taking credit a brief history of federal and state

A Brief History of Federal and State Rehabilitation Tax Credits

• 1966: National Historic Preservation Act

• 1976: President Gerald Ford enacted the Tax Incentive Programs administered by the NPS Technical Preservation Services Division

• 1981 & 1986: Federal Investment Tax Credit for Real Estate

• June 2005 the Kentucky Historic Preservation Tax Credit was enacted. March 31, 2006 the first round of tax credits was approved.

Rehabilitation Tax Credit Program

Tax Credits – How they work

• A historic property can be a commercial, industrial, agricultural, residential, or rental residential property.

• For federal tax credits it must be of depreciable value (income producing).

• The structure must be at least one of the following: 1. Listed individually on the National Register; 2. A certified contributing part of a National Register

Historic District.

• The Federal Tax Credit program does have a process for properties not currently listed, the state tax credit does not.

Kentucky ranks 4th in the nation in the number of listings on the National Register of Historic Places

Eligible Properties


Option A: Tax Credit equal to 20% of the amount spent on a Certified Rehabilitation

of a Certified Historic Structure.

Option B: Tax Credit equal to 10% of the amount spent to rehabilitate a non-historic building built and placed in service

prior to 1936.

In FY2009 there were 25 projects completed to successfully earn federal tax credits with investment totaling $15,891,053. KY ranked 10th nationally in numbers of successfully completed projects.

Federal Rehabilitation Tax Credits


State Historic Tax Credits• Currently 26 states offer State Historic Tax Credits.• Kentucky established The Kentucky Historic

Preservation Tax Credit in 2005Key Points of the Approved Legislation :• 30% of qualified rehabilitation expenses is offered as a

state tax credit for owner-occupied residential properties (primary residence). A minimum investment of $20,000 is required, with the total credit not to exceed $60,000

• 20% of qualified rehabilitation expenses is available for all other properties, requiring a minimum investment of $20,000 or the adjusted basis, whichever is greater, with the total credit not to exceed $400,000

• Transferability; Credit can be transferred to a financial institution.

• The legislation caps total tax credit expenditures at $3 million annually. If that limit is exceeded by approved projects, an apportionment formula will be applied to determine the credit amount.

The Kentucky Historic Preservation Tax Credit


• A tax credit differs from an income tax deduction. An income tax deduction lowers the amount of income subject to taxation. A tax credit, however, lowers the amount of tax owed. In general, a dollar of tax credit reduces the amount of income tax owed by one dollar.

Note: Everyone’s tax status is different; we recommend anyone planning to undertake a tax credit project consult with their Tax Professional.

What is a Tax Credit?


• Summary of Applications Received by April 2009• 81 Projects for proposed work were submitted from 24 counties:• 58 for the 20% tax credit (commercial / other)• 21 for the 30% tax credit (owner-occupied residential)• 79 Proposed Projects were approved pending completion of the

work.• The approved projects represent $49,705,604.02 in proposed

private investment for historic rehabilitation.



State Historic Tax Credits Deadlines: Annual approval cycle:• Applications should be approved prior to

the project starting construction (any construction prior to approval is at the applicants own risk)

• Applications will be due April 29 of each year.

• Apportionment formula for the $3 million cap will be applied at this point.

• The Kentucky Heritage Council sends the approved credit amounts to the applicants by June 30.

• Once the project is approved for credit in can be completed within any 24 months.

• The final Certification of Completed work and the Summary of Investment must be submitted after the project is placed in service.



• Property Owner(s)

• SHPO: State Historic Preservation Office (The Kentucky Heritage Council)

• Kentucky Department of Revenue

PLEASE REMEMBER:

Historic Tax Credits are truly a no risk opportunity. If you get your application pre-approved and execute the work according to the approved application. The project is guaranteed the credit

However, a single deviation from the approved application may cause the project not to receive any credits.

Who Is Involved in the State Process?


• Property Owner(s)

• SHPO: State Historic Preservation Office (The Kentucky Heritage Council)

• NPS: National Park Service

• IRS: Internal Revenue Service

PLEASE REMEMBER:

Historic Tax Credits are truly a no risk opportunity. If you get your application pre-approved and execute the work according to the approved application. The project is guaranteed the credit

Who is involved with the Federal Process?


• Federal Historic Preservation Tax Incentives http://www.cr.nps.gov/hps/tps/tax/index.htm

• Federal Historic Preservation Certification Application http://www.cr.nps.gov/hps/tps/tax/hpcappl.htm

• Boyle, Jayne F., Stuart Ginsberg, and Sally G. Oldham. A Guide to Tax-Advantaged Rehabilitation, Revised by Donovan D. Rypkema. Washington, D.C.: National Trust for Historic Preservation, 1994.

