Understanding Tax Credit Programs for Historic Buildings Thursday, March 20 th, 2014

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1 Understanding Tax Credit Programs for Historic Buildings Thursday, March 20 th, 2014 Jim Draeger Historic Preservation Officer Wisconsin Historical Society Neil White Business Development Planner City of Green Bay

2 Federal & Wisconsin HTC Programs Federal Income-Producing - 20% Federal Non-Historic - 10% State Income-Producing Certified Historic Buildings - 20% Qualified Historic Buildings 20% Homeowner 25% Non-Historic

3 Category Qualifiers Pre-1936 Commercial Buildings Federal Federal WI - Cert WI - Qual 20% 10% 20% 20% Registered Historic Building X X Registered Historic District X X Non Historic - Contributing to District X X Non Historic Building - Income Producing Only X X Non Historic Building - Residential (condos) ** X Credits Transferable Limited No Yes Yes ** First time housing use

4 Federal Tax Credit Program Program began in % Income Tax Credit for Income-Producing Certified Historic Buildings Tax incentives are one of the nation's most successful and cost-effective community revitalization programs having leveraged more than $30 billion in private investment to rehabilitate historic buildings into rental housing, offices, and retail stores.

5 Federal Summary Total Rehabilitation costs (Part 2): $5.33 billion Average Project Cost: $5.23 million Number of approved applications (Part 2s): 1,022 Average number of local jobs created per project: 78 Estimated number of local jobs created: 57,783 In 2012, WI approved 84.5 million dollars of rehabilitation work Pabst Brewery Boiler House $5,100,000 $1,275,000 tax credits

6 Federal: Minimum Qualifications 1. Property must be certified historic structure 2. Minimum investment (IRS) 3. All work must meet the Secretary of the Interior s Standards for Rehabilitation

7 What Makes a Certified Historic Structure? Eligible or listed on the National Register under one of these four criteria: A. Historical association B. Association with a person C. Design (Art, Architecture or Engineering) D. Ability to yield information (archaeological sites)

8 In Wisconsin 41 Landmark Status Sites 1,631 Individual Buildings 332 Historic Districts 2,300 Total Buildings

9 Federal: Minimum Qualifications 1. Property must be certified historic structure 2. Minimum investment (IRS) 3. All work must meet the Secretary of the Interior s Standards for Rehabilitation

10 Investment Requirements for Federal Credit Minimum Investment or Substantial Rehabilitation Test Eligible expenses = or > Adjusted Basis Value or $5,000 whichever is greater Adjusted Basis Value = Purchase price value of land (at the time of purchase) + improvements - depreciation Purchase Price: 100,000 Land Value: 22,000 Improvements: 78,000 Depreciation: 2,600 ABV: 75,400

11 Investment Requirements for State Credit Minimum Investment when using ONLY State Historic Credit Eligible expenses Equal to or > than $50,000

12 Eligible Expenses Eligible Anything to do with the historic building Architectural Fees Engineering Fees Consultant Fees Not Eligible Building Purchase New Construction Landscaping Parking Lots Moveable Equipment

13 Federal: Minimum Qualifications 1. Property must be certified historic structure 2. Minimum investment (IRS) 3. All work must meet the Secretary of the Interior s Standards for Rehabilitation

14 Secretary of Interior s Design Standards The intent of the Standards is to assist the long-term preservation of a property s significance through the preservation of historic materials and features.

15 Design Guidelines Repair before replace Retain and preserve Respect the economic and social value of history Use is compatible with the historic building

16 The Application Process 1. WHS/SHPO Site Visit & Owner Meeting 2. Owner submits application: Part 1: certifies property is historic 3. WHS/SHPO Review and WEDC approval 4. NPS Review 5. Carry out proposed work Part 2: certifies work meets Standards 6. Owner closes out project: Part 3: certifies work was completed per the Part 2

17 Federal Timeline & Costs Research/Planning: Review period: Designation Process TBD 60 days SHPO 30 NPS 30 1 year Cost of Rehabilitation NPS Fee $0 - $79,000 $0 $80K - $3,849,999 $ % $3,850,000 or more $6,500

18 Project Example: Federal Building Wausau, WI Eligible Costs: $4,186,000 Income Tax Credit: $1,046,500

19 Federal: Non-Historic Tax Credit (10%) 10% Income Tax Credit for Commercial Buildings (non residential) Built before 1936 Not Listed on the National Register No WHS review Must meet the Federal Minimum Investment Requirements Claim credit on IRS form 3468

20 Wisconsin Tax Credit Programs WEDC Approvals required for both state credits (20%) Certified Historic Buildings Qualified Rehabilitated Buildings Community Account Mangers by District: Coordinate application process with Community Account Managers

21 Project Benefits Maximize use and profitability of investment property Cost effective choice vs tear down and rebuild Create completive advantage in retail spaces: - Suburban vs Urban - One of a kind destination locations - Urban lifestyle trending upwards - Infrastructure in place - Higher density population and employment base Jobs created - Commercial Spaces & Specialty Construction

22 Project Benefits Redevelopment vs Build New Example Existing Structure New Building Building Square Feet 23,000 23,000 Hard costs per square foot $65 $75 Soft costs per square foot $35 $25 Total cost per square foot $100 $100 Development Cost $2,300,000 $2,300,000 Federal Tax Credits Available 20% $460,000 $0 WI Tax Credit Income at 20% $460,000 $0 Tax Credit Incentive Savings $920,000 N/A Final Building Cost $1,380,000 $2,300,000 Cost Savings $920,000

23 Transferability Credit Partners Banks / Financial Project Partners Utilities Insurance Companies National Trust Community Investment Corporation Entities with sizable tax liabilities

24 Transferability Federal: Limited Transferability Building owner forms LLC or Limited Partnership with credit investor Investor makes equity investment in exchange for credits at a discount Investor must remain in project for 5 years w/ significant investment Current Safe Harbor Guidelines (IRS Revenue Procedure ) Status currently very fluid State: No transferability restrictions

25 Federal Credit Transferability Partnership Guidelines IRS Revenue Procedure The five key partnership structural provisions Partnership interests Bona fide nature of investment (20% rule of thumb) Arrangements impacting investor s interest Guarantees Exit structure

26 Questions & Comments WisconsinHistory.org Jim Draeger Historic Preservation Officer Wisconsin Historical Society Neil White Business Development Planner City of Green Bay