By Caroline Wright and Valerie Magolan, THC Historic Preservation Tax Credit Program
The words “tax credits” have been a buzz term in Texas’ historic preservation and economic development communities for the last several years. Those who have never been involved in a historic rehabilitation project may not see the connection between taxes and historic buildings, but tax credits have become an important tool for preservation in Texas.
Historic tax credits were established to incentivize private investment in historic preservation projects. Most grant funds, which can provide only limited amounts of support, are restricted to nonprofit organizations or government entities, leaving a significant resource gap for privately owned properties. The Federal Rehabilitation Tax Credit was established in 1976 by the U.S. government to address this gap and help revitalize communities.
While the federal credit has a long history, it was not always well-used in Texas, with most projects preserving large buildings in big cities. The introduction of the Texas Historical Commission’s (THC) Texas Historic Preservation Tax Credit in 2015 has ushered in hundreds of new projects of varying sizes from communities across the state.
Many of the agency’s projects still occur in major cities, but tax credits are now part of the resurgence of smaller towns across the state. Two recently certified projects are in Taylor, northeast of Austin.
In 2016, Kaitlin and Cliff Olle bought the former Taylor High School campus, which hadn’t been used by the school district since the 1980s. The sprawling complex at the north end of downtown Taylor includes the 1923 high school building, an Art Deco gymnasium built in 1936 by the Works Progress Administration, and a 1956 junior high building.
This enterprising local couple had a vision and took on an ambitious tax credit project to develop the three buildings into a mixed-use facility. In the classroom buildings, they created apartments, restaurants, and tenant spaces for retail and office use.
The Plowman’s Kitchen restaurant is in the former band hall, and the Loose Screw Craft Beer House is in a converted classroom—both are favorites with the local community. The old gym is now a large event hall available for rentals. Major expenses included repairs, new windows that recreated the original designs, and all-new mechanical and air conditioning systems for the three buildings. The rehabilitation was completed in 2019 and brought new life to an empty property.
Half a mile away, one of the buildings at the main intersection in downtown Taylor was sitting vacant, with rotting wood windows and part of the façade ready to collapse onto the sidewalk.
Architect Douglas Moss now lives in New York, but grew up in Taylor. He decided this was going to be his personal project. Moss purchased the property (built around 1900 with a 1925 addition) and went to work.
His team completed structural repairs, restored exteriors to their original appearance, and modernized systems and finishes on the interior. They created seven loft apartments inside, each with its own unique charm, and a retail space at the front corner that takes full advantage of the great location.
The building was an eyesore in the heart of downtown, but it’s now a desirable place to live. Moss says he couldn’t have saved this property without the help of tax credits.
“The tax credit program is the difference between making a project viable or nonviable,” says Moss. “It’s an amazing program that I wish more people took advantage of.”
The time-consuming yet ultimately rewarding efforts made both projects possible, according to Bess Althaus Graham, director of the THC’s Architecture Division, which oversees the program.
“Using the tax credits to revitalize these historic properties in Taylor has helped bring pedestrian traffic, small businesses, economic activity, new residents, new investment, and a new spirit to downtown,” she says.
So how does it all work? The Federal Rehabilitation Tax Credit is available to taxpaying entities that undertake architectural work to historic buildings. In exchange for coordinating with the THC and meeting the Secretary of the Interior’s Standards for Rehabilitation, the property owner is awarded tax credits, which reduce the amount owed on federal income taxes.
Applicants are awarded credits equal to a percentage of most (but not all) construction costs. While adequate funding must be in place to complete the project, credits can be used afterward to offset costs. Depending on the size of the project, credits can be used to help projects secure loans or investments.
The Texas credit program works much like the federal one, although it is applied to either the Texas Business Franchise or Insurance Premium taxes, both paid only by certain types of corporations. Most applicants for the Texas historic tax credit do not pay either of these taxes.
How is it useful? The Texas credit can be sold—a property owner that has earned credits may sell those for cash to a business that owes taxes to the state. While applicants must still take time to understand the application process, program requirements, and financial implications of the program, the state credit has proven to be a powerful tool to assist property owners.
For more information about the tax credit programs, visit thc.texas.gov/taxcredits.