Recently Released Regulations for California’s State Historic Rehabilitation Tax Credit Available for Public Comment

Published by Michael Kressig on Wednesday, December 21, 2022 - 12:00am

The California Tax Credit Allocation Committee (CTCAC) released Dec. 7 the updated regulations for California’s state historic rehabilitation tax credit (HTC). The tax credit, which was enacted in 2019, is allowed for taxable years from Jan 1, 2021, to Dec. 31, 2025, but requires annual budget authorization by the Legislature. The regulations are available for public comment, and CTCAC expects the regulations to be adopted at the Jan. 18, 2023, meeting. A public hearing took place Dec. 19 with a goal of explaining the regulations, answering questions and taking comments. While comments are accepted on an ongoing basis, CTCAC asks that comments be submitted no later than Dec. 29.

CTCAC will jointly administer the state HTC, together with the Office of Housing Preservation (OHP). CTCAC also oversees the administration of the federal and state low-income housing tax credit incentives and seeks to assist developers, owners and those seeking housing.

The new regulations state that to qualify for the state HTC, a building must be a certified historic structure as defined in the Revenue and Taxation Code (RTC) and the rehabilitation must satisfy criteria defined by the Secretary of the Interior, namely that it is consistent with the historic character of the building and, where applicable, with the district in which it is located.

The updated regulations include information on the application process. The State Historic Rehabilitation Application includes two parts: a certification application to the OHP and the state HTC application through CTCAC. Applicants can apply at any time, as the application does not have rounds or deadlines.

The regulations state that projects can be awarded between $5,000 and $25,000, and that the credit can only be used once every 10 taxable years by a single taxpayer. Limiting the credit amount to $25,000 is a surprising provision and may be a drafting error, given the statutes only provide this limitation with respect to qualified residences whereas the proposed regulations appear to apply this limitation to all projects. 

The allocated credit is equal to 20% of qualified rehabilitation expenditures, with an additional 5% for projects that meet certain standards, such as low-income housing developments. CTCAC can choose to allocate some or all the available credit to projects. However, the total amount of credit certificates issued for the year cannot exceed the total amount of credits available to be allocated that year per the RTC.

The regulations fund the state HTC for fiscal year (FY) 2022. It is expected that late regulations will address funding for FY 2023. To better understand the HTC, Novogradac’s Historic Rehabilitation Handbook provides an overview and specifics of the tax credit. You can also reach out to a Novogradac HTC professional.