By Valerie Magolan, THC Tax Credit Program Specialist
Many Medallion readers have likely heard the news about our Texas Historic Preservation Tax Credit. The program offers 25 percent of the qualified project costs for a certified rehabilitation of a historic building in the form of a state franchise tax credit. Since January 1, 2015, we have received initial applications for 192 projects with proposed investments of more than $1.6 billion; 31 preservation projects have been completed and approved, at an investment of over $217 million. To better acquaint readers with the state tax credit, we’ll answer some of the most common questions we receive about the program.
How does the state program differ from the federal tax credit program?
The federal program, worth 20 percent of eligible rehabilitation costs and officially known as Federal Historic Preservation Tax Incentives, has been available since 1976. It is overseen by our office in conjunction with the National Park Service and the Internal Revenue Service. Our state program is modeled after this federal program, but there are a few major differences.
First, the state program requires that you spend only $5,000 in order to have an eligible project, whereas the federal program requires you to complete a “substantial rehabilitation” that is equal to or greater than the value of your building. This means that projects seeking the 25 percent state credit can be smaller, lower-budget, and undertaken gradually. More applicants from smaller communities throughout Texas have been able to take advantage of the program for this reason. Second, the state program allows broader participation by different types of applicants, such as nonprofit organizations.
Can I apply to both programs at the same time?
Absolutely, and that’s one of the notable aspects of the state program. It was designed to be easy to apply to both of the programs concurrently—only if you’re eligible for both, of course. The combination of both programs offers an unprecedented financial incentive (up to 45 percent of the project cost) that has made many challenging preservation projects financially feasible.
How can I benefit from the state tax credit if I don’t pay franchise tax?
Many applicants who receive the state franchise tax credit don’t actually use it themselves—they sell it. One of the program’s features is that the credit can be freely sold, and there is a healthy market of tax credit buyers who will purchase the credit certificates. The current values are close to the face value of the credit.
Do you have any application tips for these tax credit programs?
First, the application process should begin before your project starts, and you receive the credit after your project has been successfully completed. A large part of the process is the architectural review of your plans for the proposed work. It’s important to coordinate with the THC early in your project planning stage to ensure your project is eligible and will meet the architectural guidelines.
For more information about these programs, visit thc.texas.gov/taxincentives.
This article was originally published in the Fall 2016 issue of The Medallion.