In an effort to overhaul the U.S. tax code, House Republicans introduced the Tax Cut and Jobs Act on Nov. 6, with plans to fast-track the legislation through Congress. The U.S. Senate followed suit by introducing its own version of tax reform.
The tax reform bill that is making its way through Congress would end or significantly impact tax credit and incentive programs that have greatly benefitted real estate development projects in Ohio, Florida and across the country. These programs work by creating valuable credits against federal income tax for qualified investments.
Among other tax credit programs, the proposed House bill would eliminate the Historic Tax Credit (HTC) program, which has stimulated both commercial and residential development in our region. Nationwide, 42,293 historic buildings have been rehabilitated and preserved with the federal Historic Tax Credit program. The Senate version retains the HTC, but only at 10%, instead of the current 20% that has been in place since the Reagan Administration.
The bill would similarly affect state historic preservation tax credit programs in many states across the country, which are designed to leverage the Federal Historic Preservation Tax Credit. For example, as one of more than 30 states nationwide to offer a historic preservation tax credit program, the Ohio Tax Credit Program provide a tax credit to owners and long-term lessees of historic buildings to complete rehabilitation projects. The tax credit program has helped rehabilitate more than 1,900 historic properties ion Ohio since 1976.
In our June 12 blog, Tax Credits Abound for Historic Building Renovation, we described how real estate developers, architects and designers are taking advantage of federal and state tax credits to revitalize vacant and underused properties. According to a recent study, Ohio lead the country for projects in the 2015-2016 federal spending year for an investment totaling $365 million. If the tax reform bill is approved as introduced, historic preservation projects across the country would no longer be viable.
According to the Building Owners and Managers Association of Ohio (BOMA), The Ohio Historic Preservation Tax Credit program leverages private investment. For all projects approved between 2007 and 2014, the $482.3 million in tax credits are projected to stimulate more than $3 billion in external funding. In other words, every dollar in state tax credits attracts an average $6.20 in private investment.
We have been in conversation with several of our clients and community partners about how these proposals would sharply affect their redevelopment efforts. For example, Brittany Senger, multi-family project manager with the Detroit Shoreway Community Development Organization in Cleveland, said, “Dozens of historic structures within the Detroit Shoreway service area have been redeveloped utilizing the HTC program. This program provides an economic benefit to our communities, and is a vital component in bringing affordable housing to our neighborhoods. This program must be restored and preserved.”
The House Ways and Means-approved bill is expected to be considered by the full House by the end of this week.
Skoda Minotti’s Real Estate and Construction Group will continue working with industry associations and the development community to protect the federal historic tax credit program that has been so vital to the growth of our region. Questions? Please contact Paul Etzler, CPA, CGMA, GACP, at 440-449-6800 or email Paul.