. Find a description of recapture in the National Park Service's FAQ.

The state program does not have a recapture period, so you may sell your property, if you wish, after the certificate of eligibility has been issued by the THC.

Q. Can I sell my tax credits? How does it work, and how do I find a buyer?

A. Federal income tax credits are not transferable. Only the original applicant may use them. If the original applicant is a partnership, then entities within that partnership may use the credits.

The state tax credit is freely transferable. Credits may be transferred multiple times, to multiple parties. Once you receive the certificate for your credit, you may elect to sell all or part of it to another party or parties. It is up to the recipient to set up private transaction with those parties and create a contract for any payment that is involved. To transfer the credit, you must resubmit your credit certificate, along with appropriate paperwork naming the recipient, to the Texas Comptroller of Public Accounts. They will then reissue credits to the appropriate recipient(s). Find out more by visiting the Comptroller's website.

Any company that incurs Texas business franchise tax (also known as margins tax) may be able to purchase credits. Only large companies incur franchise tax and are able to use these credits. Consider asking large companies or banks in your community if they are interested in buying. Tax credit syndicators and other financial capital companies are also interested in purchasing franchise tax credits. Please note that the THC is not able to match recipients with buyers.