What are HTCs?
The Historic Tax Credit (HTC) program originated with the evolving, nationwide realization that preservation of historic community assets is an important part of our shared history. It encourages the private sector to invest in the rehabilitation and re-use of certified historic buildings. The program’s intent is to attract new private capital to the historic cores of our nation’s cities and towns. Many of the buildings are located in low-income communities, designated disaster areas, or designated distressed or underserved areas. The funds help revitalize communities by enhancing property values, creating jobs, and generating tax revenues.
The federal program provides tax credits to property owners equal to 20 percent of the qualified renovation expenditures of historic, income-producing buildings. The Commonwealth of Virginia also allows a tax credit of 25 percent of the qualified rehabilitation expenditures.
How do they work?
- The HTC program is jointly administered by the U.S. Department of the Treasury and the U.S. Department of the Interior, in partnership with the State Historic Preservation Officer in each state.
- If the developer’s rehabilitation of a certified historic building meets certain requirements which maintain the historic elements of the structure then that project can be eligible to utilize historic tax credits.
- Developers of HTC projects typically use the tax credits to raise equity from private investors to help offset the costs of developing the project.
- Investors provide equity in exchange for the tax credits and other benefits over the life of the investment. The tax credits flow the year the project is placed in service.
- The combination of tax credits and passive losses reduces the investor’s tax liability, providing the investor a competitive market rate return.
- In addition, some projects will allow bank investors to receive favorable consideration for complying with the Community Reinvestment Act Investment Test.
- The equity investment helps to finance the historic renovations, reducing the debt burden on the tax credit property.
- The project must maintain the historic characteristics approved by the Department of the Interior for the full five-year compliance period.
Bankers & corporate investors seeking more information on the HTC program should refer to this OCC publication.
VCDC has developed five special Historic Tax Credit funds. In addition to these specialized funds, a number of projects in the Low-Income Housing Tax Credit funds also qualify for historic credits.