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ECONOMICS & TAX INCENTIVES 7 tAr_On i 3 The Economic Power of Restoration Donovan D. Rypkema Historic preservation doesn't have a value—it has a multitude of values: aesthetic value, cultural value, social and psychological value,political value,environmental value,educational value. In the long term I believe each of those values is far more important than preservation's economic value. Most of you at this conference can explain those other values far better than can I. Frankly I don't know much about those values. What I do know a bit about is the economic value of preservation. I am going to try to do three things today: first, identify and quantify a number of aspects of the economic benefits of historic preservation; second, suggest where the challenges to the success of historic preservation are likely to come from in the next decade;and third, propose five key roles for historic preservation in this beginning of the 2151 century. These remarks are entitled The Economic Power of Preservation but I am going to define that economic power broadly. Preservation can mean profits to developers,and homeowners,and bankers, certainly. But also, I believe, it can generate profits for neighborhoods,community activists,visitors,and the city at large. So first to the economic benefits of historic preservation. We have identified a couple dozen of them here in the U.S. I'm going to tell you about eight of them. And I'll begin with the impact of simply rehabilitating an historic building.The Bureau of Economic Analysis has developed an econometric model to measure the local impact of output from a variety of economic activities. Five hundred twenty eight types of activities are evaluated and then consolidated into thirty-nine industry groups.These range from coal mining to household services, from agricultural production to retail trade.Using this data there are a couple of ways of quantifying the impact of production in each of these groups: one is number of jobs created; another is local increase in household income. Conventional wisdom suggests that manufacturing activities would have the greatest impact. So I would like to compare for you manufacturing to building rehabilitation. We will begin with jobs. On average for every$1 Million in output from manufacturing in Florida,23.2 jobs are produced.For a Million Dollars in building rehabilitation 36.9 jobs. In Florida the average manufacturing firm produces 13 fewer jobs for each million of production than does rehabilitation. The next measurement is household income—how much does$1 Million in manufacturing in Florida add to the household incomes of Florida citizens?$491,000. How much does a Million Dollars of building rehabilitation add? $755,000.Now admittedly the$491,000 and 23.2 jobs represent an average of seventeen manufacturing sectors. Those of you who can recall your high school math or college statistics will remember that sometimes averages under reflect individual highs and lows. So how many of the components of those averages create more jobs or more household income per million than building rehabilitation?None. Again in Florida a million dollars of manufacturing adds an average of$264,000 less in the pockets of workers than a million dollars of rehabilitation. So why is there this greater local economic impact?It is a function of labor intensity.As a rule of thumb, in the U.S.new construction will be half labor and half materials; rehabilitation will be sixty to seventy percent labor with the balance materials. So while you might buy an air conditioner from Texas and timber from Oregon,you buy the services of the carpenter,the electrician,the painter and the plumber from across the street. Those tradesmen, in turn, spend their dollars locally on groceries, clothes and new cars.Thus the secondary local effects of labor are significantly greater than that of materials.Labor intensity adds to the local economy. That million dollars of rehabilitation in Florida adds two more jobs and $72,000 more in household income than does the same amount in new construction. Further, construction jobs are generally skilled and therefore generally'well paid jobs, particularly for those without advanced formal education. So the construction trades have traditionally been a path for young people for learning, apprenticeships,advancement, and the building of their own household assets. So the case can certainly be made that the rehabilitation of historic structures is a highly beneficial local economic activity.But this might be countered with, "Yes,but construction is a finite task and once the work is done the job is gone."There are two responses to that argument. First,with building component life cycles of between thirty and fifty years, a community can rehabilitate two to three percent of its building stock per year and have perpetual employment in • the construction trades. Second, and more important is the nature of what is being created.A rehabilitated building is a capital asset, like a drill press or a railroad car. There is an economic impact in its creation but a subsequent economic role in its long-term use. So I would like to move to some of the uses we have found for historic buildings that have additional economic impact. One area of significant preservation economic impact is heritage tourism.Heritage tourism is among the fastest growing segments of the visitor industry worldwide and will continue to be so. But that does not mean a heritage tourism approach is appropriate for all or even most places with historic assets. I would estimate that of all the heritage resources in economically productive use in the U.S.,ninety-five percent are being used for something other than the tourism industry. Furthermore,heritage tourism is based on a rather fragile commodity, the overuse of which can diminish sustainable opportunity. So is the economic use of historic resources limited to heritage tourism?Certainly not. Having said that,however, heritage based tourism, properly managed, does represent a significant opportunity for many communities.In Virginia preservation visitors stay longer,visit twice as many places,and spend two and a half times as much money as non-preservation visitors. In North Carolina visiting historic sites is far and away the most common visitor activity. And this is a State where much of the business community and political leadership think that their major visitor assets are car races and their professional sports teams—neither of which make more than a minor blip on the visitation statistics. But North Carolina is known for another culturally based activity. For generations in the mountains of western North Carolina has been a vibrant crafts industry.Today that industry—almost entirely made up of one and two person operations—adds over$120 million annually to the economy of that State. What is the connection between the crafts industry and historic preservation?There they have learned that 3 historic buildings make the ideal place both to make and to sell their wares—the authenticity of the historic building adds to the sense of authenticity of the crafts product. It is a natural linkage. — Back to heritage tourism for a moment. In Maryland when we looked at heritage tourism here's what we learned: preservation visitors stayed a full day longer in the State than did other visitors;the average daily expenditure of preservation visitors was greater than other visitors;the consequence of these two factors means that the per trip expenditure is decidedly higher.There are two ways to look at this: either we can take in more revenues with heritage visitors or—since there are many instances where sheer numbers of people may not be desirable—we can take in the same amount of money with far fewer visitors. Either way heritage tourism,when it is appropriate, can have substantial local economic benefit. Further, heritage tourism is the singular form of tourism that,when done right, can preserve the local culture and enhance the quality of life for full time residents as well as for visitors.The same is not true for one more amusement park or one more time-share beach resort.Tourism is inherently a volatile industry, but heritage based tourism means that local assets are preserved for local citizens even in the down cycles of visitation. A while back I attended a one-day symposium at the Brookings Institute in Washington of 30 or so people—both academics and practitioners—who are looking at ways of measuring the economic impact of historic preservation. The president of a tourism analysis firm from Toronto looked at visitor numbers slightly differently. He eliminates those people traveling for business, for example,who happen to visit a historic site incidental to the primary purpose of the trip and concentrates on discretionary travelers and what attracts them.For that person who is traveling for pleasure and has as a major purpose visiting historic places,for every$3 she spends on the historic site itself, $97 are spent elsewhere—food or shopping or hotels. But she came to town because of the historic resources.The leverage of that historic site,therefore, is incredible. The next on my list of economic benefits of historic preservation is,perhaps, a less obvious one—small business incubation. The vast majority of net new jobs in the U.S. are not created by General Motors or IBM or Texaco. Around 85% of all net new jobs are created by firms employing less than 20 people. One of the few costs firms of this size can control is occupancy costs—rent. Many simply cannot afford the rents demanded in a new office building or in a shopping center or a new building in an industrial park. For many of these firms historic buildings are an attractive alternative.The twenty fastest growing types of businesses in the US have on average 11 employees.How much space to these people require?Well it depends a little on the specific business type but around 200 square feet per person would be typical. What is the average size of a small historic building downtown?25' by 100' or 2500 square feet,almost precisely what is needed for this type of small business.Just up the road from where I live is Annapolis, Maryland—the most historic of America's state capitals,and there is a wonderful historic district in the downtown there.In that downtown 60 percent of all of the businesses employ five people or less—the perfect match between historic building and small business opportunity. High tech industries seem to be what everyone wants to recruit today—and probably for good reason. But 70%of all high tech firms employ less than ten people. Some idiots in Duluth, Minnesota tore down a whole block of historic buildings recently in order to build a"high tech center."I don't know; maybe all the planes in Duluth are frozen to the ground year round so they couldn't look at the pattern anywhere else. But in the fast growth high tech areas in Seattle, in Portland, in Boston and Cambridge, in Silicon Alley in Manhattan, where are those types of firms locating?In old industrial and retail buildings, Rennsseler Polytechnic Institute in Troy, 4 New York is one of the great technological colleges in the country.They have a history of graduates forming companies in the high tech fields.The school in the past has partnered with — some and provided business incubation space for others. Well they recently ran out of space on campus to accommodate all of the need—and that need includes direct connection to the school's main frame computers,and a variety of communication and data transfer systems. So they built a new glass and chrome building in the industrial park right?Wrong. In partnership with a local bank and a non-profit preservation organization RPI created a state-of-the art high tech business incubator in a historic building in downtown Troy. In Washington a group of venture capitalists • is creating an incubation space for high-tech businesses they want to invest in. Where are they doing this?In an historic building in Washington's Chinatown.The adaptability of historic buildings is one of their most valuable and under-recognized attributes. There is one more aspect of small businesses and historic buildings that merits mention, and it is on the quality side of the equation.There are certainly some very high quality new commercial buildings being built in America today—but virtually all of them large buildings. Small businesses rarely find a place in these buildings either because the size is inappropriate or the rent is too high.There are almost no high quality, small buildings being built for tenant occupancy anywhere in the U.S.The rehabilitated historic building provides that opportunity for a small business—high quality at an appropriate scale and an affordable price. Many small firms are recognizing that. • The next area of preservation economic benefit is downtown revitalization. For fifty years we have seen a departure from the central city and its downtown to the suburbs.This has had huge adverse consequences socially,economically, politically, and physically.As a result many towns and cities of every size have embarked on downtown revitalization efforts. Some of these efforts have been going on for nearly thirty years; others are more recent initiatives. Today downtowns are making a great turn around—new economic life in areas that not long ago were nearly dead. But I do not know of a single sustained success story in downtown revitalization anywhere in the United States where historic preservation was not a key component of the effort. That doesn't mean it isn't theoretically possible to have downtown revitalization but no historic preservation,but I don't know about it, I haven't read about it,I haven't seen it. Once consequence of these downtown revitalization efforts is that for the first time in two generations people of middle class means are moving back into the central city—often into the downtown itself.This is happening in places as diverse as Philadelphia, San Francisco, Atlanta,Houston, Denver and Des Moines.But in nearly every instance the housing they are moving back into is rehabbed housing in historic buildings. Obsolete factories,warehouses, department stores, office buildings are now finding new life as apartments.This is historic preservation that has nothing to do with tourism or museums but is making a huge and sustainable economic impact all over America. At the same time we have seen departure from our central cities there has also been an out-migration from small towns. For 20 years now the National Trust has had the program— economic development in the context of historic preservation—known as Main Street.You have a great Main Street program here in Florida. Main Street is now also active in neighborhood commercial districts in several large cities. It has had an incredible success. Over 1600 communities in over 40 States have had their own Main Street programs. Over the last 20 years in excess of$15.2 Billion dollars has been invested in these downtowns. There have been 79,000 building renovations, 52,000 net new businesses and 206,000 net new jobs. There is simply no more cost effective economic development program of any type, on any scale, anywhere in the 5 country and I don't care what standard of measurement you choose.And this is economic development that focuses on historic preservation and retaining community character. Stable residential neighborhoods may not seem to be central to economic development, but in fact they are critical. Declining neighborhoods means loss of tax revenues for local government. Declining neighborhoods mean the departure of the skilled,the educated,the employed and the middle class. Declining neighborhoods see increased crime, declining property values, underutilized public infrastructure, deficient schools. Both the public and private sectors suffer economically when residential neighborhoods decline. More and more, historic districts have become the strategy to stabilize and reinvigorate urban neighborhoods. The only way I know to communicate this pattern to you is to give you some examples from around the country. In Kansas City,Missouri the city itself is declining in population,but the historic districts are growing.In Rock Island, Illinois,a Mississippi River town,many of the older homes in close in residential areas had been covered up with cheap and inappropriate materials.A concerted effort of a local group to undo the damage has been in place for six or seven years.The neighborhood has taken on a whole new life. If you were to drive through some of these neighborhoods you might well say,"What is historic about this neighborhood?"And, frankly, on a global scale,nothing. But the neighborhoods have a local history that they now celebrate.The overwhelming majority of what we call"historic properties" have no international, in most cases not even national importance.But they have local importance to the people who live there. Both economic development and historic preservation are essentially local in the United States;that's one reason why the two can work so well together. In Indianapolis an area of very modest housing is seeing rates of property value appreciation far greater than surrounding non-historic neighborhoods.In the small town of Staunton,Virginia, historic district properties appreciate significantly faster than the market as a whole. In Oklahoma City a neighborhood that ten years ago was nearly vacant is seeing new life based on a preservation strategy. Columbus,Ohio has created an entire new neighborhood through the adaptive reuse of former breweries and warehouses.None of these examples are the enclaves of the rich or famous, not neighborhoods of mansions. But they are all examples of a consistent pattern of effective neighborhood stabilization through historic preservation. Related to the issue of neighborhood stability is neighborhood diversity.America is a diverse country, ethnically, racially, economically. From a political perspective there's not much unanimity in the U.S.regarding overall urban policy. But I think there is rather widespread agreement on one issue—our cities would be healthier of we had diverse urban districts—that no one particularly benefits from neighborhoods that are all rich or all poor; all white or all black. And while for over thirty years we have had laws prohibiting discrimination based on race or religion,while anyone with the money to buy can live wherever they choose,our neighborhoods as a whole are not very diverse. Let me give you an example. Philadelphia, one of America's oldest cities,has a population of one and a half million people.It's about 53 percent white,40 percent black and the balance Asian and Other. But when the census is taken Block Groups are identified.A block group is small—in Philadelphia only eight or nine hundred people in each one.There are about 1,750 Block Groups in Philadelphia. While the city as a whole is certainly diverse,the Block Groups are not. In a recent analysis we said that to meet the test of a diverse neighborhood,the Block Group had to be less than 80%white and less than 80%black,that is no extreme concentration of any race. 6 Barely one Block Group in five met that test. 79%of Philadelphia small neighborhood clusters were effectively all white or all black.Not so in the National Register Historic Districts, — however. In the 106 Block Groups within historic districts nearly half met the diversity test— people of all races living together because of the appeal of the historic neighborhood. These were not all high-income areas,by the way. The income distribution in Philadelphia's historic districts mirrors the income of the city as a whole. There is housing available in historic neighborhoods to accommodate a wide range of income levels. Philadelphia is a city that is losing people. Since 1980 it has lost between 12 and 14%of the population. Some will argue that a city's diversity is what drives people away.Not true in the historic districts.The historic neighborhoods have lost less than 5%. These historic districts only make up 6.3%of the city's entire population but: fifteen percent of the people that moved in from the suburbs in the last five years went to historic areas;twenty one percent of the people that moved into Philadelphia from other parts of the country moved to historic sectors. Historic neighborhoods are home to nearly 24% of the college graduates and over 28%of those with graduate and professional degrees. Even in a city by many measures in decline,the diverse appeal of historic districts is evident. So there are eight of the ways we have found historic preservation to be an economic generator:jobs, household income,heritage tourism, small business incubation, downtown revitalization, small town revitalization, neighborhood stability,and neighborhood diversity. So the story of the economic importance of preservation is a positive one. It is a story that is being heard and understood and adopted by decision makers—bankers, elected officials, city managers,economic development professionals, real estate developers, accountants,and business people.Those very people that a decade ago were the most vociferous opponents of historic preservation; or at best dismissed it as a cute avocation for the retired librarian. I do not mean to suggest that the need to continue to make these arguments is now over.This economic power of preservation message still needs to be told. But I think our biggest challenges in the immediate future come not from our former foes.Today our biggest challenges come too often from our friends in preservation.A battle isn't lost when people yell at you. A battle isn't lost when people talk down to you.A battle is lost when you become a joke.And,I would suggest,we are on the verge of that happening far too often.Let me give you four examples. In the name of historic preservation this is happening all over America. In what absurdist dictionary written by Salvador Dali on drugs can this be called historic preservation? Maintaining a four-inch brick depth of a façade is not preservation. Either a justification can be made for economic hardship or it can't. If there is no feasible way to save the building,we ought to demand a high quality new building be built. If there is not demonstrated economic hardship we ought not settle for this Halloween preservation—saving the mask and throwing away the building. This is the worst of both worlds—no historic preservation,by any sane definition, and yet encumbering the developer with an extraordinary cost of removing an entire building behind the skin and pasting it back on again. Every time some historic preservation commission accepts —or in most cases mandates—this facadeomy as"historic preservation" it not only makes it more likely to happen again, it also has taxpayers and elected officials shaking their heads in wonder and saying, "this is what preservation is about"?The laughter will soon follow. 