National Park Service Annual Report Finds Fiscal Year 2021 to be a Historic Year for the Federal HTC
The federal historic tax credit (HTC) program had a momentous year in 2021.
The National Park Service (NPS) released, “Federal Tax Incentives for Rehabilitating Historic Buildings, Annual Report for Fiscal Year (FY) 2021” this month and found that properties generating federal HTCs that received certifications of completed work from the NPS accounted for an estimated $7.16 billion in rehabilitation expenditures in FY 2021. That is the most recorded in a single year in the history of the incentive. While these numbers are significant, it’s important to note that they may be inflated as the completion of many projects were most likely delayed from 2020 as a result of the COVID-19 pandemic.
The NPS reported 1,063 Part 3 certifications of completed work were approved in FY 2021. The report also found that 1,098 properties received Part 2 certifications, which is a preliminary certification of rehabilitation. Completed HTC developments were responsible for rehabilitating 4,948 housing units and creating 11,297 new housing units. Of the total 16,245 units created and preserved in FY 2021, 7,220 are low- and moderate-income units, many of which are also financed by low-income housing tax credits.
In FY 2021, 47% of completed projected had under $1 million in qualified rehabilitation expenditures (QREs) and 18% were under $250,000 in QREs. What’s more, about 15% of projects involved properties that were not yet listed on the National Register of Historic Places, according to the report.
Federal HTC Impacts by State in FY 2021
The impacts of the HTC in FY 2021 varied by state. Some states, like Texas and Ohio, saw high levels of HTC-assisted investment while others, like Alaska and Nevada, did not see any. The report provided HTC investment data for the 50 states, Washington, D.C., the U.S. Virgin Islands and Puerto Rico.
In addition to the federal HTC program, 39 states have state HTC programs that can be used in tandem with the federal credits. These state HTC programs are tracked by Novogradac.
History of the HTC
Enacted in 1976, the HTC has financed the preservation and rehabilitation of 47,435 projects, including the rehabilitation of 302,506 housing units and the construction of 334,367 new housing units. Of those housing units, 185,525 are low- and moderate-income housing units. The HTC has leveraged more than $116.34 billion in private investment in the rehabilitation of historic properties—spurring the reuse of historic structures of every period, size, style and type in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, according to the report.
The HTC program provides a 20% federal tax credit to property owners who undertake a substantial rehabilitation of a historic building for a business or income producing use, while maintaining its historic character. The tax credit can be claimed ratably over five years. Administered by the NPS with the help of the State Historic Preservation Offices, the HTC generates much needed jobs, provides a catalyst for redevelopment of distressed neighborhoods and communities, creates affordable housing and provides revenue for federal, state and local governments, leveraging many times its cost in private expenditures on historic preservation.
Next Steps for Legislation
While the NPS documents the achievements HTC financed in FY 2021 and since inception, the HTC could be even more impactful through legislation. In 2021, the House introduced the Historic Tax Credit Growth and Opportunity Act of 2021 (HTC-GO, H.R. 2294/S. 2266). The House version of the bill proposes temporarily increasing the HTC percentage to 30% for five years and phasing down for several years thereafter. Both House and Senate versions propose permanently increasing the HTC percentage to 30% for small projects, eliminating the HTC basis adjustment, lowering the substantial rehabilitation test to 50% instead of 100%, and amending the disqualified lease rules to make it easier for nonprofits to access the HTC. A permanent 30% HTC for small projects would be particularly beneficial to rural towns, since the fixed costs of HTC developments often make small projects financially infeasible with only a 20% HTC. While the NPS reported some small projects in FY 2021, many other smaller projects would have benefited from an increase to 30%. More details on this bill can be found in this previous Notes from Novogradac post.
Though the version of the Build Back Better Act (BBBA) approved by the House Ways and Means Committee in September 2021 included all of the HTC-GO proposals and included the Rehabilitation of Historic Schools Act (H.R. 4086), the version passed by the House (H.R. 5376) Nov. 19, 2021, did not include these provisions. More details about the provisions from the Ways and Means Committee-approved version of BBBA can be found in this Notes from Novogradac post.
While the BBBA is currently stalled in the Senate due to Sen. Joe Manchin, D-West Virginia, withholding support for the bill as it was drafted last year, it is still possible some HTC provisions may be added back to the BBBA, and a pared down version of BBBA could pass Congress in 2022. As Congress continues to negotiate on the BBBA and works to finalize FY 2022 spending after the current continuing resolution funding the federal government expires March 11, there are opportunities for HTC provisions to be passed, either as part of a revised BBBA or in other tax legislation that could advance HTC provisions.