The Tax Cuts and Jobs Act (the “Act”) fortunately preserved the Federal Rehabilitation Credit, also known in the industry as the Historic Tax Credit (HTC), but with some significant changes. A 20% income tax credit is available under Internal Revenue Code (IRC) Section 47 for the rehabilitation of certified historic structures. The Act updated Section 47 such that, instead of claiming the 20% HTC in the year a qualified property is placed in service, the credit must now be ratably taken over the investor’s five-year hold period at 20% per year. Developers that were planning to utilize the HTC must know that Section 13402 of the Act has amended over what period the HTC may be realized. Developers frequently utilized the benefit of the credit to help fund projects. This change in law will certainly impact the overall benefit. Developers with a 2018-2019 construction start date will need to consider and build this new benefit timing into their financial modeling. The Act also repeals the 10% federal credit for the rehabilitation of non-historic pre-1936 qualified buildings.
For projects currently in process, the Act provides specific transition rules. Be on the lookout for additional guidance to be issued by the Internal Revenue Service. With these changes to the federal HTC, developers and investors in historic structures may also anticipate changes in state HTC programs.
TECHNICAL INFORMATION CONTACT:
Michael Camden
Director
Ryan
512.476.0022
michael.camden@ryan.com