7 My second example is on the other end of the spectrum. The Secretary's Standards for Rehabilitation have a clause that says"distinctive features, finishes, and construction techniques — or examples of craftsmanship that characterize a historic property shall be preserved."Well that used to mean grand lobbies, ornate stairways, decorative banisters, stained glass windows.Today too often every 8"pine,painted mopboard is declared a"distinctive feature"whose retention is mandated. Again, let me give you a concrete example. A building like this one—this isn't the building,I didn't want to embarrass the parties involved—but a building like this—late 19th century.And you all know how this building is configured on the upper floors—a long,double- loaded hallway with very small rooms and transoms over each door. The property owner and his architect convinced the SHPO and the Park Service that those small rooms simply could not be effectively reused and so were allowed to remove all the walls between them, creating two large, well lighted and usable spaces. But they were required to maintain the hallway—doors,transoms, and all.But the hallway goes nowhere! All because the doors and transoms were identified as "distinctive features".But how can we call a door a distinctive feature if there's no room behind it. It reminds me of this Oklahoma version of fapadeomy—a door but no building.A hallway to nowhere—mandated by our friends—makes preservation the subject of laughter. Example three. I've been involved for the last year with the National Trust in a cooperative agreement with the U.S. Army to identify the issues and challenges and to look for • solutions in trying to deal with the Army's historic buildings. They have 12,000 historic buildings currently and thousands more coming online over the next 20 years.The leadership at the Pentagon recognizes their stewardship responsibilities and is prepared to do what is necessary for their historic buildings. The responsibility for identifying what is"historic"falls into the hands of Cultural Resources Managers.Very nice people,very committed,most of whom are trained as archeologists,botanists,or entomologists. Trouble is, many,many of them use the term"historic building"to apply to everything over 50 years old. I'll admit to sleeping through some classes in graduate school, but I think if"fifty years old"and"historic"were synonyms I'd have come across it somewhere.Now when some commander is told that every temporary wooden storage building built in 1951 is"historic"and has to be saved,historic preservation is going to be dismissed as simply foolishness. Example four.There has been lots of discussion lately about the preservation of the recent past. And I think that's great. There are certainly plenty of buildings built since World War II that merit preservation—Dulles Airport,the Seagram building,Transamerica Tower,the motel where Martin Luther King was assassinated and hundreds of others. But to suggest that every roadside motor inn, 1950's strip center,Dairy Queen and Esso gas station is somehow "historic"stretches the limits of credibility. Historic preservation has always held with it an implication of quality and significance. When we allow Gresham's Law to apply to what we consider historic,we dilute the importance of those buildings that are important,that are historic, that do merit saving. We have made great strides in the last 15 years in cities, in neighborhoods, in economic development because historic preservation has demonstrated it should be taken seriously.But when saving four inches of brick constitutes historic preservation,when every mopboard becomes a"distinctive feature",when everything 50 years old is defined as"historic"and when mediocre structures of no architectural, historical, or aesthetic importance are called landmarks, we will have taken a giant step backwards and laughter will be our departure music. And this risk of now losing this hard won credibility is particularly troubling to me because of the great opportunity for historic preservation as we enter the 2151 Century. I believe 8 there are five crucial roles that historic preservation has the opportunity to play in the decades ahead. First is globalization. Like it or not the 21'Century will see a globalized economy. 1.2 billion people in the world live in poverty,most of them people of color.You will never tax the industrial world enough to end hunger.The only way it can happen is if there is an opportunity to produce and sell goods and services to world markets.The protesters in Seattle and elsewhere are simply wrong. A globalized economy is not only going to happen, but it is critical on any humanitarian perspective that it does. There will be a rapidly growing demand for goods worldwide. But the manufacture of those goods will require fewer and fewer people. Likewise the need for agricultural products will only increase with world population growth but fewer agricultural workers will be necessary to grow that food. The areas of the economy that will grow,both in output and in employment are these: Services; Education; Ideas; One-of-a-kind products, individually produced; Culture; Entertainment; Travel. What does that have to do with historic preservation?Three things: 1)every one of those activities can take place within a historic buildings; 2)for each of those growth areas, quality and authenticity will be major variables in consumer choice; and 3)just as with the crafts industry in North Carolina, being in a historic structure adds to the sense of quality and authenticity of the good or service. Historic buildings can house the 21 S`century economy. There is a second role for historic preservation in relation to globalization and it is this: for all of the potential benefits of a globalized economy(and there are many) it carries with it the substantial risk of a globalized culture,of which there are few if any benefits. But a globalized economy does not have to lead to a globalized culture.The westernization or the Americanization or the McDonaldization of local and regional cultures will not only have short- term adverse sociological and political consequences but long-term adverse economic consequences. But again, historic preservation can play a critical role.There is no better way to maintain,understand, and appreciate a local culture than the ongoing,evolving use of a community's historic resources. So historic preservation,perhaps only historic preservation,can simultaneously foster economic globalization while resisting cultural globalization. A third role for historic preservation in the coming years is one that it has been playing all along, and that is community building.In fact I would argue that historic preservation is the singular form of economic development that is simultaneously community development.Not long ago with the creation of the Internet,the growth of telecommunications,and the ability to work around the globe from one's house,there were predictions that the importance of one's physical place would diminish in importance.In fact the opposite has been true.The ability to work anywhere,the ability to electronically be everywhere,has increased our need to be somewhere—somewhere in particular, somewhere differentiated.It is our built environment that expresses,perhaps better than anything else,our diversity,our identity,our individuality,our differentiation. Our historic buildings are the physical manifestation of our community. We may be dismissive about teenagers,their values,their outlook,but they often understand this better than anyone. Let me tell you about the small town of Rushville,Illinois. There is this school there built in 1919 with an addition built in 1925.The addition was the gymnasium on the lower level and an auditorium space on the upper level.The school board decided the structure no longer worked so they built new schools,added to others,and a year ago the junior high kids who were the most recent users of the school were moved out. But the school 9 board decided that not only didn't the building work as a school—it was unusable for anything and intended to demolish it. When I toured the building I went into one of those little dressing rooms — that are usually found behind the stage in high school auditoriums.There written in graffiti on the wall—clearly by a 14 or 15 year old was this: "Those who want to tear this building down have never seen this place as Wonderland."That kid clearly understood what the school superintendent did not—that the evolution of the community was represented in that building and it was a far too precious commodity to be lost.The School Board didn't understand that and the building was torn down. But if the Rushville School Board didn't understand that,others do.In his book The Good Society sociologist Robert Bellah observes,"Communities, in the sense in which we are using the term,have a history--in an important sense they are constituted by their past--and for this reason we can speak of a real community as a'community of memory',one that does not forget its past." The fourth role of historic preservation is its environmental role. I have to credit Dick Moe at the National Trust for bringing this aspect of preservation to the forefront.The relationship between sprawl in the suburbs and abandonment of historic buildings in the city is so obvious, most of us missed it for years. But now this relationship is better understood.No new land is consumed when a historic building is renovated. Construction debris takes up 24% of increasingly expensive sanitary landfill,and much of that is from buildings being demolished. Historic preservation constitutes a demand side approach to Smart Growth. I'm not at all opposed to acquiring greenbelts around cities or development rights on agriculture properties.Those are certainly important and valuable tools in a comprehensive anti-sprawl strategy. But they only reduce the supply of land to be developed—they do not address the demand for the use of that land.The conversion of a historic warehouse into 40 residential units reduces the demand for ten acres of farmland.The economic revitalization of Main Street reduces the demand for another. strip center.The restoration of the empty 1920s skyscraper reduces the demand for another glass and chrome building at the office park.Again,I don't mean to be remotely critical of supply side strategies, but without demand side responses,their success will be limited at best. Historic preservation is in and of itself an environmental strategy,one that addresses the demand for uses. The fifth role for historic preservation is its effectiveness as a vehicle of fiscal responsibility. If Democratic governors, legislators and mayors have gotten onto this Smart Growth movement because of their concern for the environment,Republican governors, legislators and mayors have become advocates for Smart Growth because they are advocates for fiscal responsibility.The huge cost of public resources in providing roads,fire protection,water and sewer, schools and other infrastructure further and further into the countryside while at the same time we are abandoning historic buildings and the infrastructure that's already in place to serve them is the height of fiscal irresponsibility. Preserving historic structures is conservative in the best sense of the word. We are conserving taxpayers' dollars,conserving our local heritage, and conserving the natural environment. So when you go back home,getting your hands dirty restoring that deteriorated white elephant project that no one else would take on,please don't think what you are doing is just fixing up some old building. What you are doing is preparing your community for a globalized economy without being swallowed up by a globalized culture.You are building your community. You are saving the environment.And you are saving scarce public resources. I know that you've heard them before,but I think the words of John Ruskin are a fitting conclusion. He wrote,"When we build let us think that we build forever.Let it not be for present 10 delight,nor for present use alone; let it be such work as our descendants will thank us for,and let us think,as we lay stone on stone,that a time is to come when those stones will be held sacred because — our hands have touched them,and that men will say as they look upon the labor and wrought substance of them,"See! This our fathers did for us."What you are doing for historic preservation your descendants will thank you for. And I thank you for allowing me to be here with you today.Thank you very much. Donovan D.Rypkema 1785 Massachusetts Avenue,NW Washington,DC 20036 202-588-6258 DRpkema@aol.com • • t • Preservation Tax Incentives• f• or • -:: . • • _. - •,{`. Historic• Ruild• in• • • • .. 1t` .� w:. / mot ar �, • • -. .. .. v .,. :..i .. t• _ {.„4,",,,,,., '; , �yy g t•'---lit' � ' .; 7 + I i1: - y £ £ .e :0, ~ s t �Y# .... ,''' --''' ' 77.7'.%',.-:',14,1',,e7"'.'Xi.;..? ' ..—.---.:.','..5 ,..'..-f•.;14,tt..4 ,. •31..apop t t '.f?P tia }H ;1 _ ( A iY 7 # tI. k > ..,•,-.� .j s !. �1..'= �,s; . � ✓ !! - F 1-' t u. 6r .1 s x`iy -.d r ` . M� �'� pm // e ;Zq- .„ -,,. ,4 L�.,L I.,'.s��-,T� �'` : i ' / _ f t ; e .0 f,vt t .f�.: ,'°t z Fi � .X" .t, _ ..: +I�a tf�4'' ,r,r ' '� _.,.... `\'1 4 � ,,��y • i��• �(// _t �� lHs } �`,/Ify"', Y ✓ , , ,-``,..+. i " ,:!...:...,..:..!..I..{I1rJr it f a ?.fi'r' y t a :j •4�s� °' 2-4 3 • t�;.- a ,a' ,s 4r -% � � s . . 'S� t t : f. �'F } _ :Ri? ib - �.'?r I t. j '� t rrt��It aN. r t : s ' .. .1_ e�� ''' mo{'- ''• 4;, r -ss S k ! �..-� � �? s A� - �"�+to .112., .. t ) 1 YS.Y" ( a74�r 1 • y : 8 E$1 k= ,._ _.f•� _ -_�r ..�..x`. F.._d..�: r.w_ U.S.• Department of the Inferior . ' • . , +1 National Park Service Cultural Resources Hentage-Preservation Services This booklet describes the Federal Historic Preserva- Table of Contents tion Tax Incentives program in general terms only.For I I=re detailed information,including copies of appli- preservation Tax Incentives 2 Dion forms,regulations,and other program informa- tion,contact one of the offices listed on pages 25-28. What Is a Tax Credit? 3 The Tax Reform Act of 1986,as amended,is complex. Readers should consult an accountant,tax attorney,or 20Q/o Rehabilitation Tax Credit. 4 other professional tax advisor,legal counsel,or the In- ternal Revenue Service for help in determining the Rehabilitation Tax Credits:Who Does What? 12 tax and other financial implications of any matter dis- cussed here. 10%Rehabilitation Tax Credit 14 Department of the Interior regulations governing the The 10%or 20%Credit:Which One Applies? 15 • procedures for obtaining historic preservation certifi- cations are more fully explained in Title 36 of the • Other Tax Provisions Affecting Use of Code of Federal Regulations,Part 67.The Internal Preservation Tax Incentives 16 Revenue Service regulations governing the tax credits for rehabilitation are contained in Treasury Regula- Rehabilitations Involving Governments and tion Section 1.48-12.These sets of regulations take Other Tax-Exempt Entities 18 precedence in the event of any inconsistency with this booklet. Other Tax Incentives for Historic Preservation 19 The Secretary of the Interior's Standards • for Evaluating Significance Within Registered Historic Districts 21 Prepared by Michael J.Auer The Secretary of the Interior,s Standards Heritage Preservation Services for Rehabilitation 22 National Park Service 1996 For More Information 24 National Park Service,Internal Revenue Service and State Historic Preservation Officers 25 Cover photo:The Brentwood,Philadelphia,Pennsylvania (1905).After undergoing rehabilitation for 43 units of affordable housing. Courtesy Brentwood Parkside Associ- ates, a joint venture of Pennrose Properties,Inc. and the Parkside Historic Preservation Corporation. ©1996 Don Rouse Photographer. i . 3 Preservation Tax Incentives Current tax incentives for preservation,established by the Tax Reform Act of 1986 (PL 99-514;Internal hstoric buildings are tangible links with the past. Revenue Code Section 47 [formerly Section 48(g)]) ey help give a community a sense of identity, include: - stability and orientation.The Federal government , encourages the preservation of historic buildings i ■ a 20%tax credit for the certified rehabilitation of through various means.One of these is the program certified historic structures. of Federal tax incentives to support the rehabilitation ■ a 10% tax credit for the rehabilitation of non- of historic and older buildings.The Federal Historic historic, non-residential buildings built before 1936. Preservation Tax Incentives program is one of the Federal government's most successful and cost For both credits,the rehabilitation must be a effective community revitalization programs.The substantial one and must involve a depreciable building. Preservation Tax Incentives reward private investment (These terms will be explained later.) in rehabilitating historic properties such as offices, rental housing,and retail stores. What Is aTax Credit? Since 1976,the National Park Service has A tax credit differs from an income tax deduction.An administered the program in partnership with the income tax deduction lowers the amount of income Internal Revenue Service and with State Historic subject to taxation.A tax credit,however,lowers the Preservation Officers.The tax incentives have spurred amount of tax owed.In general,a dollar of tax credit the rehabilitation of historic structures of every reduces the amount of income tax owed by one dollar. period,size,style and type.They have been trumental in preserving the historic places that give ■ The 20%rehabilitation tax credit equals 20%of the Iles,towns and rural areas their special character. amount spent in a certified rehabilitation of a certified The tax incentives for preservation attract new private historic structure. investment to the historic cores of cities and towns. They also generate jobs,enhance property values,and ■ The 10%rehabilitation tax credit equals 10%of the amount spent to rehabilitate a non historic building augment revenues for State and local governments built before 1936. •through increased property,business and income err 4 taxes.The Preservation Tax Incentives also help n t, create moderate and low-income housing in historic buildings.Through this program,abandoned or Amon Clarence Thomas `s, iw .t f•. ? underused schools,warehouses,factories,churches, House,New Harmony, �• • retail stores,apartments,hotels,houses,and offices Indiana(1899). Courtesy r :; =j l `, t• throughout the country have been restored to life in a C. Scott McDonald. ` a1,2 s ;� ,,• manner that maintains their historic character. ,-,• 1 y _ ... _ 4 5 20% Rehabilitation Tax Credit What is a"certified historic structure?" -le Federal historic preservation tax incentives A certified historic structure is a building that is listed . program (the 20%credit) is jointly administered by individually in the National Register of Historic Places the U.S.Department of the Interior and the —OR—a building that is located in a registered historic I district and certified by the National Park Service as Department of the Treasury.The National Park Service.(NPS) acts on behalf of the Secretary of the contributing to the historic significance of that Interior,in partnership with the State Historic i district.The"structure"must be a building—not a • Preservation Officer(SHPO) in each State.The bridge,ship,railroad car,or dam. (A registered historic Internal Revenue Service (IRS) acts on behalf of the district is any district listed in the National Register of Historic Places.A State or local historic district may Secretary of the Treasury.Certification requests (requests for approval for a taxpayer to receive these also qualify as a registered historic district if the district benefits) are made to the National Park Service and the enabling statute are certified by the Secretary through the appropriate State Historic Preservation of the Interior.) • Officer(SHPO).Comments by the SHPO on certification requests are fully considered by the NPS. OBTAINING CERTIFIED HISTORIC STRUCTURE STATUS However,approval of projects undertaken for the 20% Owners of buildings within historic districts must tax credit is conveyed only in writingby duly authorized complete Part 1 of the Historic Preservation officials of the National Park Service.For a Certification Application—Evaluation of Significance. description of the roles of the NPS,the IRS and the The owner submits this application to the SHPO.The SHPO,see'Tax Credits:Who Does What?"on pages SHPO reviews the application and forwards it to the 12-13. NPS with a recommendation for approving or denying the request.The NPS then determines whether the T'ie 20%rehabilitation tax credit applies to any building contributes to the historic district.If so,the project that the Secretary of the Interior designates a building then becomes a"certified historic structure." certified rehabilitation of a certified historic structure.The The NPS bases its decision on the Secretary of the 20%credit is available for properties rehabilitated for Interior's"Standards for Evaluating Significance commercial,industrial,agricultural,or rental within Registered Historic Districts,"which appear on residential purposes,but it is not available for page 21. properties used exclusively as the owner's private residence. Buildings individually listed in the National Register t n Z r �k of Historic Places are already certified historic 431 Union Avenue, j s t:,- k> ` \ : +d ? �� >^ �. rs _ � structures.Owners of these buildings need not SE, Grand Rapids, i',- se , 'r " h t complete the Part 1 application. Michigan(ca. ,; : '��` 1 l •., 1880).After reha- :r�.li * — '�� ' �f- �``j .. a Property owners unsure if their building is listed in bilitation for contin F '11 a � i _l _ �" 1 ll d the National Register or if it is located in a National ued residential use. N `" ,;,x. ,f;M Register or certified State or local historic district Courtesy Donald � �., should contact their SHPO. Smalligan. 7 WHAT IF MY BUILDING IS NOT YET LISTED IN THE APPLICATION PRO CFSS NATIONAL REGISTER? Owners seeking certification of rehabilitation work rmers of buildings that are not yet listed individually must complete Part 2 of the Historic Preservation . in the National Register of Historic Places or located Certification Application—Description of- in districts that are not yet registered historic districts Rehabilitation.Long-term lessees may also apply if may use the Historic Preservation Certification I their lease is 27.5 years for residential property or 39 Application,Part 1,to request a preliminary years for nonresidential property.The owner submits determination of significance from the National Park the application to the SHPO.The SHPO provides Service.Such a determination may also be obtained technical assistance and literature on appropriate for a building located in a registered historic district rehabilitation treatments,advises owners on their but that is outside the period or area of significance of applications,makes site visits when possible,and the district.A preliminary determination of forwards the application to the NPS,with a significance allows the owner to proceed with the recommendation. rehabilitation project while the process of nominating a building or a district continues.Preliminary The NPS reviews the rehabilitation project for determinations,however,are not binding.They conformance with the"Secretary of the Interior's become final only when the building or the historic Standards for Rehabilitation,"and issues a district is listed in the National Register or when the certification decision.The entire project is reviewed, district documentation is amended to include including related demolition and new construction, additional periods of areas of significance. and is certified,or approved,only if the overall rehabilitation project meets the Standards.These What is a"certified rehabilitation?" Standards appear on pages 22-23.Both the NPS and the IRS strongly encourage owners to apply before they 1111,National Park Service must approve,or"certify," start work. all rehabilitation projects seeking the 20% rehabilitation tax credit.A certified rehabilitation is a After the rehabilitation work is completed,the owner rehabilitation of a certified historic structure that is submits Part 3 of the Historic Preservation approved by the NPS as being consistent with the Certification Application—Request for Certification of historic character of the property and,where i Completed Work to the SHPO.The SHPO forwards applicable,the district in which it is located.The NPS the application to the NPS,with a recommendation as assumes that some alteration of the historic building to certification.The NPS then evaluates the will occur to provide for an efficient use.However,the completed project against the work proposed in the project must not damage,destroy,or cover materials , Part 2—Description of Rehabilitation.Only or features,whether interior or exterior,that help completed projects that meet the Standards for define the building's historic character. Rehabilitation are approved as"certified rehabilitations"for purposes of the 20%rehabilitation tax credit. 