Cities across the country are undergoing a quiet revolution, one where history meets progress. Thanks to historic tax credits (HTCs), neglected old buildings are being transformed into thriving hubs of activity, blending architectural charm with modern functionality. These credits aren’t just a financial incentive—they’re the key to turning decay into opportunity, fostering economic growth, and preserving our cultural heritage.
The idea isn’t new. The federal Historic Tax Credit program, established in 1976, has been the driving force behind this movement. Administered by the National Park Service, the program provides a 20% tax credit on qualified rehabilitation expenditures for certified historic structures. It’s a lifeline for developers eager to preserve the past while building for the future.
Preservation Meets Progress
HTCs do more than save old buildings—they transform them. Imagine a century-old textile mill becoming loft apartments or a Victorian brownstone reimagined as a boutique hotel. These projects strike a delicate balance between respecting architectural heritage and meeting modern needs. By retaining historical features and updating the interiors, developers preserve a building’s soul while making it functional for today’s world.
Also consider that revitalized buildings do more than house new businesses or residents—they preserve community stories. Each structure carries the narrative of its time, from the industrious spirit of that textile mill to the grandeur of that Victorian home. Turning these spaces into modern-day offices, apartments, or cultural hubs keeps those stories alive for future generations.
Qualifying for Credits
Earning these credits is no small feat. Properties must meet strict criteria, such as being listed on the National Register of Historic Places or situated within a certified historic district. Developers also face a rigorous three-part certification process:
- Prove the historical significance of the property.
- Submit detailed rehabilitation plans for approval by the National Park Service.
- Obtain final certification once the work is complete.
Though complex, the rewards are worth it. Beyond the federal program, many states offer their own HTCs, often complementing the federal incentive. In New England, for example, state programs can add an extra 20-25% in credits. Some states sweeten the deal further for projects in opportunity zones or those that include affordable housing.
Turning Financial Barriers into Opportunities
What makes HTCs so powerful is their ability to make seemingly impossible projects viable. Developers can secure financing by leveraging these credits, effectively turning rehabilitation expenses into strategic advantages.
Here’s how it works:
- A developer purchases an eligible building and embarks on a qualified rehabilitation.
- For every dollar spent on qualified rehabilitation expenditures, the federal credit provides 20 cents back.
- State programs, like Maine’s 25% credit or Rhode Island’s up to 25% credit for commercial projects, often stack on top.
Consider a Maine project where rehabilitation costs reach $5 million. The combined federal and state credits could generate project investment of around $1.8 million—funding that might otherwise have been out of reach.
State-Specific Opportunities
HTC programs vary by state, offering unique opportunities for developers:
- Maine – Up to 25% of qualified rehabilitation costs, with a $5 million cap.
- Massachusetts – 20% credits for income-producing properties.
- Connecticut – 25% credits, with 30% available for projects in opportunity zones or with affordable housing capped at $4.5 million per project.
- Rhode Island – 20% for residential units, 25% for commercial projects.
These incentives can be game changers, especially in states where aging infrastructure might otherwise be a liability.
Looking Ahead
HTCs are more than a financial tool—they’re a strategy for preserving heritage, fostering economic growth, and creating vibrant, sustainable communities. By making preservation financially attractive, these programs transform neglected relics of the past into modern cornerstones of the future. If you’re a developer considering an HTC project—or even if you’re skeptical about their value—now is the time to take a closer look. These credits can turn challenging projects into profitable ventures while preserving the unique stories of historic buildings. Don’t let the process or perceived complexity deter you. Contact a qualified tax advisor to explore how these incentives can work for your project and unlock their full potential.
Nate Marcet is a Senior Tax Manager with ARB whose specializes in professional services, real estate, real estate development. and construction. Nate helps clients in matters of multi-state income tax compliance, streamlining tax efficiency through entity structuring, maximizing tax benefits on business and real estate transactions, and harvesting and capitalizing on historic tax credits for real estate syndicates.
