Historic Tax Credits News Briefs – December 2019

Friday, December 6, 2019

California Gov. Gavin Newsom signed S.B. 451 into law Oct. 9 to create a state historic tax credit (HTC). The credit will be for 20 percent of qualified rehabilitation expenditures (QREs), with an increase to 25 percent of QREs that meet certain criteria, including affordable housing. The state credit will be in effect from 2021 through 2025, but will require the legislation to be approved on a yearly basis and will require an annual review of the effectiveness of the credit. The credit has a statewide cap of $50 million per calendar year, with a $2 million set-aside for residences and an $8 million set-aside for developments with QREs of $1 or less.

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The Historic Tax Credit Growth and Opportunity Act, or HTC-GO Act, was introduced in the Senate Oct. 17. The HTC-Go Act eliminates the HTC basis adjustment requirement, increases the HTC from 20 percent to 30 percent for properties with rehabilitation expenses of less than $3.75 million (capped at $750,000). The bill makes it easier to meet the substantial rehabilitation test and creates greater flexibility for nonprofits to partner with developers. The Senate bill is a companion bill to the House version that was introduced in May, except the Senate version does not allow the transfer of HTCs as a tax certificate in developments with QREs of less than $2.5 million.

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North Carolina Gov. Roy Cooper signed a bill Nov. 1 to extend the state’s HTC. H.B. 399 extends the state HTC’s sunset date from the beginning of 2020 to the beginning of 2024 and requires that properties be placed in service by Jan. 1, 2032. The bill also expands the mill rehabilitation tax credit by adding a credit for QREs of at least $10 million for rehabilitating an eligible railroad station that meets seven specifications, including being located in an opportunity zone. That credit must be taken in equal installments in 2021 and 2022.

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A U.S. District Court ruled Nov. 4 that a company’s previous HTC investments and dealings with the Internal Revenue Service (IRS) concerning those investments are not relevant to a current breach-of-contract lawsuit. The U.S. District Court for the Middle District of Louisiana concluded in Chevron TCI Inc. v. Capitol House Hotel Manager LLC et al, that IRS audits of Capitol House in unrelated HTC developments were not relevant in the case.

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The Illinois allocated the first round of state HTCs in early October. A total of 24 developments applied for the credits, and four were selected for allocation. The program has a state cap of $15 million in state tax credits every year and a total of $75 million over the five-year period of the program.

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The Oklahoma Tax Commission issued a letter ruling allowing the allocation of state HTCs to one member of a partnership and that partner’s ability to transfer the credits to a third party within five years of the property qualifying for the credits. The ruling also allowed the taxpayer to claim all 20 percent of the state HTCs for the year the qualified rehabilitation expenditures were placed in service and allowed the transfer of state HTCs to one or more third parties in any denomination. The letter ruling applies to the circumstances of the specific taxpayer.

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The Missouri Department of Economic Development in October terminated emergency amendments for terms used in the program overview and application for the state HTC program and provided updated definitions. The update covers QREs, a preliminary application and scoring, and when the applicant’s hard costs and soft costs are eligible for tax credits. The updated information was expected to take effect Nov. 29.

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The Texas Historical Commission adopted new regulations that went into effect Oct. 31 concerning how applicants may appeal a denial of state HTCs. The new regulations describe how applicants may appeal a denial of credits based on a finding that their proposed or completed work doesn’t meet the Secretary of the interior’s Standards for Rehabilitation. The appeals will now be heard and decided by the executive director of the Texas Historic Commission, with a 30-day limit for filing an appeal.

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The Texas Historical Commission adopted amended regulations that went into effect Nov. 4 for the state HTC program. The amended regulations concern how the commission staff accepts and reviews state HTC applications and allow the staff to close inactive applications. Closure of an inactive application does not disqualify the applicant from receiving tax credits. 

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