Detroit Housing Commission

Replacement Housing Factor Program

Federal Historic Tax Credit Program

The National Park Service says that "Preservation Tax Incentives Historic buildings are tangible links with the past. They help give a community a sense of identity, stability and orientation. The Federal government encourages the preservation of historic buildings through various means. One of these is the program of Federal tax incentives to support the rehabilitation of historic and older buildings. The Federal Historic Preservation Tax Incentives program is one of the Federal government’s most successful and cost-effective community revitalization programs. The Preservation Tax Incentives reward private investment in rehabilitating historic properties such as offices, rental housing, and retail stores.

Since 1976, the National Park Service has administered the program in partnership with the Internal Revenue Service and with State Historic Preservation Officers. The tax incentives have spurred the rehabilitation of historic structures of every period, size, style and type. They have been instrumental in preserving the historic places that give cities, towns and rural areas their special character. The tax incentives for preservation attract new private investment to the historic cores of cities and towns. They also generate jobs, enhance property values, and augment revenues for State and local governments through increased property, business and income taxes.

The Preservation Tax Incentives also help create moderate and low-income housing in historic buildings. Through this program, abandoned or under used schools, warehouses, factories, churches, retail stores, apartments, hotels, houses, and offices throughout the country have been restored to life in a manner that maintains their historic character. Current tax incentives for preservation, established by the Tax Reform Act of 1986 (PL 99-514; Internal Revenue Code Section 47 [formerly Section 48(g)]) include:

- 20% tax credit for the certified rehabilitation of certified historic structures.

- a 10% tax credit for the rehabilitation of non-historic, non-residential buildings built before 1936.

For both credits, the rehabilitation must be a substantial one and must involve a depreciable building."

"Historic Preservation Certification Application Introduction Federal historic preservation tax incentives are available for any qualified project that the Secretary of the Interior designates as a certified rehabilitation of a certified historic structure. Federal income and estate tax deductions for charitable contributions of partial interests in a historic property designated a certified historic property are also available.

To qualify for the tax incentives, property owners must complete the appropriate part or parts of the Historic Preservation Certification Application. Detailed instructions are provided. National Park Service (NPS) approval of applications and amendments to applications is conveyed only in writing by duly authorized officials of the Federal Government. The NPS certification decision is made on the basis of the descriptions in the application form. In the event of any discrepancy between the application form and other, supplementary material submitted with it (such as architectural plans, drawings, and specifications), the application form shall take precedence. Photographs, architectural plans, drawings, and other materials submitted with the application become the property of the NPS and may be reproduced by it without permission.

Financial Structure
The diagram below indicates the typical stucture for setting up a historic tax credit financing. The structure permits the Owner to continue to get the depreciation on the building while at the same time "selling" the tax credit to an investor interested in economic benefits of this tax credit. The investor obtains the tax credit in the year the building is put in service. This normally means when the Certificate of Occupancy is issued. The historic tax credit has to a large extent become a commodity. It si available from a broad set of investors. It has a competitive market of about 90 to 95 cents on the dollar of historic tax credits. So a $1 million project could be allocated at a 20% tax credit - $200,000. The Developer can then sell the tax credits to an investor for approximately $180,000 to $190,000 in equity. At the end of the 5 year ownership period, the limited partners would "put" their interest in the venture to the genral partner for a modest amount of dollars. The Limited Partner investor's interest is only in the acquisition of tax credits. .

Submission of Applications
Completed applications are sent first to the State Historic Preservation Office (SHPO)" which in Michigan is Mr. Brian D. Conway, State Historic Preservation Officer, State Historic Preservation Office, MI Hist. Cntr., Dept. of History Arts & Libraries, 702 West Kalamazoo Street, P.O. Box 30740, Lansing, Michigan 48909-8240 (telephone 517-373-0511 e-mail address: conwaybd@michigan.gov). "Normally, two copies of the application are required, one to be retained by the SHPO and the other by the NPS. The SHPO will forward applications to the NPS, generally with a recommendation. State recommendations are generally followed, but by law all certification decisions are made by the NPS on behalf of the Secretary of the Interior. The NPS decision may differ from the recommendation of the SHPO.

Applications may be sent at any time during the year and may be sent separately or together. If the two parts are sent separately, Part 1 must precede Part 2. A Part 2 will not be processed until an adequately documented Part 1 is on file and acted upon, unless the property is already individually listed in the National Register of Historic Places. Applicants are strongly encouraged to submit applications describing proposed work and to receive approval from the NPS prior to the start of constructions. Owners who undertake rehabilitation projects without prior NPS approval do so at their own risk.

Parts 1 and 2 of the application will each generally be reviewed within 60 days of receipt of a completed, adequately documented application (30 days at the State level, and 30 days at the Federal level). Notification of certification decisions is made in writing by the NPS. A copy of each notification is provided to the Internal Revenue Service and to the SHPO."

information provided by the National Park Services