9 PROCESSING FEES including those incurred outside of the measuring The NPS charges a fee for reviewing applications, period,qualify for the credit. apt where the total rehabilitation cost is under II • If the rehabilitation is completed in phases,the . .1j1000.Fees are charged according to a two-tiered same rules apply,except that a 60-month measuring system:a preliminary fee and a final fee.The period applies.This phase rule is available only if: preliminary fee is$250.It covers NPS review of (1) there is a set of architectural plans and proposed rehabilitation work.The final fee covers NPS specifications for all phases of the rehabilitation, review of completed projects.The final fee amount and (2) it can reasonably be expected that all phases depends on the cost of the rehabilitation,according to of the rehabilitation will be completed. the fee schedule below.The preliminary fee is deducted from the final fee.Payment should not be ■ The property must be placed in service (that is, sent until requested by the NPS.The NPS will not issue returned to use).The rehabilitation tax credit is generally allowed in the taxable year the a certification decision until payment has been i received. rehabilitated property is placed in service. Fee Cost of Rehabilitation • The building must be a certified historic structure when $500 $20,000 to$99,999 it is placed in service;if it is not yet a certified historic $800 $100,000 to$499,999 structure when it is placed in service,the owner must $1,500 $500,000 to$999,999 have requested on or before the date that the $2,500 $1,000,000 or more building was placed in service a determination from the NPS that the building is a certified historic IRS REQUIREMENT'$ structure,and have a reasonable expectation that the To be eligible for the 20%rehabilitation tax credit,a determination will be granted. (This means, nrct must also meet the following basic tax generally,for buildings not individually listed in the III irements of the Internal Revenue Code: National Register of Historic Places,that Part 1 of the Historic Preservation Certification Application ■ The building must be depreciable.That is,it must be must have been filed before the building was placed used in a trade or business or held for the in service.) production of income.It may be used for offices,for ■ Qualified rehabilitation expenditures include costs commercial,industrial or agricultural enterprises,or associated with the work undertaken on the historic for rental housing.It may not serve exclusively as the. . building,as well as architectural and engineering owner's private residence. fees,site survey fees,legal expenses,development ■ The rehabilitation must be substantial.That is, fees,and other construction-related costs,if such during a 24-month period selected by the taxpayer, costs are added to the basis of the property and are rehabilitation expenditures must exceed the greater determined to be reasonable and related to the of$5,000 or the adjusted basis of the building and its services performed.They do not include costs of structural components.The adjusted basis is acquiring or furnishing the building,new additions _ generally the purchase price,minus the cost of land, that expand the existing building,new building plus improvements already made,minus construction,or parking lots,sidewalks, depreciation already taken.Once the substantial landscaping,or other facilities related to the rehabilitation test is met,all qualified expenditures, building. • i " • II GETTING YOUR PROJECT APPROVED,OR"CERTIFIED" claimed when the substantial rehabilitation test has Trl}s of thousands of projects have been approved for been met. "historic preservation tax credit.Observing the following points will make approval of your project The IRS requires that the NPS certification of easier: completed work(Application Part 3) be filed with the tax return claiming the tax credit.If final certification ■ Apply as soon as possible—preferably before beginning has not yet been received when the taxpayer files the work.Consult with the SHPO as soon as you can. tax return claiming the credit,a copy of the first page Read carefully the program application, of the Historic Preservation Certification regulations,and any other information the SHPO Application—Part 2 must be filed with the tax return. supplies.Submit your application early in the The copy of the application filed must show evidence project planning.Wait until the project is approved that it has been received by either the SHPO or the in writing by the NPS before beginning work.Work NPS (date-stamped receipt or other notice is undertaken prior to approval by the NPS may sufficient).If the taxpayer then fails to receive final jeopardize certification.In the case of properties certification within 30 months after claiming the not yet designated certified historic structures,apply credit,the taxpayer must agree to extend the period before the work is completed and the building of assessment.If the NPS denies certification to a placed in service. rehabilitation project,the credit will be disallowed. • Photograph the building inside and outside—before and after the project."Before"photographs are especially RECAPTURE OF THE CREDIT important.Without them,it may be impossible for The owner must hold the building for five full years the NPS to approve a project. after completing the rehabilitation,or pay back the mad and follow the"Secretary of the Interior's credit.If the owner disposes of the building within a Standards for Rehabilitation"and the"Guidelines year after it is placed in service, 100%of the credit is for Rehabilitating Historic Buildings."If you are recaptured.For properties held between one and five unsure how they apply to your building,consult years,the tax credit recapture amount is reduced by with the SHPO or the NPS. 20%per year. ■ Once you have applied, alert the SHPO and the NPS to The NPS or the SHPO may inspect a rehabilitated any changes in the project. property at any time during the five-year period.The NPS may revoke certification if work was not done as Claiming the 20%RehabilitationTax Credit described in the Historic Preservation Certification Application,or if unapproved alterations were made Generally,the tax credit is claimed on IRS form 3468 for up to five years after certification of the for the tax year in which the rehabilitated building is rehabilitation.The NPS will notify the IRS of such placed in service.For phased projects,the tax credit revocations. may be claimed before completion of the entire project provided that the substantial rehabilitation test has been met.If a building remains in service throughout the rehabilitation,then the credit may be 2 I3 DEPRECIATION • Issues all certification decisions (approvals or Itabilitated property is depreciated using the denials) in writing. :=ght line method over 27.5 years for residential • Transmits copies of all decisions to the IRS. • • property and over 39 years for nonresidential ■ Develops and publishes program regulations,the property.The depreciable basis of the rehabilitated Secretary of the Interior's Standards for Rehabilitation, building must be reduced by the full amount of the the Historic Preservation Certification Application, tax credit claimed. and information on rehabilitation treatments. ',ehabilitationTax Credits: Who Does IRS Vhat? a Publishes regulations governing which rehabilitation expenses qualify,the time periods for The Federal historic preservation tax incentives incurring expenses,the tax consequences of program is a partnership among the National Park certification decisions by NPS,and all other Service (NPS),the State Historic Preservation Officer procedural and legal matters concerning both the (SHPO),and the Internal Revenue Service (IRS). 20%and the 10%rehabilitation tax credits. Each plays an important role. ■ Answers public inquiries concerning legal and SHPO financial aspects of the Rehabilitation Tax Credit program,and publishes the audit guide,Market a Serves as first point of contact for property owners. Segment Specialization Program:Rehabilitation Tax ■ Provides application forms,regulations,and other Credit,to assist owners. program information. • Insures that only parties eligible for the III aintains complete records of the State's buildings rehabilitation tax credits utilize them. -kFhd districts listed in the National Register of • Historic Places,as well as State and local districts �''S that may qualify as registered historic districts. a •• l ` � ,1 , a Assists anyone wishing to list a building or a district :1::,: t - `tr r''j ~ ', ''a' ��' ". fF in the National Register of Historic Places. x i� ',`;s i} ilt B ili+` �, � 'A9sAi ' a Provides technical assistance and literature on ' .yw j.x s{ , V I i1-I :, Fi, 1 ,l, I_ {� f i.. appropriate rehabilitation treatments. 4� L' r_ 7 d V .I'' ;. • '' - L_ r— ■ Advises owners on their applications and makes site <,.� r' ` =r , ref i 1�`' •fli 1 �5 visits on occasion to assist owners. C -- c �4 4 r r F4 a Makes certification recommendations to the NPS. Pacific Hotel Apartments(historic name:Leamington Hotel , NPS and Apartments), Seattle, Washington(1915).Rehabilitated • to provide 112 units of housing for low income and homeless a Reviews all applications for conformance to the people. Courtesy Stickney &Murphy.Photograph:Mike Secretary of the Interior's Standards for Rehabilitation. Romine. • 15 0% RehabilitationTax Credit Claiming the 10%RehabilitationTax Credit II II 10%rehabilitation tax credit is available for the The tax credit must be claimed on IRS form 3468 for lIIII l lbilitation of non-historic buildings built before the tax year in which the rehabilitated building is 1936. placed in service.There is no formal review process for rehabilitations of non-historic buildings. As with the 20%rehabilitation tax credit,the 10% I credit applies only to buildings—not to ships,bridges The I 0% or 20% Credit: Which One or other structures.The rehabilitation must be Applies? substantial,exceeding either$5,000 or the adjusted basis of the property,whichever is greater.And the The 10%rehabilitation tax credit applies only to non- property must be depreciable. historic,non-residential buildings built before 1936. The 20%rehabilitation tax credit applies only to The 10%credit applies only to buildings rehabilitated certified historic structures,and may include for non-residential uses.Rental housing would thus not buildings built after 1936.The two credits are qualify.Hotels,however,would qualify.They are mutually exclusive.Only one applies to a given considered to be in commercial use,not residential. project.Which credit applies depends on the building—not on the owner's preference. A building that has been moved is ineligible for the 10%rehabilitation credit. (A moved certified historic Buildings listed in the National Register of Historic structure,however,can still be eligible for the 20% Places are not eligible for the 10%credit.Buildings credit.) Furthermore,projects undertaken for the located in National Register listed historic districts or Elcredit must meet a specific physical test for certified State or local historic districts are presumed ition of external walls and internal structural to be historic and are therefore not eligible for the • framework: 10%credit.Owners of buildings in these historic districts may claim the 10%credit only if they file Part ■ at least 50%of the building's walls existing at the 1 of the Historic Preservation Certification time the rehabilitation began must remain in place Application with the National Park Service and as external walls at the work's conclusion,and receive a determination that the building does not ■ at least 75%of the building's existing external walls contribute to the district and is not a certified historic must remain in place as either external or internal structure.Owners of historic buildings denied walls,and f ' certification for the 20%credit may not claim the 10% , credit. • at least 75%of the building's internal structural framework must remain in place. • I7 therTax Provisions Affecting Use of reduced for individuals with incomes between -eservationTax Incentives $100,000 and$150,000 and eliminated for individuals Iwith incomes over$150,000. number of provisions in the Internal Revenue Code - affect the way in which real estate investments are PASSIVE CREDIT EXEMPTION treated generally.These provisions include the ! , Individuals,including limited partners,with adjusted alternative minimum tax, the"at-risk"rules,and,most gross incomes of less than$200,000 (and,subject to importantly,the passive activity limitation.What these phase out,up to$250,000) investing in a provisions mean,in practice,is that many taxpayers rehabilitation credit project may use the tax credit to may not be able to use in one year all of the tax credits offset the tax owed on up to$25,000 of income.Thus, earned in a certified rehabilitation project. a taxpayer in the 36%tax bracket could use$9,000 of tax credits per year(36%x$25,000=$9,000).Unused A brief discussion of these matters follows.Readers tax credits may be"carried forward"indefinitely until should seek professional advice concerning the used up.. personal financial implications of these provisions. This$25,000 amount is first reduced by losses allowed Passive Activity Limitation under the general"passive loss"rule above for taxpayers with.incomes less than$150,000. The passive activity limitation provides that losses and credits from"passive"income sources,such as real • At-Risk Rules estate limited partnerships,cannot be used to offset tax liability from"active"sources such as salaries.This Under Internal Revenue Code Section 465,a taxpayer e activity limitation does not apply to: may deduct losses and obtain credits from a real estate investment only to the extent that the taxpayer is"at ■ Most regular corporations. risk"for the investment.The amount that a taxpayer is ■ Real estate professionals who materially participate "at-risk"is generally the sum of cash or property in a real property trade or business and who satisfy contributions to the project plus any borrowed money eligibility requirements regarding the proportion for which the taxpayer is personally liable,including and`amount of time spent in such businesses. • certain borrowed amounts secured by the property • used in the project.In addition,in the case of the For other taxpayers,two exceptions apply:a general activity of holding real property,the amount"at-risk" exception and a specific exception for certified includes qualified non-recourse financing borrowed rehabilitations. from certain financial institutions or government entities. GENERAL.PASSIVE Loss RULES Taxpayers with incomes less than$100,000 (generally, Alternative MinimumTax adjusted gross income with certain modifications) may take up to$25,000 in losses annually from rental Taxpayers who are not required to pay tax under the properties.This$25,000 annual limit on losses is regular tax system may still be liable for tax under the I9 alternative minimum tax laws.Alternative minimum OtherTax Incentives for Historic taxable income is computed from regular taxable Preservation u�i�i IsIe with certain adjustments and the addition of . dll djJpropriate tax preference items. Other Federal and State tax incentives exist for historic preservation.They may be combined with the Nonrefundable credits,such as the rehabilitation tax a rehabilitation tax credit. credit,may not be used to reduce the alternative minimum tax.If a taxpayer cannot use the tax credit ` Charitable Contributions for Historic because of the alternative minimum tax,the credit Preservation Purposes can be carried back or forward. Internal Revenue Code Section 170(h) and ahabilitations Involving Governments Department of the Treasury Regulation Section id OtherTax-Exempt Entities 1.170A 14 provide for income and estate tax deductions for charitable contributions of partial Property used by governmental bodies,nonprofit interests in historic property(principally easements). organizations,or other tax-exempt entities is not The Tax Reform Act of 1986 retained these provisions. eligible for the rehabilitation tax credit if the tax- Generally,the IRS considers that a donation of a exempt entity enters into a disqualified lease (as the qualified real property interest to preserve a historically lessee) for more than 35%of the property.A important land area or a certified historic structure meets disqualified lease occurs when: the test of a charitable contribution for conservation purposes.For purposes of the charitable contribution • Part or all of the property was financed directly or provisions only,a certified historic structure need not be erectly by an obligation in which the interest is depreciable to qualify,may be a structure other than a —exempt under Internal Revenue Code Section building and may also be a portion of a building such 103(a) and such entity (or related entity) as a facade,if that is all that remains,and may include participated in such financing;or, the land area on which it is located. ■ Under the lease there is a fixed or determinable price for purchase or an option to buy which The IRS definition of historically important land areas involves such entity (or related entity);or, includes: ■ The lease term is in excess of 20 years;or, ■ independently significant land areas,including any ■ The lease occurs after a sale or lease of the property related historic resources that meet National and the lessee used the property before the sale or Register Criteria for Evaluation; lease. ■ land areas within registered historic districts, including buildings,that contribute to the significance of the historic district;and, ■ land areas adjacent to a property individually listed in the National Register of Historic Places (but not within a historic district)where physical or 21 environmental features of the land area contribute The Secretary of the Interior's Standards for Evaluating Significance to the historic or cultural integrity of the historic —roperty. Within Registered Historic Districts StateTax Incentives The following Standards govern whether buildings within a historic district contribute to the significance A number of States offer tax incentives for historic of the district.Owners of buildings.that meet these preservation.They include tax credits for Standards may apply for the 20%rehabilitation tax • rehabilitation,tax deductions for easement donations, credit.Buildings within historic districts that meet and property tax abatements or moratoriums.The these Standards cannot qualify for the 10%credit. SHPO will have information on current State 1. A building contributing to the historic significance programs.Requirements for State incentives may differ from those outlined here. of a district is one which by location,design, setting,materials,workmanship,feeling and InvestmentTax Credit for Low Income association adds to the district's sense of time and Housing i place and historical development. ' 2. A building not contributing to the historic The Tax Reform Act of 1986 (IRC Section 42) also significance of a district is one which does not add established an investment tax credit for acquisition, to the district's sense of time and place and • construction,or rehabilitation of low income housing. historical development;or one where the location, The credit is approximately 9%per year for 10 years design,setting,materials,workmanship,feeling for each unit acquired,constructed,or rehabilitated and association have been so altered or have so out other Federal subsidies and approximately 4% deteriorated that the overall integrity of the I!IW0 years for units involving the 20%rehabilitation ! building has been irretrievably lost. tax credit,Federal subsidies or tax-exempt bonds. 3. Ordinarily buildings that have been built within Units must meet tests for cost per unit and number of the past 50 years shall not be considered to units occupied by individuals with incomes below area contribute to the significance of a district unless a median,income.The law sets a 15-year compliance strong justification concerning their historical or period.Credits are allocated architectural merit is given or the historical by State Housing Credit attributes of the district are considered to be less Agencies. than 50 years old. : ` f "''� � �� r fotel St.Benedicts flats, Chi- Ic(1l7.li 1®O 14®7 /',"t' ego,Illinois(1882-1883). fF , :ourtesy L RDevelopment Co. '` • • 23 • 'he Secretary of the Interior's Standards 6. Deteriorated historic features shall be repaired )r Rehabilitation rather than replaced.Where the severity of deterioration requires replacement of a distinctive habilitation projects must meet the following feature,the new feature shall match the old in Standards,as interpreted by the National Park Service, design,color,texture,and other visual qualities to qualify as"certified rehabilitations"eligible for the and,where possible,materials.Replacement of 20%rehabilitation tax credit.The Standards are missing features shall be substantiated by applied to projects in a reasonable manner,taking documentary,physical,or pictorial evidence. • into consideration economic and technical feasibility. 7. Chemical or physical treatments,such as • sandblasting,that cause damage to historic The Standards (36 CFR Part 67) apply to historic materials shall not be used.The surface cleaning buildings of all periods,styles,types,materials,and of structures,if appropriate,shall be undertaken sizes.They apply to both the exterior and the interior using the gentlest means possible. • of historic buildings.The Standards also encompass 8. Significant archeological resources affected by a related landscape features and the building's site and project shall be protected and preserved.If such environment as well as attached,adjacent,or related • resources must be disturbed,mitigation measures new construction. shall be undertaken. 1. A property shall be used for its historic purpose or I 9. New additions,exterior alterations,or related new be placed in a new use that requires minimal construction shall not destroy historic materials that characterize the property.The new work shall change to the defining characteristics of the be differentiated from the old and shall be building and its site and environment. compatible with the massing,size,scale,and • 'he historic character of a property shall be architectural features to protect the historic —etained and preserved.The removal of historic integrity of the property and its environment. materials or alteration of features and spaces that characterize a property shall be avoided. i 10. New additions and adjacent or related new construction shall be undertaken in such a 3. Each property shall be recognized as a physical manner that if removed in the future,the essential record of its time,place,and use.Changes that form and integrity of the historic property and its create a false sense of historical development,such environment would be unimpaired. • -as adding conjectural features or architectural elements from other buildings,shall not be undertaken. 4. Most properties change over time;those changes 4 that have acquired historic significance in their own right shall be retained and preserved. 