States Enact Laws to Amend Historic Tax Credit Programs

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Maine, New York, Colorado, and Ohio have enacted new legislation to expand or amend their state historic rehabilitation tax credit programs. Meanwhile, new legislation has cut back and will phase out Rhode Island’s historic preservation credit.

Maine Program

In Maine, Gov. John Baldacci (D) has signed into law legislation (LD 2289) that enhances and expands the state’s historic tax credit and modifies it to foster the creation of additional affordable housing units.

The Maine Historic Preservation Commission, in conjunction with a state agency, is drafting rules and application procedures to implement the revised program. Maine’s State Historic Preservation Officer is directed to set fees for the certification of historic structures and qualified rehabilitations.

The new law raises the state historic tax credit to 25% – from the prior 20% – of qualified rehabilitation expenditures incurred during calendar years 2008-2013. Properties must be listed on the National Register of Historic Places or be located in certified local districts. The credit has been made fully refundable, and is now subject to the same recapture rules as those for the federal historic rehabilitation tax credit.

In addition, the law authorizes a 25% credit for projects that don’t also claim the federal historic credit that have rehabilitation expenses between $50,000 and $250,000.

The law authorizes a larger, 30% historic tax credit for projects with a significant affordable housing component. The 30% credit is available against all rehab expenditures in projects in which either: (1) 50% of the aggregate square feet of the completed project is housing, and 50% of this housing is new affordable housing; or (2) 33% of the aggregate square feet of the completed project is new affordable housing. Affordable housing is defined as housing for persons at or below 60% of area median income.

Affordable housing created with the 30% credit must be kept affordable for at least 30 years. Recapture will be imposed for failure to do so.

The law provides for the historic credit rate to be increased by 1% a year, subject to a cap of 35%, in each year in which affordable housing units don’t constitute at least 30% of the aggregate square space of historic credit projects completed that year.

The revised historic tax credit will be claimed over four years: 25% in the year in which the project is placed in service, and 25% in each of the succeeding three years.

The law makes other changes that enhance the state credit for rehabilitation of income-producing, or commercial, real estate properties. The annual credit cap for a single project is raised to $5 million from $100,000. In addition, according to a recent prepared presentation on the revised state historic credit by Portland, ME attorney John S. Kaminski, of Drummond Woodsum & MacMahon, the state tax credit may now be allocated by a partnership or limited liability company among its partners in any way that they agree, such that the allocation may differ from the allocation of the federal historic credit or other income or loss from the project. In addition, Kaminski noted the law permits Maine’s historic credit to be allocated to organizations exempt from federal taxation under Sections 501(c)(3), 501(c)(4), or 501(c)(6) of the Internal Revenue Code.

The law sunsets the state historic credit at the end of 2013, and requires an analysis of the program and report to the state legislature by 1/15/13.

Colorado Legislation

In Colorado, Gov. Bill Ritter (D) signed a bill (H.B. 1033) to reauthorize the state’s historic preservation tax credit for another 10 years, through 2019.

The credit equals up to 20% of qualified rehabilitation expenditures for an eligible property, with a per-project credit a cap of $50,000. Properties must be at least 50 years old and listed on the federal or state register of historic places, be a locally designated landmark, or be designated as a contributing building in a federal, state, or local historic district.

Separately, Ritter signed a bill (H.B. 1353) that tightens the requirements for state conservation easements. Under the program, taxpayers receive a transferable state tax credit for donations of qualified conservation easements.

Colorado’s program had come under fire for alleged abuses.

The new law establishes stiffer new standards for conservation easements, including a new certification program for qualified conservation easement holders, and an easement appraisal review process.

New York Approves Changes

New York’s legislature in late June approved and sent to the governor to sign legislation to modify and enhance the state’s historic tax credit for commercial buildings and owner-occupied residences.

Changes to the credit for commercial buildings include raising the credit rate to 10% from 6%, raising the credit cap to $5 million from $100,000, and making the credit transferable among business partnerships. The effective date of the changes would be 1/1/09.

The improvements were hailed by the Preservation League of New York State.

Ohio Credit Legislation

In Ohio, Gov. Ted Strickland (D) on 6/12/08 signed an economic stimulus package (H.B. 554) that provided additional funds for the state’s historic tax credit certificate program, which was curtailed in the spring.

The new law authorizes a maximum $120 million in tax credit authority for award during two, one-year application periods that start on 7/1/09. Prior legislation capped at 100 per year the maximum number of tax credit certifications that could be approved for projects during a two-two-period beginning 7/1/07.

Ohio’s historic credit is equal to 25% of the amount of qualified rehabilitation expenditures for eligible historic buildings. Ohio’s program began in 2007 as a two-year pilot, but a tight state budget this year caused the program in April to exhaust funding after approval of just 37 projects.

Rhode Island Program

In Rhode Island, state legislation has been enacted to cut back the state historic tax credit program and phase it out.

Under prior law, the state historic credit was 30% of qualified rehabilitation expenditures for eligible income-producing properties, with developers required to pay a fee at project completion equal to 2.25% of qualified rehab costs. The program was to sunset in 2017.

The new changes restrict future eligibility for the tax credit to projects that submitted a Part 1 application by 8/1/08 with the Rhode Island Historical Preservation & Heritage Commission (RIHPHC). In addition, the credit rate is reduced and fees raised for proposed projects that continue in the program. The law gives developers a choice between paying a 3% processing fee and receiving a 25% credit; a 4% fee and 26% credit; or a 5% fee and 27% credit. The program will now sunset in 2012.

RIHPHC and the state Division of Taxation have filed emergency regulations to implement the changes; permanent rules are expected out by mid-August.

Maryland Credit Funding Cut

In Maryland, the approved state budget cut funding for the fiscal year beginning July 1st for the state’s tax credit for commercial historic rehabilitation projects to $14.7 million, from $25 million in FY 2008.

Maryland offers a 20% tax credit for rehab expenditures for commercial properties, with a per-project credit cap of $3 million.