• The Secretary of the Interior’s Standards for Rehabilitation http://www.cr.nps.gov/hps/tps/tax/rehabstandards.htm

• IRS Connection http://www2.cr.nps.gov/tps/tax/IRS.htm

Recommended Sources


• Documents in PDF format included on the Kentucky Heritage Council Website at http://www.heritage.ky.gov

• Kentucky Historic Preservation Tax Credit Instructions and Guidelines

• Frequently Asked Questions• Part 1 Application: Evaluation of National Register Status• Part 2 Application: Description of Rehabilitation• Part 3 Application: Certification of Completed Work• Amendment Form• Summary of Investment• Who do I contact for more information?

Kentucky Department of Revenue http://www.revenue.ky.gov

• KRS 171.396 http://www.lrc.ky.gov/KRS/171-00/396.PDF• KRS 171.397 http://www.lrc.ky.gov/KRS/171-00/397.PDF



Buildings that Qualify

Preservation Standards

The Rehabilitation Standard

Resources


National Register Nomination - Individual Listing – Period of Significance

Liberty Hall

Entered to the Register:1971

Period of Significance:1750-1799

Criterion A, C

Areas of significance:Architecture, Politics/Government

*Liberty Hall is also a National Historic Landmark – one of thirty in the state


National Register Nomination - District Listing – Period of Significance

Corner in Celebrities Historic District

Entered to the Register:1971


Criterion A, B, C

Areas of significance:Architecture, Landscape, Literature, Military, Politics/Government, Religion


National Register Nomination - District Listing – Period of Significance

Central Frankfort Historic District

Entered to the Register:July 2009


Criterion A, B, C

Areas of significance:Architecture, Politics/ Government, Commerce,Community Planning & Development


Preservation Standards

The Rehabilitation Standard

Resources

The Standards

Preservation focuses on the maintenance and repair of existing historic materials and retention of a property's form as it has evolved over time. (Protection and

Stabilization have now been consolidated under this treatment.)

Rehabilitation acknowledges the need to alter or add to a historic property to meet continuing

or changing uses while retaining the property's historic character.

Restoration depicts a property at a particular period of time in its history, while removing

evidence of other periods.

Reconstruction re-creates vanished or non-surviving portions of a property for interpretive

purposes.

• “Rehabilitation” is defined by the Secretary of Interior as “the process of returning a property to a state of utility, through repair or alteration, which make possible an efficient contemporary use while preserving those portions and features of the property which are significant to its historic, architectural, and cultural values.”

Appropriate Rehabilitation of Historic Buildings

Rehabilitation

Secretary of the Interior’s Standards for Rehabilitation

• Property shall be used for its historic purpose or be placed in a new use that requires minimal change to the defining characteristics.

• Historic character of a property shall be retained and preserved.• New changes that create a false sense of historical development shall not

be undertaken.• Existing changes that have acquired historic significance in their own right

shall be preserved.• Distinctive features, finishes, and construction techniques that characterize

a historic property shall be preserved.• Deteriorated historic features shall be repaired rather than replaced.• Treatments that cause damage to historic materials shall not be used.• Significant archeological resources shall be protected and preserved.• New additions shall not destroy historic materials that characterize the

property. New work shall be differentiated from the old.• New additions shall be done in such a manner that if removed in the future,

the essential form and integrity of the historic property and its environment would be unimpaired.

Standards for Rehabilitation

National Park Service Resources

• Preservation Briefshttp://www.nps.gov/history/hps/tps/briefs/presbhom.htm

• Tech Noteshttp://www.nps.gov/history/hps/tps/technotes/tnhome.htm

• Interpreting the Standardshttp://www.nps.gov/history/hps/tps/tax/its/itshome.htm

Rehabilitation Tool Box – Technical Resources

ITS 21: Adding New Openings: New Openings in Secondary Elevations or Introducing New Windows in Blank Walls

Preservation Tech Notes - Historic Glass #1: Repair and Reproduction of Prismatic Glass Transoms

Preservation Brief #2: Repointing Mortar Joints in Historic Masonry Buildings

Preparing the Rehabilitation Tax Credit Application

The Application Process

Kentucky Rehabilitation Tax Credit Application

Forms mirrors Federal Application

Three part process

Part 1Confirms property’s eligibility in the program

Part 2Defines scope of work being proposed – for review and comment

Part 3Submits documentation of completed work for certification

The Application – Part 1Confirms eligibility in the program

The Application – Part 1


identify property on district map

Photographs of • streetscape• each exterior side of building• major interior spaces• character defining detailsKeyed to plans

The Application – Part 2Defines scope of work being proposed

We love before photos



before

after

The Application – Part 3Documents completed work

Case study

Mount Sterling Gateway Regional Center for the Arts

Non-Profit - Case Studies


Save Americas Treasures Grant

Renaissance Kentucky Façade Grant

Community Development Grant administered by DLG and HUD

State Rehabilitation Tax Credits

Local Governments

Private Fundraising

Mount Sterling Gateway Regional Center for the Arts