5. Distinctive features,finishes,and construction techniques or examples of craftsmanship that characterize a historic property shall be preserved. 25 3r More Information National Park Service,Internal Revenue Service and State Historic Preservation ::CII ore information on tax incentives for historic Officers (jeers IJll.il.rvation,contact the NPS,the IRS,or one of the SHPOs listed below.Available information includes: National Park Service • A Catalog of NPS publications on appropriate i Preservation Tax Incentives methods to preserve historic buildings.These Technical Preservation Services include Guidelines for Rehabilitating Historic Buildings, Heritage Preservation Services 2255 Preservation Briefs,and many others. National Park Service is The Historic Preservation Certification Application P.O.Box 37127 (a 3-part form:Part 1—Evaluation of Significance; Washington,D.C.20013 Part 2—Description of Rehabilitation;Part 3— Request for Certification of Completed Work). 202-343-9578 ■ Department of the Interior,National Park Service, e-mail:hps-info©nps.gov regulations on"Historic Preservation' i Internet:http://www.cr.nps.gov Certifications." [36 CFR Part 67]. ■ Department of the Treasury,Internal Revenue Internal Revenue Service • Service,regulations on"Investment Tax Credit for Qualified Rehabilitation Expenditures." [Treasury Internal Revenue Service Regulation Section 1.48-12]. Rehabilitation Tax Credit Compliance Unit P.O.Box 12040 zrket Segment Specialization Program:Rehabilitation Philadelphia,PA 19105 Credit(available only from the IRS). Internet:http://www.irs.ustreas.gov State Historic Preservation Officers • ALABAMA,Executive Director,Alabama Historical Com- ` � 'L; =5 k q Vt• - mission,468 South Perry Street,Montgomery,AL 36130- } u'(A"° • L 0900, 334-242-3184.ALASKA,Chief,History and Archeol- •��}a - •' • # ogy,Department of Natural Resources,Division of Parks • ! f,r pj ^¢ ' and Outdoor Recreation,3601 C Street,Suite 1278,An- ., ;r , � I s chorage,AK 99503-5921,907-269-8721.ARIZONA,State ,mo P'-- Historic Preservation Officer,Office of Historic Preserva „Ns tion,Arizona State Parks, 1300 W.Washington,Phoenix, AZ 85007,602-542-4009.ARKANSAS,Director,Arkansas 'dward McGovern Tobacco Warehouse.Lancaster,Pennsylva- Historic ter Street,Little Rock,AR 72201,501-324-9880. is(ca. 1880).Rehabilitated for commercial use. Courtesy: CALIFORNIA,State Historic Preservation Officer,Office lichael Oehrlein.Photograph:Historic Preservation Trust of of Historic Preservation,Department of Parks and Recre- .ancaster County. ation,PO Box 942896,Sacramento,CA 94296-0001,916- )6 f' 27 353-6624. COLORADO,President, Colorado Historical So- I 02125, 617-727-8470.MICHIGAN,Supervisor,State His- iety, Colorado History Museum, 1300 Broadway,Denver, toric Preservation Office,Michigan Historical Center, 717 IIIIII II IiIliI 1I03-2137,303-866-3355. CONNECTICUT,Director, W.Allegan,Lansing,MI 48918-0001,517-373-0511. :ditftttticut Historical Commission,59 South Prospect MINNESOTA,Director,Minnesota Historical Society,State treet,Hartford,CT 06106,860-566-3005.DELAWARE,Di- Historic Preservation Office,345 Kellogg Boulevard West, ector,Division of Historical and Cultural Affairs,Hall of St.Paul,MN 55102, 612-296-2747.MISSISSIPPI,Director, '.ccords, PO Box 1401, Dover,1)E 19901, 302-739-5313. Depart men t of Archives and I listory, PO Box 571,Jackson, ISTRICT OF COLUMBIA,Director, Department of Con- T MS 39205, 601-359-6850.MISSOURI,Director,Depart- liner and Regulatory Affairs,Suite 1.120, 614 H Street ment of Natural Resources,PO Box 176,Jefferson City, W,Washington,DC 20001, 202-727-7120.FLORIDA,Di- MO 65102, 573-751-4732.MONTANA,State Historic Pres- actor,Division of Historical Resources,Department of ervation Officer,Montana Historical Society, 1410 8th Av- :ate,R.A. Gray Building,500 S.Bronough Street,Talla- enue,PO Box 201202,Helena,MT 59620-1202,406-444- assee,FL 32399-0250,904-488-1480. GEORGIA,Director, 7715.NEBRASKA,Director,Nebraska State Historical Soci- istoric Preservation Division,Department of Natural Re- ety, 1500 R Street,PO Box 82554,Lincoln,NE 68501,402- )urces,500 The Healey Building,57 Forsyth Street,NW, 471-4787.NEVADA,State Historic Preservation Officer, tlanta, GA 30303,404-656-2840.HAWAII,State Historic Department of Museums,Library and Arts, 100 S.Stewart •eservation Officer,Hawaii Historic Preservation Office, Street,Capitol Complex, Carson City,NV 89710,702-687- 51 Punchbowl Street,Honolulu,HI 96813,808-548-6550. 6360.NEW HAMPSHIRE,Director,Division of Historical )AHO,State Historic Preservation Officer, 1109 Main St. Resources,PO Box 2043,Concord,NH 03302-2043,603- iite 250,Boise,ID 83702-5642,208-334-3890.ILLINOIS, 271-3483.NEW JERSEY, Commissioner,Dept.of Environ- ssociate Director,Illinois Historic Preservation Agency, mental Protection,CN-402,401 East State Street,Trenton, -enervation Services Division, Old State Capitol,Spring- NJ 08625, 609-292-2885.NEW MEXICO,Director,State tld,IL 62701, 217-785-9045.INDIANA,Director,Depart- Historic Preservation Division,Office of Cultural Affairs, ent of Natural Resources,402 West Washington Street, Villa Rivera Building,3rd floor,228 E.Palace Avenue, • 256,Indianapolis,IN 46204, 317-232-4020.IOWA, Santa Fe,NM 87503,505-827-6320.NEW YORK,Commis- 1 State Historical Society of Iowa, 600 East Lo- I sioner, Office of Parks,Recreation and Historic Preserva- ,st Street,Des Moines,IA 50319-0290,515-281-8837. tion,Empire State Plaza,Agency Building 1,20th Floor,Al- .NSAS,Executive Director,Kansas State Historical Sod- bany,NY 12238,518-474-0443.NORTH CAROLINA,Di- y,Cultural Resources Division,6425 Southwest 6th Av- rector,Department of Cultural Resources,Division of Ar- iue,Topeka,KS 66615-1099,913-272-8681,ext. 227. chives and History, 109 East Jones Street,Raleigh,NC ENTUCKY,Executive Director,Kentucky Heritage Coun- 27601-2807,919-733-7305.NORTH DAKOTA,Superinten- 1, 300 Washington Street,Frankfort,KY 40601,502-564- dent,State Historical Society of North Dakota,ND Heri- )05.LOUISIANA,Assistant Secretary,Office of Cultural tage Center, 612 East Boulevard Ave.,Bismarck,ND 58505, evelopment,PO Box 44247,Baton Rouge,LA 70804,504- t 701-328-2666. OHIO,State Historic Preservation Officer, 2-8200.MAINE,Director,Maine Historic Preservation Historic Preservation Office, Ohio Historical Society,567 )mmission,55 Capitol Street,Station 65,Augusta,ME E.Hudson Street,Columbus, OH 43211-1030,614-297- :333-0065,.207-287-2132.MARYLAND,Executive Direc- a 2470. OKLAHOMA,Executive Director,Oklahoma Histori- r,Historical and Cultural Programs,Department of cal Society,Wiley Post Historical Building,2100 N.Lincoln ousing and Community,Development,Peoples Resource Boulevard, Oklahoma City,OK 73105,405-522-5202. inter, 100 Community Place,Crownsville,MD 21032- OREGON,Director, Oregon Parks and Recreation Depart- )23,410-514-7600.MASSACHUSETTS,Executive Direc- ment, 1115 Commercial Street NE,Salem,OR 97310-1001, r,Massachusetts Historical Commission,Massachusetts 503-378-5019.PENNSYLVANIA,State Historic Preserva- •chives Facility,220 Morrissey Boulevard,Boston,MA tion Officer,Pennsylvania Historical and Museum, Com- • ssion,PO Box 1026,Harrisburg,PA 17108-1026,717- 7-2891. COMMONWEALTH OF PUERTO RICO,State st'preservation Officer,La Fortaleza,PO Box 82,San 40901, 809-721-2676.RHODE ISLAND,State His- -ic Preservation Officer,Historic Preservation Commis- 'n,Old State House, 150 Benefit Street,Providence,RI 903,401-277-2678.SOUTH CAROLINA,Director,De- rtment of Archives and History,PO Box 11669,Capitol { .tion,Columbia,SC 29211, 803-734-8592.SOUTH I I ,KOTA,Administrator,South Dakota State Historical So- •ty,900 Governors Drive,Pierre,SD 57501-2217,605-773- 58.TENNESSEE,Deputy Commissioner,Department of vironment and Conservation,2941 Lebanon Road, shville,TN 37243-0442,615-532-0105.TEXAS,Executive rector,Texas Historical Commission,PO Box 12276, pitol Station,Austin,TX 78711,512-463-6100.UTAH, •ector,Utah State Historical Society,300 Rio Grande, t Lake City,UT 84101,801-533-3551.VERMONT,Direc- Agency of Development and Community Affairs,Ver- mt Division for Historic Preservation, 135 State Street, awer 33,Montpelier,VT 05633-1201,802-828-3226. GIN ISLANDS,Commissioner,Department of Plan- ig and,Natural Resources,Division of Archaeology,& storic Preservation,Foster Plaza,396-1 Anna's Retreat, . TII—III ,VI 00802,809-776-8605.VIRGINIA,Director, pol 1.10h1t of Historic Resources, 221 Governor Street, :hmond,VA 23219,804-786-3143.WASHINGTON,State storic Preservation Officer,Office of Archaeology and storic Preservation,Washington State Department of mmunity,Trade,&Economic Development, 111 West >t Avenue,$ox 48343,Olympia,Washington 98504-8343, Back cover: The Brentwood, 9-753-501Q.WEST VIRGINIA,Commissioner,Division of Philadelphia,Pennsylvania. lture and History, 1900 Kanawha Boulevard East,Capi- Detail:After rehabilitation. Complex,Charleston,WV 25305,304-558-0220. Courtesy Brentwood Parkside SCONSIN,Director,Historic Preservation Division, Associates. ©1996 Don Rouse ae Historical Society,816 State Street,Madison,WI Photographer 706,608-264-6500.WYOMING,State Historic Preserva- ,n Officer,Wyoming State Historic Preservation Office, •partment of Commerce,6101.Yellowstone, Cheyenne, ; Y 82002,307-777-7697. • • National Park Service Tax Act Program Fundamentals • 1. No project can be approved unless it meets the Secretary of the Interior's Standards. 2. A project must meet all ten Standards 3. There are no separate Standards for affordable housing or for any other specific uses or building types. 4. There are no precedents. Each building or rehabilitation is reviewed according to the unique facts and circumstances it presents. 5. No project can be approved just because an unacceptable treatment is reversible. -- 6. The Standards take precedence over building codes. 7. Appeal decisions do not set policy. 8. A project may be "beautiful" and still fail to preserve the historic character of the property. 9. Applicants do not have a "right" to the tax credit; they bear the burden of proof to show that a project meets the Standards. 10. The historic preservation tax incentives program is primarily about preserving and reusing historic buildings. The program creates jobs, revitalizes communities, preserves streetscapes, fosters traditional building skills, increases property and income taxes, provides affordable housing, and serves other socially desirable goals, but these goals are not its primary purpose. [This statement has been exerpted from Information Exchange,a publication of the Heritage Preservation Services Program,National Park Service,dated July, 1997] 7' , . 'II ill L. ...� II � I l ' � , l ' i ± ! t i . 1 1 1 li ' .---- -'-- I. 1 u 'Ili 88 "ff .— r �,` ... A I . = __ iti ING.:11 fil tnt tt1�11stt'�.yzaf1I11IFttus .i' i, . 1� k. =-tl .i n a a 17 ff V a a -,,i, rn iC —fy— Sat T EST EL EVATiON sill' •11,1 n11 i _.. i t r t ++ a f t c _ F F..i:..` I 1 Aspects i;.. i. .L : i ,tTx o istoric reservation a Prepared by Mark Primoli Internal Revenue Service September 1999 Question Page. How is the rehabilitation tax credit claimed on a tax return? 5 Can a taxpayer claim the 10%rehabilitation tax credit on any building built before 1936? 5 Is the rehabilitation tax credit available for condominiums? 5 Can a taxpayer claim the rehabilitation tax credit on property that is leased by a tax exempt entity, i.e.a governmental agency or a non-profit organization? . 6 If a building was rehabilitated and placed in service,can a taxpayer apply for certification and claim the rehabilitation tax credit"after the fact"? 6 Can the rehabilitation tax credit be used in conjunction with the low income housing tax credit? 6 Can the rehabilitation tax credit be used in conjunction with a façade easement-contribution? 6 Can the rehabilitation tax credit be bought and sold? 7 Can a taxpayer claim the rehabilitation tax credit without receiving final approval by the National Park Service? 7 Can a rehabilitation tax credit be claimed for expenses associated with noncontributing additions? 7 What is the definition of a building? 8 Is a sports stadium considered a building? 8 How does a cash basis taxpayer account for qualified rehabilitation expenditures? 8 What is not included in qualified rehabilitation expenditures? 8 What are some examples of expenses that do not qualify for the rehabilitation tax credit? 8 Tax Aspects of structural components or$5,000. The p basis of the land is not taken into Historic Preservation consideration. It is important to note that any expenditure incurred by the taxpayer before the start of the 24-month period will increase the original adjusted basis. Prepared by Mark Primoli See Treasury Regulation 1.48-12(b)(2). Internal Revenue Service If the rehabilitation is completed in phases, the same rules apply, except that instead of a 24-month period, a 60- month period is substituted. This phase rule is available only if the taxpayer Who can claim a rehabilitation tax meets three conditions: credit? (1) There is a written set of architectural plans and specifications for all The rehabilitation tax credit is available phases of the rehabilitation. (If the to the person(s) and/or the entity who written plans outline and describe all holds title to the property. phases of the rehabilitation, this will be accepted as written plans and How can property owned by a tax specifications); exempt entity utilize rehabilitation tax (2) The written plans must be completed credits? before the physical work on the rehabilitation begins; and The rehabilitation tax credit would be of (3) It can be reasonably expected that all no use to a tax exempt entity. However, phases of the rehabilitation will be in many instances,tax exempt entities completed. are involved in rehabilitation projects by The property must be placed in service. forming a limited partnership and maintaining a minority ownership See Treasury Regulation 1.46-3(d) for interest as a general partner. In these definition of placed in service. The situations,the limited partners would be rehabilitation credit is generally allowed entitled to the rehabilitation tax credit in the taxable year the rehabilitated and the tax exempt entity is able to property is placed in service provided ensure that their organizational goals are that the building has met the "qualified being met. rehabilitated building" requirements for the 24 month period ending in that taxable year. A qualified rehabilitated When can a taxpayer claim the rehabilitation tax credit? building is defined as that which has been substantially rehabilitated and was The property must be substantially placed in service as a"building"before • rehabilitated. During a 24-month period the beginning of the rehabilitation(as selected by the taxpayer,rehabilitation opposed to a ship, airplane, bridge, etc). expenditures must exceed the greater of See Treasury Regulation 1.48-12(b). the adjusted basis of the building and its 1 What is the effect on basis when a How is the rehabilitation tax credit structure is rehabilitated? computed when a portion of the property is not used for business? The basis of rehabilitated buildings, including certified historic structures, A qualified rehabilitation expenditure 1 must be reduced by 100% of the must be "properly chargeable to a rehabilitation credit earned regardless of capital account". This means the whether the credit is used or carried property must be depreciable. If a forward. The reduction amount is added structure is used for both business and back if the credit is recaptured. See non-business (personal) use, an Treasury Regulation 1.48-12(e). allocation of the rehabilitation expenditures must be made. The What method of depreciation is allocation is generally made based on a required when claiming the square footage percentage. The only rehabilitation tax credit? expenditures eligible for the tax credit would be those associated with the The rehabilitation credit is available only business use portion of the property. if the taxpayer uses the straight-line When a personal residence is used also method of depreciation. The current for business,the business use portion of recovery period is 27.5 years for the home (e.g. home office) would be residential rental property and 39 years eligible. Expenditures associated with for non-residential real property. See common living areas, such as a kitchen, Treasury Regulation 1.48-12(c)(8). bedrooms, living room, bathrooms, would not be eligible because they are How do the recapture rules apply? not used exclusively for business. If the owners of a Bed & Breakfast live on the The rehabilitation credits are subject to premises, the business use portion recapture if the building is sold or ceases would only be those areas which are to be business use property.No recapture used exclusively for business. is required after five years. The amount of such recapture is reduced by 20%for To be eligible for the rehabilitation tax each full year that elapses after the credit, the property must be substantially property is placed in service. Thus there rehabilitated. This means that the is a 100% recapture if the property is qualified rehabilitation expenses must disposed of less than one year after the exceed the entire building's adjusted property is first placed in service; an basis.If property is used for both 80% recapture after one year, a 60% business and personal use,the adjusted recapture after two years; a 40% basis would include both the business recapture after three years; and a 20% and personal use portion. recapture after four years. See Internal Revenue Code Section 50(a). 3 How is the rehabilitation tax credit If a building is not in the National claimed on a tax return? Register, or if it is located in a Registered Historic District but has been The credit is claimed on Form 3468. determined to be a non-contributing Attached to the Form 3468 (or by way structure by the Department of the of a marginal notation),the following Interior, a 10% rehabilitation tax credit information must be provided. See may be utilized provided the building: Treasury Regulation 1.48-12(b)(2)(viii). (1) Was placed in service before 1936; (1) The beginning and ending dates of (2) Is used for non-residential rental the measuring period selected by the purposes; taxpayer. (3) Has not been physically moved; (2) The adjusted basis of the building as (4) Meets the following internal and of the beginning of the measuring external wall retention: period. (a) 50% or more of the existing (3) The amount of qualified external walls are retained in rehabilitation expenditures incurred place as external walls, or treated as incurred during the (b) 75% or more of the existing measuring period. external walls are retained in (4) A copy of the final certification of place as internal or external completed work by the Secretary of walls, Interior. (c) 75% or more of the existing ! ' (5) If the adjusted basis is determined in internal structural framework is whole or in part by reference to the retained in place. adjusted basis of a person other than the taxpayer,the taxpayer must Is the rehabilitation tax credit attach a statement by such third party available for condominiums? j as to the first day of the holding period, measuring period and The rehabilitation tax credit can adjusted basis calculation. generally be used by an individual condominium owner provided the Can a taxpayer claim the 10% condominium unit is held for the rehabilitation tax credit on any production of income, or is used in a building built before 1936? trade or business. Thus,rehabilitation expenditures otherwise qualifying will No. A taxpayer cannot claim a 10% not be eligible for the credit if the reh2.`:'ilitation tax credit on a building property is used for the taxpayer's wl, is in the National Register of personal use. His:-.-ic Places or is located within a Registered Historic District unless it has been certified by the National Park Service as not contributing to the significance of the district through the I submission of Part 1 of the Historic Preservation Certification Application. • 5 these donations are made to qualified owner did not place the property in organizations under Internal Revenue service. Code Section 170 and are considered to be donated in perpetuity. The . Can a taxpayer claim the rehabilitation tax credit and depreciable rehabilitation tax credit without basis are reduced and no credit or receiving final approval by the depreciation can be taken on that portion National Park Service? of the building. If the donation occurs after the building is placed in service,the Yes. Treasury Regulation 1.48- credit recapture provisions of Internal 12(d)(7)(ii) states that if the final Revenue Code Section 50(a) apply. (See certification of completed work has not Rome I Ltd. v. Commissioner, 96 T.C. been issued by the Secretary of Interior No. 29) By donating the façade at the time the tax return is filed for a easement, the taxpayer may be allowed a year in which the credit is claimed, a charitable contribution deduction copy of the first page of Part 2 of the pursuant to Internal Revenue Code Historic Preservation Certification Section 170(h) and Treasury Regulation Application must be attached to Form 1.170A-14. The value of the façade 3468 filed with the tax return. The easement is measured by the difference taxpayer must reasonably expect that between the value of the property before they will receive final approval and that and after the easement was conveyed. their project will be certified by the National Park Service. A donation can be made by a subsequent owner of a certified historic structure as , Final certification by the Department of long as the façade was not donated by Interior is required. If the taxpayer fails the previous owner. to receive final certification within 30 months after the date the taxpayer filed a Can the rehabilitation tax credit be tax return on which the credit was bought and sold? claimed, the taxpayer must agree to extend the period of assessment for any The rehabilitation tax credit,by itself, tax relating to the time for which the can not be bought or sold. The credit was claimed. If the final rehabilitation tax credit is only available certification is denied by the Department to the person or entity who holds title to of Interior, the credit will be disallowed the property. There can be no transfer of for any taxable year in which it was the credit without the requisite claimed. ownership. Syndication through limited partnerships is allowed and is a Can a rehabilitation tax credit be common tool to bring investors into claimed for expenses associated with rehabilitation projects. noncontributing additions? Treasury Regulation 1.48- Any expenditure attributable to an 12(b)(2)(B)(vii) does allow the transfer enlargement of an existing structure, i.e. of qualified rehabilitation expenditures a new addition, is specifically excluded to a new owner provided the previous from the definition of a qualified 7 • Outdoor lighting remote from Are there provisions in the Internal building Revenue Code that could prevent a • Parking lot taxpayer from using the rehabilitation • Paving tax credit? • Planters • Porches and Porticos (not part of Yes, certain provisions within the original building) Internal Revenue Code can impact the • Retaining walls full use of the rehabilitation tax credit. • Sidewalks These include alternative minimum tax, Signagedewal tentative minimum tax and the passive • Storm sewer construction costs activity rules. Consequently, taxpayers • Window treatments may not be able to use the entire tax • credit available to them in one tax What are some expenses that qualify year. In situations where the tax credit for the rehabilitation tax credit? can not be used as a result of alternative minimum tax the unused credit can be carried back or forward. The passive Any expenditure for a structural component of a building will qualify for activity rules, however, allow unused the rehabilitation tax credit. Treasury credit only to be carried forward. Regulation 1.48-1(e)(2) defines Form 3800, General Business Credit, structural components to include walls, will guide you through a series of partitions, floors, ceilings, permanent computations to determine how much, if coverings such as paneling or tiling, any, of the rehabilitation tax credit windows and doors, components of can be used in the current year. To central air conditioning or heating alleviate any surprises, tax planning systems, plumbing and plumbing , fixtures, electrical wiring and lighting should include a what if scenario using fixtures, chimneys, stairs, escalators, Form 3 800 as a guide to determine elevators, sprinkling systems, fire the anticipated tax credit. escapes, and other components related to the operation or maintenance of the What is alternative minimum tax? building. Taxpayers who are not required to pay In addition to the above named"hard tax under the regular tax system may costs",there are "soft costs"which also still be liable for tax under alternative qualify. These include construction minimum tax laws. The purpose of period interest and taxes, architect fees, alternative minimum tax (AMT) is to engineering fees, construction ensure that all taxpayers share the tax management costs, reasonable developer burden fairly. It prevents a taxpayer with fees, and any other fees paid that would substantial income from avoiding normally be charged to a capital account. significant tax liability. Alternative minimum taxable income is computed from regular taxable income with certain adjustments and the addition of all appropriate tax preference items. 