Update on State Historic and Preservation Property Tax Credits
- Dec 21, 2022
Federal and certain state and local jurisdictions provide incentives for taxpayers to invest in rehabilitating historic property. There are often hurdles and red tape to navigate but doing so may make such projects worthwhile.
On November 10, 2022, the Kansas Department of Revenue issued notices on the Commercial Restoration and Preservation Credit (Notice 22-11) as well as the Historic Preservation Tax Credit (Notice 22-12). Program highlights are as follows:
Commercial and Preservation Credit
The Commercial and Preservation Credit is available for all taxable years starting after December 31, 2021 and will be applied against tax liabilities imposed upon a taxpayer by the Kansas income tax act, the financial institutions privilege tax, or the premium tax, in an amount equal to 10% of the costs and expenses incurred for the restoration and preservation of a commercial structure at least 50 years old that does not receive the historic preservation tax credit. An additional 10% tax credit is also available for the installation of fire suppression materials or equipment. To qualify for the credits, the associated costs and expenses with respect to each 10% credit must be equal to at least $25,000, but not to exceed $500,000.
The credits will pass through to partners of partnerships and shareholders of S corporations. In addition, assuming certain formalities are met, the credits are also eligible for sale, assignment, conveyance, or transfer. Unused credits may be carried forward for up to ten year (five years for transferees), with all credits being claimed within ten years following the tax year in which the costs and expenses were made.
Applications must be submitted from December 1 to December 31 of the year in which the costs and expenditures are made. Applications will be reviewed and processed in the order received until all applications have been processed or the $10 million cap has been reached, whichever comes first.
Historic Preservation Tax Credit
The Historic Preservation Tax Credit has been modified for all tax years beginning in 2022 and thereafter, increasing the credit from 25% (30% for nonprofit organizations) of costs to either 25%, 30%, or 40% of such expenditures, depending on the population of the city in which the qualified property resides (the lower the population, the higher the credit). A provision was also added to provide a tax break on the interest income earned by banking institutions on the loans to fund such programs.
The credit will pass through to partners of partnerships and shareholders of S corporations. In addition, assuming certain formalities are met, the credit is also eligible for sale, assignment, conveyance, or transfer. Unused credit amounts may be carried forward for up to ten year (five years for transferees), with all credit amounts being claimed within ten years following the tax year in which the qualified rehabilitation plan was first placed into service.
To qualify, taxpayers must apply (before any work begins) with the Kansas Historical Society (KHS). Instructions and details are posted to the KHS website.
In 2020, New Jersey signed into law the New Jersey Economic Recovery Act of 2020 which included a historic property reinvestment program. In late 2022, the New Jersey Economic Development Authority (NJEDA) adopted regulations for this $50 million competitive tax credit program, detailing amongst other things the eligibility requirements, application process, and associated fees.
Awards are calculated based on a percentage of eligible rehabilitation costs, with actual percentages dependent on the classification of the property. While most eligible projects can receive tax credits worth up to 40% of eligible costs up to a project cap of $4M, others meeting additional criteria may qualify for tax credits worth up to 45% of eligible costs up to a project cap of either $8M or $50M.
The next window for applications opens on February 1, 2023. An overview of this Historic Property Reinvestment Program along with other initiatives can be found at the bottom of the NJEDA’s Financing and Incentive Programs page.
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Evan Piccirillo is a Tax Manager in the firm's Real Estate group and has over 20 years of experience in the field of accounting.
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