9 Passive Activity Restrictions $200,000 (it is partially available when income falls between $200,000 and The Tax Reform Act of 1986 introduced $250,000) or there exists net passive tax law changes which indirectly income sufficient to offset the passive impacted the rehabilitation tax credit. • losses generated by the rehabilitation One of these changes,the "Passive project. Activity Provisions," was intended to stop "abusive tax shelters." Although A computation is required to figure the not directly related, these changes have regular tax liability allotted to impacted the availability of the passive activities. In other words, even if rehabilitation tax credit for certain types a taxpayer has net passive income, of investors. they might not be able to utilize all of the rehabilitation tax credit. Please see net Modifications to the Passive Activity passive income example below. provisions under the Omnibus Budget Reconciliation Act of 1993, (effective If a taxpayer's investment is passive for taxable years after December 31, and income is below $200,000, how is 1993), provides some relief. The Act the tax credit effected? provides that deductions and credits, from rental real estate in which an Generally, rental real estate losses up to eligible taxpayer materially participates, $25,000 my be deducted in full by are not subject to limitation under the anyone whose modified adjusted gross passive loss rules. An individual income is less than $100,000. For taxpayer is eligible if more than one-half , investors in rehabilitation projects, this of the taxpayer's business services income level is raised to $200,000. for the taxable year, amounting to more The rehabilitation tax credit, however, is than 750 hours of services, are limited to the credit equivalent of performed in real property trade or $25,000. This does not mean that the business in which the taxpayer taxpayer can deduct a credit of$25,000. materially participates. Instead a taxpayer is allowed the tax equivalent of$25,000 for the How do the passive activity rehabilitation tax credit. Thus, a taxpayer restrictions effect taxpayers with in the 36%tax bracket could use adjusted gross income greater than $9,000 of tax credits per year(36%x $250,000? $25,000 = $9,000). Unused credits can be carried forward indefinitely until they Individuals, including limited partners, can be used. with adjusted gross income greater than$250,000 who invest in a rehabilitation tax credit project can not use the tax credit to offset income tax in that tax year. The credit is suspended and carried forward and will be available when either income falls below 11 rehabilitation tax credits. Short-term rentals-If a taxpayer rehabilitates an historic building and uses it for short term rental, such as a Bed &Breakfast or a Hotel/Motel, and materially participates in the operation of the business (i.e. spends more than 500 hours),the rehabilitation tax credit generated from this project is deemed to be non-passive, and the credit will not be restricted. Corporate entity- While the passive activity loss rules do not generally apply to regular C-Corporations, they do apply to personal service corporations and to closely held corporations in a limited way. For personal service corporations and closely held corporations, material participation is determined based on the level of participation of the shareholders. One or more individuals who hold more than 50% of the outstanding stock must • materially participate in the activity in order for the corporation to meet the material participation standard. Can a taxpayer's involvement be non- passive in one year and passive in the next year? Yes, passive activity rules are applied on a year by year basis. A taxpayer could materially participate in a business generating a rehabilitation tax credit in one year, use the rehabilitation tax credit and have a passive interest in the business operation the following year. 13 Financing Fix-up Property With the FHA 203 (k)Loan Program Page 1 of 2 . et ut Financing Fix-up Property With the FHA 203 (k) Loan Program s °James R. DeBoth,President Mortgage Market Information Services, Inc. www.interest.com Individuals have made money by purchasing rundown but repairable homes and restoring them while living in them. Recent revisions to the tax code enable such investors to realize $250,000 or more (depending on their marital status and tax bracket) in profit that is tax free. They can do this simply by using the home as their principal residence for as little as two years, and then reselling it and moving on to the next project. Financing these fix-up homes,though, has been an ongoing problem. Most banks and mortgage bankers are reluctant to lend money on homes in substandard condition until their condition has been improved. However,the fact is that one cannot make repairs to a property if one doesn't own it. A little known solution to the fix-up problem is the Federal Housing Administration (FHA) 203 (k) program. As with other FHA programs,the administration doesn't loan the funds, but it insures the loans through FHA approved lenders. In fact, it is possible in some cases to use other FHA or Department of Housing and Urban Development (HUD) programs in conjunction with a 203 (k) loan. Under the provisions of the 203 (k)loan program, a buyer can obtain the necessary financing to purchase the property as well as enough money to put it back in shape. Of course, the buyer must meet the income and credit standards necessary for any home loan. However, the FHA is, in fact, more flexible than other agencies regarding standards. The 203 (k) program works as follows: 1. The homebuyer finds a house that needs fixing up and signs a contract to buy the property. The offer to purchase the property and the contract should state that the purchase depends on obtaining a 203 (k)loan. The entire project is subject to approval of the repairs that are to be made. 2. The buyer then obtains a detailed proposal of the repairs and improvements to be made, as well as a total cost breakdown for each repair or improvement. It is highly suggested that the buyer hire a contractor to at least evaluate the property's condition so as to avoid any surprises down the line. 3. The buyer then contacts an FHA-approved appraiser, who will determine both the value of the property as it is and what its improved value will be. This will help the lender determine the maximum loan value. Down payments are usually about 5%, plus normal closing costs. Some allowable closing costs may also be included in the loan. Finally, the total loan amount will include a contingency allowance to cover any overrun costs of the repairs and improvements. 4. On closing the loan,the seller will be paid, and the balance of the funds will be held in escrow to pay the approved repairs and improvements. Since payments on the full amount begin at once, it's wise to start immediately on the improvements and repairs. 5. The funds in escrow will be paid to the contractor doing the work in a series of draws, much like a construction loan. An amount equal to 10% of each draw will be held in escrow until the lender determines that no liens for unpaid work or material will be filed against the property. Properties eligible for the 203 (k) program include one-to-four family owner occupied residential properties that have been completed for at least one year, and that meet the acceptable provisions of local zoning requirements. Eligible repairs include the following: . Minimum repair and improvement budget of$5000 is required. 11LLp:/t W W W.1IILerest.eUIIUCUiLUIla1/1V1UrLgdge_CUluitin II1Lg_SLUiy_vo 12,1.3.I11.II1 '1//yy .*, �Finwicing Fix-up Property With the FHA 203 (k)Loan Program Page 2 of 2 • Structural alterations or reconstruction--including things such as attics,basements, skylights, and chimneys. • Alterations for improved function and/or modernization--remodeling bathrooms, kitchens, and built-in appliances. • Elimination of any health or safety hazards--for example,the removal of lead-based paints. • Alterations to increase aesthetic appeal--new siding, additional stories, covered porches, stair railings, and carports. • Reconditioning or replacement of utility systems--electrical systems,heating system, air conditioning, and plumbing. • Installation of wells and/or septic systems that must be installed/repaired before starting other repairs to the property. • Roofing, floor tiling, or carpeting may also be added or repaired. • Energy conservation improvements--such as double pane windows, insulation, caulking, and weather stripping. • Other items, such as new appliances, can be included when the total budget exceeds $5000. The loan type available for a 203 (k) program is only the 30-year fixed rate loan. At the present time the 203 (k) program is available only for owner-occupied property. In October 1996,HUD stopped offering this program to investors because of abuse of the program by certain investors. FHA anticipates that in time investors will again be included in the program. Loan limits for the 203 (k)program vary according to the housing market, and they are set by county. In mid October 1998, Congress passed legislation increasing loan limits for single family fix up homes to a minimum of$109,032 and a maximum of$197,621. There are increased limits for 2-4 family units. Check with a local FHA lender for limits in your area. The FHA 203 (k) program is not the only source of a loan that can be used to fix up a property. Some regional banks and a few mortgage bankers also offer such programs,but the down payment required is significantly higher. The 203 (k) program calls for a down payment of only 5%,while other lenders may ask for at least 10% down. Some older communities may offer incentive programs for those who want to buy a home in a neighborhood the local government wants to revitalise. A 203 (k) loan can help many people own a home. It is an ideal solution for those who want to purchase a house, intending to make repairs or improvements. -- ---------------------- James R. De Both is a nationally syndicated financial columnist and is the President of Mortgage Market Information Services,Inc. ©1995,1996,1997, 1998 Mortgage Market Information Services, Inc. All rights reserved. • nccp.//wWw.IIlcerCsl.eoII ieunonavlv1Urlgage_evlunuvu1Lg_swry__a1t 1).nlln 71 II t 4Qki-j i:. :;.,:i t,{ u`y. 3_t,_ 'P ttF r +*t , s":ilF r r i,,er. Y. "',x•c .t `✓Sfi 5,1 ,,r 4.4. +1.•. 'wi r 'fit p,t, till C= ; r J ,i Y• 5 'S"fi 1st,. c L. +a/ $:_T '� ',:.y t`0 a�f( j, a f 'F t'• ',,, l-yet. "SCR �k *` ,+,�r. .�., ., .�;�," '�� yt{: d ell ,,ti ?a # ,: ti z' A 5 B i .,.tAlit � ,$� €l ` y u3 3.. 3F _ erg 4. R r s Syr. arfi .7Y� e:Al 'si yb 6"L ],r Y :• "t ; 7,e•:. e3 i'n, > �N° t *Y•2 } rC4 , `.` 1 s$1 ,..�,., from the National Trust for Historic Preservation Federal Tax Incentives for the Rehabilitation • of Historic Buildings The Economic Recovery Tax Act of 1981 (P.L. 97-34), munities. Since this hardship does not affect signed by President Reagan on August 13, 1981, made the profitability of the business, it may not dramatic and sweeping changes in the federal tax have been fully taken into account in the deci- treatment of investment in real estate. The law revised sion to relocate,even though it is an economic the Internal Revenue Code to add an accelerated cost detriment to the society as a whole. recovery system and to simplify and substantially im- The increased credit for rehabilitation ex- prove the tax incentives for rehabilitating older build- . penditures is intended to help revitalize the , ings,especially in the case of historic buildings.The 25 economic prospects of older locations and • percent investment tax credit now allowed for re- prevent-the decay and deterioration character- habilitating certified historic structures has been a sig- istic of distressed economic areas. nificant stimulus to identifying, designating and sen- sitively rehabilitating individual historic buildings as Investment Tax Credit for .---ntell as historic commercial districts and residential mieighborhoods.The 1984 Tax Reform Act(P.L. 98-369) Qualified Rehabilitation • contains additional implications for transactions in- The ITC for qualified rehabilitation,effective January 1, volving historic properties.This Information Sheet dis- 1982, provides the following three-tiered tax credit: 15 cusses the basic features of federal tax incentives for percent for structures at least 30 years old, 20 percent the rehabilitation of historic buildings. for structures at least 40 years old and 25 percent for Purpose of the 1981 Reformh- .1.--,14: The reasons underlying the major reform of the tax ' -.. incentives for rehabilitating older and historic build- e., k,lagp. , . ings as enacted in the 1981 law, were described in the i 1 , Senate Finance Committee's report accompanying the ••-• ••.• _--- -- . ti bill: � ; if ® ®I®�} � , . ;'^ The tax incentives for capital formation pro- n ,,,=t > L....a ,fit:; I 1 ;. ! vided in other sections of this bill might have k� x � �s_ +•_ .■ P.the unintended and undesirable effect of re- V'i I r } i �� ducing the relative attractiveness of the exist- ! l ing structures. Investments in new structures _-Willi I i l ( — — r ` and new locations, however, do not neces • - sarily promote economic recovery if they are '_ ,'' ` � ' at the expense of older structures, neighbor- in•.. i hoods, and regions.A new structure with new _ " ' j_ , equipment may add little to capital formation . `;- ._J_- or productivity if it simply replaces an existing plant in an older structure in which the new equipment could have been installed. Further- The cast-iron facade of this four-story former warehouse more, the relocation of business can result in (1882)at715-717 West Main Street in the West Main Preserva- substantial hardship for individuals and corn- tion District of Louisville, Ky., was dismantled and recon- structed for office use in 1983. This tax act project received the 1983 Preservation Award of the Preservation Alliance of Information Sheet Number 30. © 1984 National Trust Louisville and Jefferson County, Inc. (Courtesy of Preserva- for Historic Preservation tion Alliance of Louisville and Jefferson County, Inc.) I`'ldliuii,tl liMl lui I Ii,;luiic I 'iu uivdliuii, I /t35 MJ;,'Jtil:IIUSUII:; AvunuU, N.W., W,i.;liliigluli, D.l; 2UU3() 2 , d!!t" L . -_. i . I . 1 , . ,- ',-- ,f,;,v . .:.: : 1 -t,„-r-4--Pc:I• .i/ V Ain, rA;-:,,1 te,--V-•1"..-• ''/,--i: • -n- . r r r r itD n� 4, III{I 1,: • '; ; Lftit- �; ^a.., 11U. i Iz+ ./; ', q,t-__: `xis ,, - r r I' :r w I I 1 I {C'= �` 1 R«� .. w` .1aj J n�,.5,4f. ... ''.'n r T 1-r.R'!Y--, '." i _ ; ,fir _� �. 1 1 t The terminal building and train shed of the Romanesque 75 percent of the existing external walls after comple- Revival St. Louis Union Station (1894), a National Historic tion of the rehabilitation. The Tax Reform Act of 1984 Landmark,will be converted to a mixed-use complex includ- added an alternative test to this latter "walls" require- ing a retail marketplace and 550-room hotel. This project is ment providing that those buildings that do not qualify the largest to receive both tax credits and an Urban Develop- for the 25 percent credit under the present test may ment Action Grant. (Artega Photos) apply a new test.The alternative test allows a building certified historic structures.1 The 25 percent credit for to constitute a qualified rehabilitation if a) at least 50 rehabilitation of certified historic structures is avail- percent of the existing exterior walls are retained as able to both depreciable nonresidential and residential external walls, b) at least 75 percent of the existing buildings. However, the 15 and 20 percent credits are external walls are retained in place as internal or exter- limited to nonresidential industrial and commercial nal walls, and c) at least 75 percent of the existing buildings used for income-producing purposes.Thus, internal structural framework is retained in place after Congress included a significant incentive for the cre- the rehabilitation. ation of rental housing in historic buildings.A certified Requirements for Rehabilitation of Historic historic building owned and occupied in part by a Structures taxpayer will qualify for the credit, on a pro-rata basis, - for that portion of the building that is income produc- To qualify for the 25 percent ITC a building must be ing. No credit is allowed for the rehabilitation of a certified by the Secretary of the Interior as historic. building, other than a certified historic structure, less This occurs if (1) it is listed in the National Register of than 30 years old. Historic Places or(2) it is located in a registered histor- A "qualified" rehabilitation means any building is district and the secretary certifies that the building is that has been substantially rehabilitated, was in use of historic significance to the district.A registered his- prior to beginning the rehabilitation and retains at least toric district is one listed in the National Register of Historic Places or designated by a state or local gov- ernment under a state or local statute approved by the �'' 1An ITC is deducted from the bottom line amount of secretary, in which case the secretary must still certify • taxes owed, in contrast to a"deduction,"which merely the significance of the district itself.A building located reduces a taxpayer's gross income subject to the tax. within a historic district may not take a 15 or 20 percent 3 R ` • 7 m 1 i , . .:-- .f. ., .•,.: -`---'," ..:-.. Y • „rt . - . : , , .. , , . ,\ , , .,::-,-.1 ...,.. , -v of •'t�� „} .. yy !� t e� .tom' fit. l /.1� ..4) ' 14 •.} ii} • 1 '`. wM mil• •.. • t �.� a ♦ r .. .- 1 `'. Ji]! } S -`` I AY '' t P- r I:. . ., .i > ilia ' iR 1 it',--,€_ a s3{i 4 ( '.A Y I, _ r y a ....I .w y I 1` IL: " i J. 7 �-1II r• ®M II A. .1. 4 +; _ r: ..};, -- :s i `-- `� I1iir 1 "`J,-IIF • I�, .11 n �1 •`. credit unless certified by the secretary as not being of Seattle's Mutual Life Building(1890)is one of 18 buildings in historical significance to the district. the Pioneer Square Historic District that have been rehabili- In addition, to ensure consistent standards of tated using the 1981 tax incentives. The entire project has quality in the rehabilitation of certified historic struc- generated$100.4 million in private investment,an additional tures, any rehabilitation under the 25 percent credit $3.6 million in sales and$1 million in property tax revenue. must be certified by the secretary as being consistent (Karl Bischoff) with the historic character of the building or district in expenditures for a substantial rehabilitation. which the building is located.2 Rehabilitations under The 1981 tax act also permits an alternative 60- the lesser credits do not require the secretary's ap- month period to meet the substantial rehabilitation test proval. in the case of any project that may reasonably be ex- Substantial Rehabilitation Test pected to be completed in phases set forth in architec- The ITC is allowed only if there has been a substantial tural plans completed before the rehabilitation begins. rehabilitation of a building.This means that rehabilita- Depreciation under the Accelerated tion expenditures incurred within a 24-month period must exceed the greater of either the taxpayer's ad- Cost Recovery System justed basis in the building (cost of the building plus The accelerated cost recovery system(ACRS)added by capital improvements, less depreciation) or $5,000. the 1981 law (effective retroactive to January 1, 1981) The Technical Corrections Act of 1982 provided that a replaced the old system of depreciation over a build- taxpayer can elect to have the end of the 24-month ing's useful life with a system permitting recovery of period fall at any time during the taxable year in which capital costs, using straight-line or accelerated meth- the building is placed in service. In addition this act ods, over predetermined recovery periods. The 1984 exempted the basis of land from the determination of act increased the accelerated cost recovery period for real estate from 15 to 18 years, but taxpayers may elect i a 35-or 45-year extended recovery period.As a result of 2See National Park Service regulations,36 CFR Part 67, the ITC and the adoption of the ACRS system, Con- regarding certifications of significance and of rehabili- gress has eliminated from the Internal Revenue Code tation. the long-standing bias in favor of new construction. In • '. ' recognition of the economic and social advantages of rehabilitation, there is now a clear incentive for qualified rehabilitation. `.-,o, The ITC is allowable only if a taxpayer elects to use the straight-line method of depreciation with respect to . qualified rehabilitation expenditures. If a taxpayer elects to use an accelerated form of depreciation (175 ,. percent declining balance method for all but low-in- :. z- come housing, which qualifies for 200 percent declin- �_ . in balance method),the taxpayercannot qualifyfor an 0kr; 9 M '. . otherwise allowable ITC for qualified rehabilitation ex- penditures. - ^'"vw- ..• "`fit Adjustment to Basis Rule Section 205 of the Tax Equity and Fiscal Responsibility r �� Act of 1982 (TEFRA) requires a reduction in basis of C ,� 1 1 1 I IT tassets by taxpayers completing a certified rehabilita- ?"-_ — tion of a historic structure. The amount of the reduc- - f I ' 'r r 11 tion is one-half the amount of the 25 percent credit. I )_. 11 ,--- A k r�e This adjustment to basis rule became effective for cer- L Q .Yd ;��:; tified rehabilitations of historic buildingsplaced in ser- y T �' g 1 I ill 1 ff vice after December 31, 1982. Thus, taxpayers placing -,:-A, A 1 , P a,' - 1t3-,----__such a building in service (commencing its use in a r _- I I, i trade or business or making it available for rental pur- V _ rt • poses) must subtract 12'/2 percent of the qualified re- .�It ,-� Eli i is.„ , ! " ` r f) ' habilitation expenses incurred (i.e., 50 percent of the • 1R, ��` PA allowed 25 percent ITC for those expenses) when cal- i; .__ — - t 3 `� r‘ culating the basis of the building for depreciation de- ;i .A , ...in.-. wit ductions under the ACRS. These depreciation deduc- iy 1, ; ti(' tions must be taken by the straight-line method,that is, ., . ,,, in equal annual increments over the 18-year recovery The Sears House, formerly the Apex Building (1859), is a period(or optional 35-or 40-year periods)for real prop- major tax act project on Pennsylvania Avenue in the nation's erty. capital.Restoration of the Apex and two adjoining structures, In the case of a certified rehabilitation costing one of which housed the studio of portrait photographer $100,000, for example, a 25 percent ITC of $25,000 is Mathew Brady, included exterior masonry, cast-iron trim, -- deducted from taxes owed. The amount that can be original slate roof and decorative spires and, on the interior, depreciated under ACRS is reduced by one-half of the original cast-iron fluted columns, barrel-vaulted ceiling and credit or$12,500.Therefore,the taxpayer could deduct white oak woodwork.(John J. G. Blumenson,National Trust) $4,861 of rehabilitation costs per year($87,500 divided over 18 years) from income in computing taxes owed. ty, entered into after December 31, 1980, and that was, For certified rehabilitations of historic buildings on July 1, 1982, and at all times thereafter, binding on placed in service before December 31, 1982, the full the taxpayer, and the property is placed in service amount of rehabilitation expenditures is included in before January 1, 1986; or basis for purposes of computing depreciation.Thus,in 2) If the rehabilitation began after December 30, the example above, the 25 percent ITC of $25,000 is 1980, and before July 1, 1982, and the property is • deducted from taxes owed, and the taxpayer deducts placed in service before January 1, 1986; or $5,556 of rehabilitation costs per year(the full$100,000 3) If before July 1, 1982, a public offering with divided over 18 years)from income in computing taxes respect to the certified rehabilitation was registered owed. with the Securities and Exchange Commission and an In the case of rehabilitation of buildings qualifying application with respect to the property was also filed for investment credits of 15 or 20 percent, taxpayers with the U.S. Department of Housing and Urban Devel- must subtract the full amount of the credit taken in opment (HUD) under Section 8 of the United States computing basis for depreciation deductions and Housing Act of 1937, and the property was placed in other purposes.Thus, certified historic rehabilitations service before July 1, 1984. are favored by the adjustment to basis rules, as well as by the larger credit of 25 percent. General Rules for Using the ITC Generally, the adjustment to basis rule applies to Who MayTake the ITC: all certified rehabilitations of historic buildings placed in service after December 31, 1982. However, TEFRA Owners and Lessees provided three exceptions: The ITC may be taken by the owner or owners of an 1) If there was a contract to rehabilitate the proper- eligible building when expenditures are incurred on a 5 'k .. ("N • • • aaaaaaaaAlit 0, l �' ' tl • I- I(i-i e� l,..i r_ c--r ' • • • T' / `, •`\ \ • ♦ • •♦ 11' -fir L_1 1. ■ r t r t .., \ \t-, • IFFITill - il i 1 ,- - ---• •-•:;•-•.. . --•••••-,.. 1.1 !.I I 21,‘,,- ;•••••;,...`,.., a- - - , 't, .•':- ti I I 1 /... •Aft 1 . 11 Ii-- • ♦ ti 1 g,..z,:.,..,•,,,.. , ,,, ,, _ • _ _ t rf ., ..: , • ,, • ''.: ' t• ,14. .., . , -_ - .i .; 44 ' I 'IT' ' Af4.,,, • __ _ _ . •_. ` j - .i spa �i Onnar u'" ' �he twin turrets,added in 1887 by architect Alfred B.Mullett, The original bannister and glass footlights highlight the mar- made the Apex Building a visual landmark along the lnaugu- ble staircase leading down from the Sears House lobby. ral Parade route. ((g) 1984 Carol Highsmith) (© 1984 Carol M. Highsmith) qualified rehabilitation. A lessee that has incurred 2)the lease contains a fixed or determinable price qualified rehabilitation expenditures is eligible for the purchase or sale option involving the entity; ITC if, on the date the rehabilitation is completed, the 3) the lease has a term in excess of 20 years; or remaining term of the lease is at least 15 years.3 4) the lease follows a sale/transfer or lease of the property from the entity and the property had been Tax-Exempt Leasing— used by the entity prior to the sale/transfer or lease Amendments in the 1984 Tax Act (this excludes property leased within three months The 1984 act included tax-exempt leasing provisions, after it was first used by the entity). which deny the rehabilitation tax credit in certain situa- Regardless of these tax consequences,all rehabil- tions. The provisions, targeted at financial arrange- itation expenses may still be counted to satisfy the ments perceived to be abusive by Congress, deny the "substantial rehabilitation" test. rehabilitation tax credit and require the use of straight- The tax-exempt provision is effective retroactive to line depreciation over the greater of 40 years or 125 May 23, 1983. However, it does not apply where either percent of lease term. These tax consequences apply a) the tax-exempt entity leased the property on or be- when more than 35 percent of a property is leased to a fore November 1, 1983, or b) the tax-exempt entity tax-exempt entity and any of the following four circum- leased the property after November 1, 1983, but, on or stances is present: before such date, had entered into a written binding 1) The property was financed all or in part by In contract requiring the entity to lease the property. dustrial Development Bonds and the entity partici- Tax Preferences and Recapture pated in such financing; The 1981 act also removed tax incentives for historic structures from the category of tax preferences. Under previous law, preservation tax incentives were treated ..71The Internal Revenue Service is required, under Sec- as items of tax preference, thereby subjecting the tax- 'Ion 48(g)(1)(c)(iii) of the Internal Revenue Code, to payer to a minimum tax of 15 percent on these items, issue regulations regarding lessees' use of the 25 per- often in addition to the taxpayer's regular liability. Be- cent ITC. cause neither the ITC nor the straight-line method of 6 , depreciation is classified as an item of tax preference, • accelerated depreciation of substantially reha- taxpayers investing in qualified rehabilitations are no bilitated certified historic structures (Code Section =nger subject to the minimum tax penalty. 167(o)); and , Under the recapture rules applicable to early dis- • denial of accelerated depreciation for a building position of real estate prior to passage of the 1981 act, constructed or reconstructed on the site of a demol- depreciation in excess of that which would have been ished or substantially altered certified historic struc- allowable under the straight-line method(depreciation ture (Code Section 167(n)). computed in equal amounts over the recovery period) Section 280B of the Internal Revenue Code,requir- was subject to recapture—that is, to being taxed as ing that demolition costs be capitalized as part of the income to the taxpayer in the year of disposal. cost of the land rather than be deducted,was retained. The availability of an ITC for qualified rehabilita- This provision, which expired on December 31, 1983, tions, if taken with straight-line depreciation, elimi- was extended on a permanent basis by the 1984 tax act nates the recapture problem associated with the histor- and extended to all buildings, regardless of historical is preservation tax incentives under the old law. value. However, premature disposal of a qualified rehabili- Generally, the new preservation tax inventives ap- tated building may still result in recapture of a portion ply to all expenditures incurred after December 31, of the ITC. 1981. A transition rule, however, permits projects on Generally, if a qualified rehabilitated building is which the physical work began before January 1, 1982, I held by the taxpayer for longer than five years after the - to use a combination of the old and new laws. Conse- rehabilitation is completed and the building is placed quently, if expenditures for certified rehabilitation of in service,there is no recapture of the ITC.If the proper- historic structures were incurred both before and after ty is disposed of during a holding period of less than one year after it is placed in service, 100 percent of the ITC is recaptured.For properties held between one and five years, the ITC recapture amount is reduced by 20 The National Trust for Historic Preservations Inner-City Ven- fivce per year follows: tures Fund supported the rehabilitation of this eight-unit apartment building on Ward Street in Hartford, Conn., for continued low-income rental use. In addition to the private Years Held Percentage of Recapture investment encouraged by the federal tax incentives, the less than 1 year 100 project is financed by city grants and bank loans. (Courtesy 2 years 80 of Broad Park Development Corporation) 2-3 years 60 3-4 years 40 4-5 years 20 5 or more years 0 , / Limitation on Tax Reduction with the s, - A Investment Credit - �„ The amount of income tax liability (in excess of $25,000) that may be offset by an ITC was reduced by a#; /Fs. } TEFRA from 90 percent to 85 percent.This lower limita- �'" sy® s .-'e C4; ,;`_ tion, which may increase income taxes payable, be- its • ,, s came effective for taxable years after December 31, ; _s rx -'''' `-:-.•"I''‘i4V .,;.5,--% ,,..-,,,--- ,:-.2-,:::;., :.--,. ,-":„•.• 1982.Unused credits for a taxable year may be carried s- t )�3`' ! ' . i t . h t s back first to each of the three preceding taxable years 1 .� -�fYa .� and then carried forward to each of the 18 following zi to - ;� -7� ; �7 sG taxable years. •"*' . tot .' - - r: .- r. . Other Changes to Preservation Tax z , Y� : L i Incentives and Transition Rules of the , ; . �4 =3 . 1981 Act 1 a .- - i -; : •,n — ,,,, :1 , ,,y.. Effective January 1, 1982, the new 25 percent ITC for i certified historic structures and the 15 and 20 percent ` ®` ' credits replaced the following provisions: �: ti =� � • 10 percent tax credit for rehabilitating buildings 1 ` `�:.i= , der than 20 years (Internal Revenue Code Section "' '� • 60-month amortization of certified historic reha- l � �' bilitation expenditures (Code Section 191) ---- -�-- 7 January 1, 1982, the prior expenditures could qualify This Information Sheet combines, revises and up- for the old 10 percent ITC (plus accelerated deprecia- dates Information Sheet No.30, "Summary of Preserva- tion) or 60-month amortization. In addition,those proj- tion Tax Incentives in the Economic Recovery Tax Act ect expenditures incurred on or after January 1, 1982, of 1981," and its supplement, "Changes in Federal Tax may continue to qualify under the provisions of the old Incentives for Historic Preservation." Those sheets law until completion, if the rehabilitation would have were originally prepared by Aubra Anthony, Jr., former qualified under that law. vice president of policy and planning,National Trust for Historic Preservation. The 1984 revisions were pre- Comparative Advantage of Certified pared by the Office of Public Policy,in cooperation with Historic Rehabilitations the staff of the Preservation Library, the Office of Re- gional Services and the Preservation Press. The tax incentives for historic preservation reflect the intent of Congress and the executive branch to encour- age reinvestment in America's historic buildings, corn- The National Trust is the only national private, non- mercial districts and neighborhoods; the 25 percent profit organization chartered by Congress with the re- ITC for certified historic structures is the most bene- sponsibilityforencouraging public participation in the ficial tax treatment available for real estate investment preservation of sites, buildings and objects significant under the Internal Revenue Code.The margin of incen- in American history and culture. Support for the Trust tive for certified historic structures over other rehabili- • is provided by membership dues, endowment funds, tations is substantial because of the additional five contributions and matching grants from federal agen- percent credit, the requirement of only a half adjust- cies, including the U.S. Department of the Interior, ment to basis and the availability of the credit for in- National Park Service, under provisions of the National come-producing residential projects. Historic Preservation Act of 1966. For information Generally, the ITC allowed for rehabilitations is about membership in the National Trust,write Office of more beneficial in terms of immediate tax savings than Membership Development, National Trust for Historic any form of accelerated or straight-line depreciation. Preservation, 1785 Massachusetts Avenue. N.W.,Wash- Further, because only straight-line depreciation may ington, D.C. 20036. Dues start at $15 for individuals. be taken with the ITC for qualified rehabilitation expen- The Trust also offers for $50 a Member Organization ditures,disposition of a qualified rehabilitated building Program with benefits designed especially for organi- for which the ITC has been taken does not trigger,with zations. .,. respect to the rehabilitation expenditures, the recap- ture rules related to accelerated depreciation. Because there is no accelerated depreciation, there is no tax The opinions expressed in this Information Sheet preference income subject to the code's minimum tax are not necessarily those of the National Trust or the rules. U.S. Department of the Interior. ► -Funding for Rehabilitating a Historic Home -the National Trust for Historic Preservation Page 1 of 3 Search th ill f 1'I NATIONAL//Ishas TRUST Save Historic Places Build Better Communities Travel With the Trust Support Preservation Shop Help from. Help from the National Trust The National Trust Funding for Rehabilitating a Historic Home If you still c F National Trust the informa Regional Offices As always, your bank, your family, or your friends are the tried and true looking for, sources of money for renovating an old house. Sometimes specific funds contact the State and Local for preserving an old house are available at the local, state, or national Trust's Res Preservation Center. Contacts level. ► Preservation Web Not every state offers the same financial assistance for historic home Sites owners, so it is a good idea to contact all of the following agencies in P.Information your state for information on their grants, loans, and potential tax Sheets incentives: Historic Development Commission, Department of Planning and Economic Development, Housing and Redevelopment, and State Historic Preservation Office. Help from the National Trust If you're just starting to rehabilitate a historic home, you may find The Old House Starter Kit very helpful. Available from the National Trust's The National Trust Preservation Books for$6.00, it's filled with information and advice in Your State for the do-it-yourselfer as well as for those who prefer to hire Join the National professionals. Trust Contact the National A Mortgage Program Tailored for Rehabilitation Trust National Trust Home The Department of Housing and Urban Development's Federal Housing Page Administration (FHA) has a flexible loan program that helps developers, investors, and families at all income levels to buy and restore properties in urban and rural historic districts.The program operates through FHA approved lending institutions, and the loans are insured by FHA.The 203(k) Mortgage Rehabilitation Insurance Program helps preservationists deal with problems such as appraisal barriers, the high cost of second mortgages, and prohibitive down payment and closing costs. Unlike most mortgage programs, the 203(k) is available to potential homeowners before restorations are completed. Learn more about the 203(k) program from HUD's Web site, at http://www.hud.gov/fha/sfh/203k/203kabou.html. Federal Tax Incentive Currently the only federal tax incentive for historic preservation is for the rehabilitation of income-producing (commercial, industrial, or rental residential) buildings included on the National Register of Historic Places (or those within a National Register district). Contact your State Historic Preservation Officer (SHPO) for federal rehabilitation tax credit information. Note that the rehabilitation of income-producing buildings must follow the Secretary of Interior Standards for http://www.nthp.org/help/financing_a_home.html 1/28/2002 j •Funding for Rehabilitating a Historic Home -the National Trust for Historic Preservation Page 2 of 3 rehabilitation to be eligible for federal tax credits. State Tax Incentives While a national tax credit for private homeowners is not yet available, many states have tax credits, reductions, freezes, and abatement programs for owners of residential historic homes. See the National Trust's State-by-State list of tax incentives for more information about the programs available in your state. Financial Assistance From the Trust The National Trust also offers financial assistance in the form of grants and loans. Be aware that most of the programs are directed at non- profit groups rather than individuals. Easements A preservation easement is a legal right granted by the owner of a property to an organization or a governmental entity qualified under state law to accept such an easement. It protects against undesirable development or indirect deterioration. Preservation easements may provide the most effective legal tool for the protection of privately- owned historic properties. The terms are generally incorporated into a recordable preservation easement deed and can prohibit, for example, alteration of the structure's significant features, changes in the usage of the building and land, or subdivision and topographic changes to the property. The property continues on the tax rolls at its current use designation rather than its "highest and best use" (its value if developed) thereby giving the owner a genuine tax advantage. To learn more, read the National Trust's introduction to easements or contact your SHPO or statewide preservation organization. Resident Curators In some states, the National Park Service and the state historic preservation office will work with private citizens to become resident curators. A resident curator relationship allows state-owned historic properties to be restored at virtually no cost to taxpayers.To see if your state offers a resident curator program, contact your State Historic Preservation Officer. For example, in Maryland, a resident curatorship begins with the identification of suitable buildings by the Forest and Park Service and the Maryland Historical Trust. Interested preservationists submit an application along with a five-year restoration plan, and must be qualified to supervise and finance the restoration work. If approved, the resident curator can live in the historic property for the rest of his or her life in return for financing the restoration of the property. For more information on Maryland's program, contact the Maryland Historical Trust at mdshpo@ari.net. Federal Financial Assistance for Rural Buildings U.S. Department of Agriculture's Rural Housing Service offers funds for http://www.nthp.org/help/financing_a_home.html 1/28/2002 - Funding for Rehabilitating a Historic Home -the National Trust for Historic Preservation Page 3 of 3 J 4 the acquisition, construction, repair or rehabilitation of homes and apartment-style housing for low and moderate-income people in rural areas. http://www.rurdev.usda.gov/rhs/Individual/ind_splash.htm Insurance for Historic Buildings The National Trust, the Chubb Group of Insurance Companies and MIMS International have established the Historic and Valuable Homeowners Insurance program in order to offer specialized insurance to owners of historic houses. The program offers affordable home insurance to help protect against the risks associated with the ownership, restoration, and occupancy of historic properties. Coverage can be written on an extended replacement cost basis. Save Historic Places I Build Better Communities I Travel with the Trust I Support Preservation I Shop for Preservatio National Trust Home I Search I Site Map ©2001 National Trust for Historic Preservation.All rights reserved. http://www.nthp.org/help/fmancing_a_home.html 1/28/2002 Federal Historic Preservation Tax Incentives, NPS - IRS Connection, FAQ Page 1 of 17 Federal Historic Preservation Hentirje TAX INCENTIVES National Park Service Preservation n ':.vices "Revitalizing America's cider Communities Through Private Investment' IRS Home Page TAX MzIrt I z Or HISTORIC ORI1. Questions PRESERVATION Page FREQUENTLY ASKED QUESTIONS & ANSWERS Facade Easements Prepared by: Mark Primoli, Internal Revenue Service Late Submission Tax-exempt Entity ANSWERS 1. Who can claim a rehabilitation tax credit? -Lessee use of Tax Credit The rehabilitation tax credit is available to the person(s) and/or the entity who holds title to the property. 2. How can property owned by a tax exempt entity utilize rehabilitation tax credits? The rehabilitation tax credit would be of no use to a tax exempt entity. However, in many instances, tax exempt entities are involved in rehabilitation projects by forming a limited partnership and maintaining a minority ownership interest as a general partner. In these situations, the limited partners would be entitled to the rehabilitation tax credit and the tax exempt entity is able to ensure that their organizational goals are being met. 3. When can a taxpayer claim the rehabilitation tax credit? The property must be substantially rehabilitated. During a 24- month period selected by the taxpayer, rehabilitation expenditures must exceed the greater of the adjusted basis of the building and its structural components or$5,000. The basis of the land is not taken into consideration. It is important to note that any expenditure incurred by the taxpayer before the start of the 24-month period will increase ittLp://www.h.cr.ups.govitpstwuncanswersdatin I/1G/VV Federal Historic Preservation Tax Incentives, NPS -IRS Connection, FAQ Page 2 of 17 ( }'� . Vt y.l Iwo wM�wM.vV N..vIv. vVV I I V...VMI r • VyMM•.V • I. Iv .L (b)(2). if the rehabilitation is completed in phases, the same rules apply, except that instead of a 24-month period, a 60-month period is substituted. This phase rule is available only if the taxpayer meets three conditions: 1. There is a written set of architectural plans and specifications for all phases of the rehabilitation. (If the written plans outline and describe all phases of the rehabilitation, this will be accepted as written plans and specifications); 2. The written plans must be completed before the physical work on the rehabilitation begins; and 3. It can be reasonably expected that all phases of the rehabilitation will be completed. 1 he property must be placed in service. See Treasury Regulation 1.46-3(d) for definition of placed in service. The rehabilitation credit is generally allowed in the taxable year the rehabilitated property is placed in service provided that the building has met the "qualified rehabilitated building" requirements for the 24 month period ending in that taxable year. A qualified rehabilitated building is defined as that which has been substantially rehabilitated and was placed in service as a "building" before the beginning of the rehabilitation (as opposed to a ship, airplane, bridge, etc). See Treasury Regulation 1.48-12(b). It the taxpayer fails to complete the physical work of the rehabilitation prior to the date that is 30 months after the date the taxpayer filed a tax return on which the credit is claimed, the taxpayer must submit a written statement to the District Director stating such fact and shall be requested to sign an extension to the statute of limitations. See Treasury Regulation 1.48.12(f)(2). 4. What is the definition of placed in service? "Placed in service" generally means that the appropriate work has been completed which would allow for occupancy of either the entire building, or some identifiable portion of the building. 5. How do you define placed in service when a building is never taken out of service? If the property remains in service during the rehabilitation, the placed in service date will be commensurate with the project completion date. i1LLp:J/www..cr.nps.goviLpsiLail+c.. answers.nun lit_/uu Federal Historic Preservation Tax Incentives, NPS -IRS Connection,FAQ Page 3 of 17 Ci. VVllai CAR SiS iiUtitifCCII Li IC S1,.ii3Siuiiii rehabilitated requirement and the placed in service requirement? If the substantial rehabilitation test has not been met at the time a building, or some portion of the building is actually placed in service, the building does not meet the definition of a qualified rehabilitated building. As such, placed in service is deemed to be at the point in time when the substantial rehabilitation test is actually met. See Internal Revenue Code Section 41(b)(1) and 4t(c)(1)(C) and I reasury Regulation 1- 48-12(0(2) and 1.45-12(c)(6). Generally speaking, the 24-month measuring period ends sometime during the year in which the property is placed in service. when comparing the taxpayers qualified rehabilitation expenses to its basis, the expenses accrued over a 24-month period must end with or within the tax year the credit is being claimed. Exceptions to this rule exist it the building is never taken out of service during the rehabilitation. Then only the substantial rehabilitation test must be met. See Treasury Regulation 1.48-12(f)(2). In an elected 60-month phased rehabilitation, the court has ruled that the tax credit could not be claimed on assumed eligibility. The substantial rehabilitation test must be met. See Ford vs. U.S. 93-1 USTC. 7. How do you compute adjusted basis Adjusted basis of a building is the cost of the property (excluding land) plus or minus adjustments to basis. The County Assessor's office would be able to provide a building to land value ratio. Increases to basis include capital improvements, legal fees incurred in perfecting title, zoning costs, etc. Decreases to basis include deductions previously allowed or allowable for depreciation. See Treasury Regulation 1.48-12(b)(2)011). For the substantial rehabilitation test, the date to determine the adjusted basis of the building is the first day of the 24- month measuring period or the first day of the taxpayer's holding period of the building, whichever is later. Generally the holding period is deemed to begin the day atter acquisition. 8. What is the effect on basis when a structure is rehabilitated? 1 he basis of rehabilitated buildings, including certitied historic structures, must be reduced by 1 UU% of the nLLp://ww er.nps.goy/LpS/LUX/ns..Ja1iswers.P_LIII 1/I.../UV Federal Historic Preservation Tax Incentives, NPS -IRS Connection,FAQ Page 4 of 17 • rehabilitation credit earned regardless at whether me credit is used or carried forward. The reduction amount is added back it the credit is recaptured. See 1 reasury Regulation 1.48-12 (e). 9. What method of depreciation is required when claiming the rehabilitation tax credit? I he rehabilitation credit is available only it the taxpayer uses the straight-line method of depreciation. The current recovery period is 2/.5 years tor residential rental property and 39 years for non-residential real property. See Treasury Regulation 1.48-12(c)(8). 10. How do the recapture rules apply? I he rehabilitation credits are subject to recapture it the building is sold or ceases to be business use property. No recapture is required after Live years. I he amount of such recapture is reduced by 20% for each full year that elapses after the property is placed in service. I hus there is a 100% recapture it the property is disposed of less than one year after the property is first placed in service; an 80% recapture after one year, a 60% recapture after two years; a 40% recapture after three years; and a 20% recapture after tour years. See Internal Revenue Code Section 50(a). 11. How is the rehabilitation tax credit computed when a portion of the property is not used for business? A qualified rehabilitation expenditure must be "properly chargeable to a capital account". This means the property must be depreciable. It a structure is used tor both business and non-business (personal) use, an allocation of the rehabilitation expenditures must be made. I he allocation is generally made based on a square footage percentage. The only expenditures eligible for the tax credit would be those associated with the business use portion of the property. When a personal residence is used also for business, the business use portion of the home (e.g. home office) would be eligible. Expenditures associated with common living areas, such as a kitchen, bedrooms, living room, bathrooms, would not be eligible because they are not used exclusively for business. It the owners of a Bed & Breakfast live on the premises, the business use portion would only be those areas which are used exclusively tor business. To be eligible for the rehabilitation tax credit, the property must be substantially rehabilitated. I his means that the qualified rehabilitation expenses must exceed the entire nLLp://www. .er.I1ps.gov1Ll?s/L .'L/1 s. ai1swers.I1LII1 1/1_/V/ Federal Historic Preservation Tax Incentives, NPS - IRS Connection, FAQ Page 5 of 17 building's adjusted basis. It property is used for both business and personal use, the adjusted basis would include both the business and personal use portion. 12. Can the unused portion of the rehabilitation tax credit be carried back and carried forward? If the credit, or a portion of tax credit, can not be used, the excess can be carried back one year and torward tor 20 years. See Internal Revenue Code Section 39(a). 13. Can a seller pass the rehabilitation tax credit to a buyer? The seller can pass the rehabilitation tax credit to a buyer provided that no one has already claimed the rehabilitation tax credit and the building acquired has not been placed in service by the seller betore the date at acquisition. [he amount of expenditures that are treated as incurred by the buyer is the lesser of: 1. the amount ot expenses actually incurred betore the acquisition or 2. an allocable portion ot the cost ot the property it it is bought for an amount less than the rehabilitation expenditures actually incurred. See I reasury Regulation 1.48-12(c)(3)(ii)(b). 14. Can a taxpayer incur and claim additional rehabilitation costs in a taxable year after the year in which the rehabilitation credit was originally claimed? • The rehabilitation tax credit is 20% of the qualified rehabilitation expenditures incurred betore and during, but not after, a taxable year in which the property, or a portion thereat, was placed in service. Remedial work, or expenses necessary to obtain final approval by the National Park Service, will quality provided the substantial rehabilitation test period includes these costs. It is possible that an additional rehabilitation credit would be allowable on a new project within the same property as long as that project involves a portion of the building that was not placed in service. Alternatively, a taxpayer is allowed to pertorm second rehabilitation tax credit project on the same building provided the substantial rehabilitation test is met. 15. Can a lessee of a building or a portion of the building claim a rehabilitation tax credit? I11Ll.iJIWWWL..11.111}S.gUV/LpsiLdX/11i3d1 SWCIS.IILIII 1/IL/UU Federal Historic Preservation Tax Incentives, NPS - IRS Connection,FAQ Page 6 of 17 loco tnrrn is greater thri Oho rccr,v..,ry �erinrl rrletormir�eri under Internal Revenue Code Section 168(c), (39 years for non-residential real property, 2/.5 years for residential rental), the lessee can claim the rehabilitation tax credit on qualified rehabilitation expenditures provided the substantial rehabilitation test is met. A building owner, who incurs the cost of rehabilitating an historic structure, can elect to pass the rehabilitation tax credit to its lessee(s) provided the owner is not a tax exempt entity. See Internal Revenue Code Section 48(d) and 50(d) (5). A tax exempt entity can not pass the rehabilitation tax credit to its lessee(s) because I reasury Regulation 1.48-4(a)(1) requires that the property must be Section 38 property in the hands ot the lessor; that is, it must be property with respect to which depreciation is allowable to the lessor. 16. How is the rehabilitation tax credit claimed on a tax return? The credit is claimed on Form 3468. Attached to the Form 3468 ( or by way of a marginal notation), the following information must be provided.. See I reasury Regulation 1.48- 12(b)(2)(viii). 1. 1 he beginning and ending dates of the measuring period selected by the taxpayer. 2. I he adjusted basis ot the building as of the beginning of the measuring period. 3. The amount of qualified rehabilitation expenditures incurred or treated as incurred during the measuring period. 4. A copy of the final certification of completed work by the Secretary ot Interior. 5. If the adjusted basis is determined in whole or in part by reference to the adjusted basis of a person other than the taxpayer, the taxpayer must attach a statement by • such third party as to the first day ot the holding period, measuring period and adjusted basis calculation. 1 /. Can a taxpayer claim the 10% rehabilitation tax credit on any building built before 1936? No. A taxpayer cannot claim a 10% rehabilitation tax credit on a building which is in the National Register of Historic Places or is located within a Registered Historic District unless it has been certified by the National Park Service as not contributing to the significance of the district through the 1ILi i3.IJ W W WL.t;I.I1ps.guV/Lps/ S.IILIII I/I L/UU Federal Historic Preservation Tax Incentives, NPS -IRS Connection, FAQ Page 7 of 17 Application. v~ . .~..v.. vv.....v~..v..If a building is not in the National Register, or it it is located in a Registered Historic District but has been determined to be a non-contributing structure by the Department ot the Interior, a 10°%0 rehabilitation tax credit may be utilized provided the building: 1. Was placed in service before 1936; 2. Is used for non-residential rental purposes; 3. Has not been physically moved; 4. Meets the following internal and external wall retention: (a) 50% or more of the existing external walls are retained in place as external walls, (b) 75% or more of the existing external walls are retained in place as internal or external walls, (c) 75% or more of the existing internal structural framework is retained in place. 18. is the rehabilitation tax credit available for condominiums? I he rehabilitation tax credit can generally be used by an individual- - - - - - - - - - -individual condominium owner provided the condominium unit is held for the production ot income, or is used in a trade or business. Thus, rehabilitation expenditures otherwise qualifying will not be eligible tar the credit if the property is used for the taxpayers personal use. 19. Gan a taxpayer claim the rehabilitation tax credit on property that is leased by a tax exempt entity, i.e. a governmental agency or a non-profit organization? Yes, taxpayers can lease their property to a tax exempt entity provided the lease does not result in a "disqualified lease" as defined in Internal Revenue Code Section 168(h)(1). A disqualified lease occurs when: ( 1. Part or all of the property was financed directly or indirectly by an obligation in which the interest is tax exempt under Internal Revenue Code Section 103(a) and such entity (or related entity) participated in the financing, 2. Under the lease there is a fixed or determinable purchase price or an option to buy, 3. The lease term is in excess of 20 years, or 4. The lease occurs after a sale or lease of the property and the lessee used the property before the sale or lease. See Internal Revenue Code Section 168(h)(1)(B) (ii). 111 L1J.//W W W G.U1.111.IJ.Y`,U V/Lim Leusi t\J f1115 W G15.11L111 1/i G/w Federal Historic Preservation Tax Incentives, NPS - IRS Connection, FAQ Page 8 of 17 An exception under the I reasury Regulations provides that property is not considered tax exempt use property if 35% or less at the property is leased to tax exempt entities in disqualified leases. 2U. If a building was rehabilitated and placed in service, can a taxpayer apply for certification and claim the rehabilitation tax credit "after the fact"? Yes, if the building is individually listed in the National Register. No, it the building is located within a registered historic district. if the building is within a registered historic district, the taxpayer must request on or betore the date the property was placed in service a determination from the Department of Interior that such building is an historic structure and the Department of interior later determines that the building is a certified historic structure. I his is accomplished with the submission of Part 1 of the Historic Preservation Certification Application. It Part 1 of the application was not submitted prior to when the property was placed in service, the taxpayer would not be eligible for the rehabilitation tax credit. See Treasury Regulation 1.48-120d)(1). 21. Can the rehabilitation tax credit be used in conjunction with the low income housing tax credit? Yes. As long as the building and rehabilitation expenditures qualify for both credits, there is no prohibition within the Internal Revenue Code for using the tax credits in tandem. The taxpayer must reduce the amount of rehabilitation expenditures eligible for the low income housing tax credit by the amount of rehabilitation tax credit allowed. The computation tar annual depreciation includes a reduction ot the depreciable basis by the amount of rehabilitation tax credit allowed. 22. Can the rehabilitation tax credit be used in conjunction with a façade easement contribution? Yes. Once the building and rehabilitation are "certified" by the Department of Interior, the owner ot the building can donate the façade easement. Generally these donations are made to qualified organizations under Internal Revenue Code Section 170 and are considered to be donated in perpetuity. The rehabilitation tax credit and depreciable basis are reduced and no credit or depreciation can be taken on that portion of the building. It the donation occurs after the building is placed 11L L p.1!W W W G.I%1.11p V Y/L4J a/LO.AI I1\J Q11a W CI S.11L111 1/1 Ll V V Federal Historic Preservation Tax incentives, NPS - IRS Connection,FAQ Page 9 of 17 in service, the credit recapture provisions of Internal Revenue Code Section b0(a) apply. (See Rome I Ltd. v. Commissioner, 96 T.C. No. 29) By donating the façade easement, the taxpayer may be allowed a charitable contribution deduction pursuant to Internal Revenue Code Section 170(h) and I reasury Regulation 1.170A-14. I'he value ot the façade easement is measured by the difference between the value of the property betore and after the easement was conveyed. A donation can be made by a subsequent owner of a certified historic structure as long as the façade was not donated by the previous owner. 23. Can the rehabilitation tax credit be bought and sold? I he rehabilitation tax credit, by itself, can not be bought or sold. The rehabilitation tax credit is only available to the person or entity who holds title to the property. I here can be no transfer of the credit without the requisite ownership. Syndication through limited partnerships is allowed and is a common tool to bring investors into rehabilitation projects. Treasury Regulation 1.48-12(b)(2)(S)(vii) does allow the transfer of qualified rehabilitation expenditures to a new owner provided the previous owner did not place the property in service. 24. Can a taxpayer claim the rehabilitation tax credit without receiving final approval by the National Park Service? Yes. Treasury Regulation 1.48-12(d)(7)(ii) states that if the final certification of completed work has not been issued by the Secretary of Interior at the time the tax return is filed for a year in which the credit is claimed, a copy of the first page ot Part 2 of the Historic Preservation Certification Application must be attached to Form 3468 filed with the tax return. The taxpayer must reasonably expect that they will receive final approval and that their project will be certified by the National Park Service. Final certification by the Department of Interior is required. if the taxpayer fails to receive final certification within 30 months after the date the taxpayer filed a tax return on which the credit was claimed, the taxpayer must agree to extend the period of assessment for any tax relating to the time for which the credit was claimed. it the final certification is denied by the Department of interior, the credit will be disallowed for any taxable year in which it was claimed. 25. Can a rehabilitation tax credit be claimed for expenses uup.i i w w W.L. .u}T.su yr Lin/taa/11\J4uJw c1>.11uu 1l 1Gr V V Federal Historic Preservation Tax Incentives, NPS -IRS Connection, FAQ Page 10 of 17 associated with noncontributing additions? Any expenditure attributable to an enlargement of an existing structure, i.e. a new addition, is specifically excluded from the definition of a qualified rehabilitation expenditure. See Internal Revenue Code Section 4/(c)(2)(13)(111). A building is enlarged to the extent that the total volume of the building increases. However, it the addition was made previously or over a period of time, the cost of rehabilitating this noncontributing addition may quality for the rehabilitation tax credit. 26. What is the definition of a building? Treasury Regulation 1.48-1(e) defines a building as any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. 2/. Is a sports stadium considered a building? A stadium was considered a building within the definition of I reasury Regulation 1.48-1(e) in Revenue Ruling 69-1 /0. 28. How does a cash basis taxpayer account for qualified rehabilitation expenditures? Treasury Regulation 1.48-12(c)(3) states that an expense is incurred by the taxpayer on the date such expenditure would be considered incurred under an accrual method of accounting, regardless of the method of accounting used by the taxpayer with respect to the other items of income and expense. 29. What is not included in qualified rehabilitation expenditures? Qualified rehabilitation expenditures do not include: 1. Costs of acquiring the building or interest therein. See Treasury Regulation 1.48-12(c)(9). 2. Enlargement costs which expand the total volume of the existing building. Interior modeling which increases floor space is not considered enlargement. See I reasury Regulation 1.48-12(c)(10). 3. Expenditures attributable to work done to tacilities related to a building such as parking lots, sidewalks and landscaping. See 'I reasury Regulation 1.48-12(c)(5). 4. New building construction costs. See Treasury nup://www../..c.r.iips.gow li/X/I . aI1SWerS.IILII1 1/1=/UU Federal Historic Preservation Tax Incentives, NPS - IRS Connection,FAQ Page 11 of 17 30. What are some examples of expenses that do not qualify for the rehabilitation tax credit? • Acquisition costs • Appliances • Cabinets - Carpeting (it tacked in place and not glued) • Decks (not part ot original building) • Demolition costs (removal of a building on property site) • Enlargement costs (increase in total volume) • Fencing • Feasibility studies Financing fees • Furniture • Landscaping • Leasing Expenses • Moving (building) costs (if part of acquisition) - Outdoor lighting remote trom building • Parking lot • Paving • Planters • Porches and Porticos (not part ot original building) • Retaining walls • Sidewalks • Signage • Storm sewer construction costs • Window treatments 31. What are some expenses that qualify for the rehabilitation tax credit? Any expenditure for a structural component of a building will quality tor the rehabilitation tax credit. I reasury Regulation 1.48-1(e)(2) defines structural components to include walls, partitions, Floors, ceilings, permanent coverings such as paneling or tiling, windows and doors, components of central air conditioning or heating systems, plumbing and plumbing fixtures, electrical wiring and lighting fixtures, chimneys, stairs, escalators, elevators, sprinkling systems, tire escapes, and other components related to the operation or maintenance ot the building. In addition to the above named "hard costs", there are "soft costs"which also qualify. These include construction period interest and taxes, architect tees, engineering tees, construction management costs, reasonable developer fees, IILLp./IWWWG.ei.lips.goviLpS/Lax/us alls WC'S.IIUIi 1/i .iuo Federal Historic Preservation Tax Incentives, NPS - IRS Connection, FAQ Page 12 of 17 capital account. 32. Are there provisions in the Internal Revenue Code that could prevent a taxpayer from using the rehabilitation tax credit? Yes, certain provisions within the Internal Revenue Code can impact the tull use of the rehabilitation tax credit. I hese include alternative minimum tax, tentative minimum tax and the passive activity rules. Consequently, taxpayers may not be able to use the entire tax credit available to them in one tax year. In situations where the tax credit can not be used as a result of alternative minimum tax the unused credit can be carried back or torward. The passive activity rules, however, allow unused credit only to be carried forward. Form 3800, General Business Credit, will guide you through a series of computations to determine how much, if any, of the rehabilitation tax credit can be used in the current year. To alleviate any surprises, tax planning should include a "what if" scenario using Form 3800 as a guide to determine the anticipated tax credit. 3:3. What is alternative minimum tax? I axpayers who are not required to pay tax under the regular tax system may still be liable for tax under alternative minimum tax laws. The purpose of alternative minimum tax (AM 1) is to ensure that all taxpayers share the tax burden tairly. It prevents a taxpayer with substantial income tram avoiding significant tax liability. Alternative minimum taxable income is computed trom regular taxable income with certain adjustments and the addition of all appropriate tax preference items. 34. What will trigger alternative minimum tax? Common adjustments and tax preferences that could trigger alternative minimum tax include: A) Large Schedule A itemized deductions such as: ' Medical and dental expenses ' I (i.e. tax and local, real estate, personal property) ' Miscellaneous deductions (i.e. unreimbursed employee business ' expenses, investment expenses, education expenses) tiLgJ.ii Wwwb.ei LJJS/LdJi/11C3i111SWeiS.111111 1/i.iuv Federal Historic Preservation Tax Incentives, NPS -IRS Connection, FAQ !'age 13 of 17 C} Use of accelerated depreciation. U) Gains or losses resulting from the sale of assets in which accelerated depreciation was used. Other adjustments and preferences that could trigger alternative minimum tax, but are not as common as those described above, include: certain interest on a home mortgage not used to buy, build or improve your home; investment interest; incentive stock options; passive activities; beneficiaries of estates and trusts; tax-exempt interest from private activity bonds; certain charitable contributions; depletion; installment sales; intangible drilling costs; mining costs; tax shelter farm activities. 35. Even if alternative minimum tax applies, can the rehabilitation tax credit still be used to offset regular income tax? • No, the rehabilitation tax credit can not be used to reduce regular income tax it alternative minimum tax applies - no matter how large or small the alternative minimum tax. Since the taxpayer has been denied the benefit of the rehabilitation tax credit due to the applicability of alternative minimum tax, the unused credit can be carried back 1 year and forward 20 years. 36. What is tentative minimum tax? Tentative minimum tax is computed on Form 6251, Alternative Minimum Tax- Individuals. Tentative minimum tax, which effects a great number ot taxpayers, will reduce the amount of rehabilitation tax credit that can be used. Once again, it is important that a taxpayer perform a "what if" computation to determine the effect ot tentative minimum tax on the rehabilitation tax credit allowed for the current year. Tentative minimum tax can exist without alternative minimum tax. Unlike alternative minimum tax, tentative minimum tax reduces the allowable tax credit rather than deny the benefit entirely. 37. What are Passive Activity Restrictions? 1 he lax Reform Act of 1986 introduced tax law changes which indirectly impacted the rehabilitation tax credit. One of these changes, the "Passive Activity Provisions," was intended to stop "abusive tax shelters."Although not directly uu�.�rvvvvwa.ua.ugb.gvwLp fMA/siN.OaLt WC1S.tu,lll t/Led w Federal Historic Preservation Tax Incentives, NPS - IRS Connection,FAQ Page 14 of 17 t CICLCLI, LI ICAC LA ICU iy.=1 !!d:fC !t!1pcv...LCU LI IC ave!!dunn U! LI IC rehabilitation tax credit for certain types of investors. Modifications to the Passive Activity provisions under the Omnibus Budget Reconciliation Act ot 1993, (effective tor taxable years after December 31, 1993), provides some relief. I he Act provides that deductions and credits, from rental real estate in which an eligible taxpayer materially participates, are not subject to limitation under the passive loss rules. An individual taxpayer is eligible it more than one- halt ot the taxpayers business services for the taxable year, amounting to more than 750 hours of services, are performed in real property trade or business in which the taxpayer materially participates. 38. How do the passive activity restrictions effect taxpayers with adjusted gross income greater than $250,000? Individuals, including limited partners, with adjusted gross income greater than $250,000 who invest in a rehabilitation tax credit project can not use the tax credit to offset income tax in that tax year. The credit is suspended and carried forward and will be available when either income falls below $200,000 (it is partially available when income falls between $200,000 and $250,000) or there exists net passive income sufficient to offset the passive losses generated by the rehabilitation project. A computation is required to figure the regular tax liability allotted to passive activities. In other words, even if a taxpayer has net passive income, they might not be able to utilize all of the rehabilitation tax credit. Please see net passive income example below. 39. If a taxpayers investment is passive and income is below $200,000, how is the tax credit effected? Generally, rental real estate losses up to $25,000 my be deducted in Lull by anyone whose modified adjusted gross income is less than $100,000. For investors in rehabilitation projects, this income level is raised to $200,000. The rehabilitation tax credit, however, is limited to the credit equivalent of$25,000. This does not mean that the taxpayer can deduct a credit of $25,000. Instead a taxpayer is allowed the tax equivalent of$25,000 for the rehabilitation tax credit. Thus, a taxpayer in the 36% tax bracket could use $9,000 of tax credits per year (36% x $25,000 = $9,000). Unused credits can be carried forward indefinitely until they can be used. IiLLp.ii W W WG.L;I.IIps.gu v/1psi La.xiINZZLIISWei S.IILIII I/1 G/UU Federal Historic Preservation'fax Incentives, NPS -IRS Connection, FAQ Page 15 of 17 4U. 1t a taxpayer nes net passive Income, couia me Ttlll use the rehabilitation credit be restricted? Perhaps, as illustrated in the following example: John rehabilitates a certified historic structure used in a business in which he does not materially participate and generates a rehabilitation tax credit of$43,000. He files a joint return in 1996 reflecting $160,000 in taxable income. Of this total, $40,000 is from a passive activity (commercial rental). John's total tax liability on the $160,000 taxable income is: $42,095 John's taxable income reduced by net passive activity income is $120,000 ($160,000- $40,000). Tax on $120,000 is: $29.080 Tax liability applicable to $13,015 the passive activity: John can use passive credits up to $13,015 and carry forward unused credits of$29,985 (43,000 - $13,015). Simply stated, the more passive income, the more tax credit can be used. The less passive income, the less tax credit can be used. Please note: Credits generated from non-passive rehabilitation projects will not be limited. • Under what circumstances would a taxpayers rehabilitation tax credit not be limited? Material Participation - Generally it a taxpayer either works more than 500 hours a year or performs substantially all of the work in a business, he or she is deemed to be materially participating, and losses and/or income are non-passive. However, the material participation rules do not apply to long-term rental real estate activities. Real estate rental is passive by definition regardless of the 500 hour test. Example: John is an architect and rehabilitates a certified historic structure. It John uses the building for his architectural business, the credit is 11!y://www..cr.npss.goL'/!psitaxati.Ua.IIswers.nun 1/1./UU Federal Historic Preservation Tax Incentives, NPS - IRS Connection, FAQ Page 16 of 17 not limited because it is stemming from a non-passive activity. (Non-passive credit) If John rehabilitates the same building and rents the space to a restaurant, the rehabilitated building is now rental real estate (passive by definition) and will be limited. (Passive credit) Real Estate Professionals - If more than one half of a taxpayers personal services in all business are in real property businesses (property development, construction, acquisition, conversion, rental, management, leasing, or brokering) and the taxpayer spends more than 750 hours a year in real property trade or businesses, the taxpayer is a real estate professional. It this is the case, any rehabilitation project the taxpayer is involved with, including rental real estate, will generate non-passive rehabilitation tax credits. Short-term rentals - If a taxpayer rehabilitates an historic building and uses it for short term rental, such as a Bed & Breakfast or a Hotel/Motel, and materially participates in the operation of the business (i.e. spends more than 500 hours), the rehabilitation tax credit generated from this project is deemed to be non-passive, and the credit will not be restricted. Corporate entity- While the passive activity loss rules do not generally apply to regular C-Corporations, they do apply to personal service corporations and to closely held corporations in a limited way. For personal service corporations and closely held corporations, material participation is determined based on the level of participation of the shareholders. One or more individuals who hold more than 50% of the outstanding stock must materially participate in the activity in order for the corporation to meet the material participation standard. . Can a taxpayers involvement be non-passive in one year and passive in the next year? Yes, passive activity rules are applied on a year by year basis. A taxpayer could materially participate in a business generating a rehabilitation tax credit in one year, use the rehabilitation tax credit and have a passive interest in the business operation the following year. TOP PREVIOUS NEXT IRS HOME llU�J.I/w w W G.l;i.1gJJ.gu v/gm/IQ.A/il\J uis W GI SARI!' l!14/V./ Federal Historic Preservation Tax Incentives, NPS -IRS Connection,FAQ Page 17 of 17 DBM Last Modified:Mon,Dec 20 1999 12:32:48 pm EDT P kNe Nationalf ar4.Service I111p://WWW .criips_gUN/LT3/LaXart..JaIIswers.111Ii1 1/11./UU To : Wendy Shay Historical Preservation Planner From : Erik Henning RECEIVED APR 2 S 2003 NLNiuiNuuu « LUNING StudyArea 'r Districts.mxd ArcMap ArcInfo CO i ii l Ejle Edit View Insert 5electIon tools Vyindow Idelp ❑ GI; 1, a et + -1 171 t36 .J :2 tiJ R? 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Q Q :. .; ld"/a♦ q k O I$ •. tom, \.` •. wor ~t r j .---' , - . , .r - ,. r I "' F 12 u ` Layers denti1y Results - -�¢- - I --- -r is ❑ 2002 Nassau. 0 1997_Nassau Layers:I<Top•most layer> J 4 . ,It 1 ✓r{1 f r f',`J 1 . -� l£:0 Nassau Addre I I'; ,R ))17 I 1•' I;i❑ NassauSamp OId55_5ample_Parcels Location:(959615.652503 774933.218556) " I" IA F a I'i, v _ ,� .. « 12434616060000010 :'4 + ❑ Nassau Parce Field Value _ ✓ ,4 a 1, �I 'I. 0 Nassau Distre OId55 Sample Parcels.PCN 12434616860000010 ; _ i 4� - r *. _w • H. 0 2002 Marina OId55 Sample Parcek.CTV 12 F I _- ll, t f '�{ •r - $, .,❑ 1997 Marina OId55 Sampple Parcels.RNG 43 1` ',i ( (■$ ( I r•. e +.❑ MarinaAddre OId55_5am le Parcels.TWP 46 I - '� _ '7,h OId55_Sample_Paecels.SEC 16 }rr . s In 0 Marine_Sempk OM55_Sample Parcels.SUB ■i IMR 1 a- it'1 (, ' e' i.5: 111 ' 1.• S t a + ❑ Marina Parcel OId55 Sample Parcels BLK 000 ('�f 3 -.,b I_-„ '« .8 ,,,fit i,• , �. + ❑ Marina Distrlc OId55 Sample Parcel LOT 0010 I, y ,.I ,e -%r * 0 2002_0Id55_6 OId55_Sample Parcels.Value_1996 1104419 'I .,. ,L t ✓ Y I+ ❑ 1997_01d55 C OId55 Sample Panel.Value_2003 3939096 .r' 1 � •- Cti.0 dd55_Addres OId55 Sample Parcels.PctChg9603 2,567 I r i i ii 1, ra 1 w, 4ytF9Ln, r! .d' ■ CIlIt t7r OId55 Caks,DISTRICT COld ey_ofoo15q ri .,,,,. „ 1 i i ; '.t �. - ... 1- B RI® OId55 Caks.2002 OWNER City of De4eyBeac _ _ __Am,: a I " - Ok155 Caks.ADDRE55 51 N Swlrton Ave ® i-' i VI, s. , ., C a=.at I+R OldSchool 5r OId55 Caks.2002_A55E5 3014946 Iw-944 ` .1 ..1.„ I+ ❑ 2002 WestOe OIdSS_Caks 2002_EXEMP 3014946 - r� Y ns-r_ !+ ❑ 1997_Westse OId55_Caks.2002_TAXAB 0 4 1C 1 r H. ❑ WestSet Addi 0ld55 Caks.MLLTIPLIER 0.02408 1 • <t. sj +;i'rL •e OId55_Calcs.2002 _VA 0 t ,_j.. H. ❑ WestSet Sam OId55 Caks.2002 NON A 777,06 jk� �, I A'I 'r i v� ,� H. ❑ WestSet Parc - - - I I - h .yy + i D Wes[_Settlers OId55 Caks.2002 TAXES 777.06 _ i,, _ .. , OId55 Caks.1998_TA%ES 777.06 - x I •, �1•"•p .1 rf" 1r t• , ,*.1 t-:. Tr 2002_Del Ida OId55_Caks,TAX PCT CH D « ❑ 1997_Del Ida OId55 Calcs,2002_PQM 0 it: r rw w,r, Pv.'. ., « 0 Del_Ida_Addr OId55 Caks.2002_MKT_V 3014946 j, ., ,.�y�� I tI y: « ❑ Del_Ide_Semt OId55 Caks.2002 IMPRO 1416316 .I1-.. ->° �' 1 j I:M sa 1 OId55 Caks.2002 LAND_ 1598630 ' ' �« ❑ Del Ide Para - - + pp�,,k.. ( .�1b� n 1 a rr'❑Del�da Distrl _ Ir' 1 I 1 it"' j 1 T, ' ' I«.❑Del Ida Blocks 200D I 1 it f'y Sl! gip..,-5 m _ L.❑WestSet Biocks_2000 - - ---- --�I--__ '-- ��.r�lr�d'{ i•( "' ;r- R:❑OId55 Blocks 2000 F i •1 l l" III 111111' I.•,.j W 1.`, fr' 't A ,4.I , H. ❑ MarinaBlocle 2000 I), `• 1 1 I ' .,i11 Ip kII1 y '� i:. ..:= 21_ •• ❑ defray assessed value -- _. _ ( , 'y 1 i =�- -4. -�= • 0 Delray_Boundary -'Y I, ) •I"t1, .,, 5I- a+ V 1. i■- Al+ �. r. '� .I �1�NI ✓ + 0 g2001swsld _ 1,c.. tY•• . ✓•a. I • El g2001se.sld , I-- .y P iM 1 --.''1t r..; f .I^Or'„ f, 1I- ,. ;t`.51. 4 r 1 • O g200Inwsid 2` I,: r s t4 ` .. Q g200lne.sd 1 „ I ; 1' L pis?* ource I .,0 Z. 4 .. Lrawln9� k ry A- Anal 110 _I B ! LI A , ("*r. .10" 960899,87 773765,25 Feet 7 e. �MSN Hotmeil-Inbo+-... •'+. Orrr,�as n,.d-Air lda.. ©MIcre oft PowerPdnt.., '4; 6:17 PM Old School Square Historic District ■ 2000 Demographic Breakdown -Total 406 (100%) -White 199 (49%) -Black 146 (36%) -Other 31 (761%) -Hispanic 30 (739%) Old Sch Square Historic District 5101131ics of 0 Id55_5amp le_Parceis_0105Calcs M J 1_, 2003 Property Value Breakdown held 113kISS Sande Paceh.Valuo 29413 —Do -Minimum Value $1121 701 Staliclics. FiequencyDithillitilim -Maximum Value $3,939,096 Minimum' Maximum. 112701.000000 4 3939096 000000 . San 4679263 000000 3 -Mean $779I 877.17 Mean 779877.166667 Slandald DavWion 1412982.870984 2 1 ' 111105 4' -Std. Deviation $1,412I 982.87 0 112701 1783853 3!50 • 1996 Property Value Breakdown s,..,st.ol Old%Smote Purre Ix MOSS Colos 1?IX Field -Minimum Value $51756 Fl equency D1sti um. Slalislics. -Maximum Value $1,104,419 Cant Mnirr,unt 6 51756.0130000 5 4 I Maximum: 110419.000000 . Sm. 105115.000000 3 -Mean $247 569 r Mewl 247569.166E67 Standard De,iekon:383587.8527E6 2 , , -Std. Deviation $383 587.85 P r 0 51758 505999 980210 M 1996-2003 Pct. Change Breakdown Stalistics at 01,155 Sample Parcels MISS talcs 111 Fp4i -Minimum Value 45°A) unguarxmatemnic-J R°gooney DisttlInitIone — Stegall. -Maximum Value 257% —Count Mmimum 6- 0451000 2 111 Maximum 2.567000 2 -Mean 132% Sum Mealy 7.921000 1.320167 Standard Devon:0.912100 I 11 Er ml 0 0.5 1.4 2.3 Old School Square Historic District 5lalidics of OId55 Sample Parcels OLD SCHO pId55 _. Mg Culcs r 2002 Property Tax Breakdown Field IOklSS Celcs.2002_1PXES J Frequency Diet;!WWII -Minimum Value $777.06 Statistics Court: 6 3 I� Milburn: 777.060000 3 -Maximum Value $4,254.40 Mimun 425a.4000eD I .111111=11 NMI Sum 19101.020000 2 ■ _ standard Devotion: 1205.247353 1 -Mean $3,196.84 Meam �� 2 0 -Std. Deviation $1,205.25 N 777.1 2277.8 3778.1 Statistics of OIdSS.Sample_Parcels_OLD_SCFIO_DIdSS_Co(co DJ 1998 Property Tax Breakdown Fart -Minimum Value $777.06 " - TAAS St FIP.t.rencyDlslrllnal°° Statistics: -Maximum Value $3,617.49 Mom m.16 4I( Maseru= 3617.490000 3 II -Mean $1,554.56 Sum .3eoo48 Mean: Deviation 110 905840 2 II 1 -Std. Deviation 1II $1,013.91 1II ,W — 777.1 2002.8 3228.4 Slnlislics of OIdSS Sample Partials OLD SUM 111dSS Celts ®gI Field 1998-2002 Pct. Change Breakdown in Ft e<prerrcy Dlsh0nalort Statistics: -Minimum Value 0% Count 6 3 ' 1 MkimmTY 0.000003 3 1 Sum: : 3.890000 2 -Maximum Value 389% Maim 2 �' -Mean 16 3% Standed Deviation 1.597912 1 I Mr NM Mill DIi , , „ _J 00 17 34 Del-Ida Historic District ■ 2000 Demographic Breakdown -Total 377 (100%) -White 265 (70%) -Black 146 (21%) -Other 3 (1%) -Hispanic 31 (8%) Del -Ida Historic District 2003 Property Value Breakdown Stall.Ilc.ofllelIda Somplc Pnreel.Del Idn edrs '7; Field -Minimum Value $124,466 MIIINE1a5,IK. F1e.61e.cyDlalri6lmell -Maximum Value $390,495 6 N �I Miun,. 133582700000 Meximum: 390195000000 2 II IIIII (j'( Sum. 122637.333330 ■ _ -Mean $222 637.83 Mean 8%00.129733 1 II Mir C (��( , Standard Deviation:B%08.312973 O II . -Std. Deviation $89,608.31 124488 239261 354056 ■ 1996 Property Value Breakdown Field SEM-Minimum Value $59,154 I FFe.i...,Dle119..1e0 Sleluec.. _ Count: 6 2 I -Maximum Value $120,798 Mmnum 59154000000 120798.0 2 j, Maximum: Sum: 81422166667 Mean' 81122166667 1 II -Mean $8 1,42 2.1 7 Standard Devieliui:19117.761248 -Std. Deviation $19,1 17.76 59754 85755 112356 ifei 1996-2003 Pct. Change Breakdown Froltl `� (� �( I Ida gem. Parcels P ICt.9603 -d —Minimum Value 48% Ft°doony DIM II.dlo. SI11 Count 6 2 -Maximum Value 381% Minm 3.810000 II Maximum: 10.978000 0 57500 1 Sum: 1.829667 • r r �i —Mean 18 3% Mean: Deviation. 7.6299008 1 III II li 11 MI 0.5 1.9 3.4 Del -Ida historic District Statistics of Del_Idu_Sample_Pan els_Dll_II1A_Del_Ida talcs °_ 17 2002 Property Tax Breakdown _ Field D el-l da_Calcs.2002_TAX6 S -Minimum Value $1,214.28 Stelietia Fl(moot cv DlsnlD,diol' Count 6 3 i1.11.1.111111111111 -Maximum Value $4,642.07 Mumm .4642070000 3 Maximus: 4642.070000 I� Mean: 1395.49660670 2 -Mean $2,3 2 5.5 0 D oodard Deviation 1177.963390 1 11 r 111.1111 Mr �I -Std. Deviation $1,177.96 D I' ,■ 1214.3 2693.4 4172.6 Statistics of Del Ida Sample,Parcels DII,IDA_Del.,Ida_Calrs mg iti 1998 Property Tax Breakdown Fed -Minimum Value $953.54 IDdld°D '999_TAES FreynencyDiaullndloll Statistics: -Maximum Value $3 516.56 Mum 9535,0000 3�� / Maximum: 3516.560000 �� -Mean $1737.75 Sea: '°`�"�° Mean 1737.74500D 2 II 11.111.111111111111.1.millillillimilimilliiili / Slandad Deviation: 692.942159 ; ii r —I -Std. Deviation $892.84 D u 953.5 2059.5 3165.5 Slat is les of Del_Ida Sarni,le Parcels DI I_IDA Del Ida I air I•'ll^I 1998-2002 Pct. Change Breakdown ;U�Ida_Cder.TAX_PCTCM J Relnleucy galrll)(alou —Minimum Value 8% Statistic Count, ounh. 6 5 Minimum: 0.080000 4 -Maximum Value 191% Maximum: 0000 26 . Sun: 262W00 3 Mean: 0.436667 2 -Mean 44% Standard Deviation: 6663944 , • 0.1 09 1.7 Marina Historic District ■ 2000 Demographic Breakdown -Total 266 (100%) -White 242 (91%) -Black 4 (2%) -Other 9 (3%) -Hispanic 11 (4%) Marina Historic District ;,. 2003 Property Value Breakdown 51alisl ics of Marina Samplo.Parcels Marina Calcs ID 11 - Field -Minimum Value $258,611 Ilrtnnenay(Hsu nnalom Statistic. -_-_ - I -Mean 803 399.67 Sam 4820398000000 II $ Mean. 803399.666667 2 / Standard Deviation 537793.330761 1 11 /Illir -Std. Deviation $537,793.33 258611 697063 1535555 ■ 1996 Property Value Breakdown FcN -Minimum Value $77,131 Smmemmusseerummud leiMic. Ft etnrency Dlar BMalon -Maximum Value $780,322 3 Count: 6 Minimum: 77131.000000 3 II 11111111111111111.1 Sum: . 17701B1�00N 211 r -1 Mean. 24�1178596524 2 11 NI -1 -Mean $295,030.67 . MEI -Std. Deviation $2 11,170.60 77131 380589 684007 Slat Is tics of Marina Sanlple_Purccls Marina_Calcs IT 1 1996-2003 Pct. Change Breakdown ,mod ] - - ilegtrency Dial!Melon ' Statistics: -Minimum Value 123% --6 --- 2II I Minimum 1.228000 -Maximum Value 276% Sum:mam 200 33D I�� I -Mean 200% Standard Deviation 0522813 0 l = =J 1.2 1.9 2.5 Marina Historic District Slat islics of Marina_Samplc Parcels MARINA Marina Calcs u, • 2002 Property Tax Breakdown Field IMaiina Calcs.2002 TAXES J Ft equeacy Dish Wien -Minimum Value $3,934.83 Statistics: / Count: 6 4 -Maximum Value 39/704.95 Moo4nor 3934930000 $ Mmrimum: 39704.950000 3 Sum: 88944.760000 -Mean $14,8 24.13 Mann 1247.62347 2 Slnndad Deviation: 12947.562347 to �� L/ 1 -Std. Deviation $12,947.56 0 3934.8 19370.2 34805.6 Statistics of Marina.Sample_Parcels MARINA Marina Calcs Mg 1998 Property Tax Breakdown Field (Marine Calcs.1998_TAXES J Frequency DIs110NAlolt -Minimum Value $1,814.77 Statistics Count: 6 3I( .1.111 -Maximum Value $21,916.35 Minimum: 11314.770 21916.35000 Maximum 21916.350000 II Sum: 45444.030000 Mean 7574.005000 2' -Mean $7,5 74.01 1 Standard Deviation:6WD902170 �� —I -Std. Deviation $6,870.90 o Ii . . , 1814.8 10488.9 19163.1 Statistics of Marina Sample portals,MARINA,Marina_Cates Qg. r'�, 1998-2002 Pct. Change Breakdown Field -I IMarine_Cak:.TAXPCT -1 CH Frequency DlsOlAlnleu -Minimum Value 8% SUM 6 2 Maximm 0.080000 Ir -Maximum Value 276% Mevimom 2.70000 21sa ; • ' -Mean 123% n: 22 Deviation: l < < =II ' III, ,■I, ,! M rt, 2.4 Nassau Historic District ■ 2000 Demographic Breakdown -Total 55 (100%) -White 51 (93%) -Black 0 (0%) -Other 0 (0%) -Hispanic 4 (7%) Nassau Historic District [7 2003 Property Value Breakdown sii,,,,,,,s of Nass.su.Sample Pm cels Mdssdo 1il Field "-M i n i m u m Value $400,523 Mourracinuamm-1 Ft eationcy Dion amnion Stetis4cs: -Maximum Value $613,489 Count: Minimum: 6 400523.000000 3 0' IMME1111111MOOMMI 3 0 Masinum 613483.000000 2 II MM1111.111111111 -Mean $480,355.50 Sum: Mean: 2882133.000000 480355.500000 Standald Deviation.83546.956431 2 0 Non 1 0 IIIIIIIM -Std. Deviation $83,546.96 toil_Amim, . 400523 492422 584321 V'. 1996 Property Value Breakdown Statistics of Nassau_Sample_Parcels_NassauCalcs rTI held -Minimum Value $125,822 otemerrawraminm...] Fi equality DIP.bolo° Stetalcr -Maximum Value $178,369 Count. Minimum: Maimurn 6 125922.000000 178369.000000 2 If IMIMr = Sum 876506.000000 I= -Mean $145,917.67 Mean: 145917.666667 Statmiald Deviatkas 21452.6541T7 21 II 1 il M -Std. Deviation $21,453.65 0 II , . , Am. 125822 148496 171170 Statistics of Nassau_Sample_Parcols_Nassau_Calcs n,g) L 1996-2003 Pct. Change Breakdown Field kassau Sample Pattels PctCh.9603 lid -Minimum Value 211% st,„,.. riequencyDistilbotloit 2 '''' Count 6 11 I -Maximum Value 255% Minimum Maximum 2.107000 2548000 2 Sum 13.692000 111 . I -Mean 228% Mean, 2282000 Standard Deviation:0.148899 I IF If Mill 21 1.3 2.5 Nassau Historic District Statistics of Nassau Sample_Marcols NASSAll Nassaq Cnlcs ffirkl IN 2002 Property Tax Breakdown IN Field Ceks.2002 TPXES J Ft°gooney Dlsti Minion -Minimum Value $3,243.81 Statistics: t tiics 6 3 i i -Maximum Value $7 597.94 Minimum: 3243.94 75970000 3 Maxmum: 10000 I/- _III / Sum: 36073.690000 2 I/- -Mean $6,012.28 Mean 6012.281667 III• �i Standard DeviMion: 1676.706842 1 -Std. Deviation $1,676.71 9 II 3243.8 5122.7 7001.6 Statistics of Nassau Same to Par-eels NASSAII Nassau Colo: 1?1IX Elq 1998 Property Tax Breakdown Field -Minimum Value $2 702.78 INesseu_alcs.19901A%ES J Ft equency Dlstrllrinion Statistics. -Maximum Value $5,513.13 M, n„ z702.7eDDD9 33 ii` 1111111111 $ Mewman. 5513.130000 2 1�11 1 -Mean 3,813.69 Sun Mean 38326956600 2 Standard Deviation 1112.053616 1 Illlllllllllllr IIIIIII' _B II EME=1 -Std. Deviation $1,112.05 o II - • 1 2702.8 3915.5 5128.2 Statislics of Nassau Sample Parcels NASSAl1 Nassau_Culcs I?1 X 1998-2002 Pct. Change Breakdown Fie ° INessau_Caks.TPJLPCT -II CHFedueucy DistlOnnion -Minimum Value 8 /o Statute -Maximum Value 173% Minimum: 0ae 30000 3( 1.111111111111111111111.1111111.1111111.1.0111.111111.11 Mean: 1.250000 2 I IMINIMMW IMMM =� -Mean 71% Sum: 4.250000 2I Mean: 0.708333 Standard Deviation: 0.734607 1 I 1111111111111111 NMI 0 I__.• ..- Almsi 0.1 0.8 1.5 West Settler's Historic District 2000 Demographic Breakdown -Total 145 (100%) -White 2 (1%) -Black 137 (95%) -Other 1 (.5%) -Hispanic 5 (3.5%) West Settler's Historic District R1. 2003 Property Value Breakdown \leliencxu1 We.ISel 5IeIIIIIV i•a11.e1.Wirsl\cl 1 ,?irXi -Minimum Value $34,400 Field lit=i3=122:=Eagli R ennuncv OW Ilea Ion -Maximum Value $232,698 Count r I M n 6 31400.000800 -Mean $96,219.67 Me. 577310000000 2 Mez 2326 8.060000 Mearc 96219.666667 1 II II • _I Slendeld Deviation 64661226916 -Std. Deviation $64,682.23 oil . MI 34400 118989 205638 E 1996 Property Value Breakdown Feld -Minimum Value $8,000 - FtemtetKymaluomlon 5Winne: -Maximum Value $149,749 Count 6 3 Minimum. 0000 000000 3 149749.000000 -Mean $46,846.33 5 mum 46046.333330 2 II IIIIIMMI1111111116 Ir — Mean: 47903.443/13 1 Slandeid DaviaOon'47903.443713 iall_ -Std. Deviation $47,903.44 90D0 / 69167 130334 Statistics of WostSel Snmplo_Parcels_WestSef_Calcs I7 Ir) :i 1996-2003 Pct. Change Breakdown Field IMNIEEMZERWEitIl-Minimum Value 7% Flagner¢y DIslt Benton Statistics:1 c¢ Count - . 6 ._. 5 Minimum 0.065000 4 -Maximum Value 860% Minimum 0060000 Sum 11.25800D 3 (��( ' Mem: 1.876333 - -Mean 1 8 8% Standard Deviation:3.019316 2 0.1 3.7 7.4 West Settler's Historic District 2002 Property Tax Breakdown ZEIld - H equeucy Dist'Ibtdlon -Minimum Value $958.71 $1atis6c4 Count: 6 4 -Maximum Value $6,271.72 Minimum: 6271.2000 1II Maximum! 6271.720000 2 -Mean $2,2 28.42 Sum: 2228.4200000 II Mean. 1824.581979 Standen'Deviation: 1824,581979 -Std. Deviation $1,824.58 :II -� —� 958.7 3251.4 5544.0 1998 Property Tax Breakdown S1alisl ice of WesfSet_Sample_Parcols_WI ST_SFT_WesISol_Calcs ,7;X, -Minimum Value $659.71 Field FlegaellcY DWI Onlllal, -Maximum Value $4,539.08 5 tic" 6 3 I Minimum 659.710000 3 -Mean $1,622.70 5ummnm 9 2 Slendaid Devialon: 1328.000271 1 an 1622.701867 2 i -Std. Deviation $1,328.00 Me � D1 .. 659.7 2333.7 4007.7 10•1 1998-2002 Pct. Change Breakdown SIallslics of WoslSot_Sample_Parce is WISI SII WesISel Calcs All. -Minimum Value -14% Fiold Fl emency DlstliDn0ou _ -Maximum Value 169% Statistics: 6 ?OW -i ° Minimum: .0.140000 3 I I. -Mean 49 /o s °m'um 29 og� 2 il� I Mean: 0.490000 2 Standard D eviMiorr. 0.600500 I 11 DII / -0.1 0.6 1.4 Conclusions ■ Enhancement of Property Values -Old School Square 132% -Del-Ida 183% -Marina 200% -Nassau 228% -West Settler's 188% -Avg. Percentage Change 1996-2003 186.2% -Median Value Pct. Change 1990-2000 37.46% (Delray Beach) Conclusions ■ Increase of Property Taxes -Old School Square 163% -Del-Ida 44% -Marina 123% -Nassau 71% -West Settler's 49% -Avg. Percentage Change 1997-2002 90%