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August 7, 2020

Developers get a break on historic tax credit projects; Maine advocates push for relief

brick building with people entering Photo / Maureen Milliken Historic preservation advocates are pushing for enhancement of the federal Historic Preservation Tax Credit in the latest congressional COVID-19 relief bill. The tax credits, used widely across Maine, including in the renovation of a historic Hallowell building into the University of Maine at Augusta's first dorm, seen here, are an economic driver for the state.

Development projects using Historic Preservation Tax Credits got a break this week, when the IRS extended the deadline for projects that began after 2017 in light of delays related to the coronavirus pandemic.

Developers who want to take advantage of the credits — which have incentivized $550 million in Maine construction over the past 11 years — have to meet 24-month and 60-month benchmarks to qualify for the credits. The tax credit can be applied to 20% of the costs of the qualified portion of a project.

The IRS this week extended the deadline for those benchmarks to March 31, 2021, for projects that had original deadlines of between April 1 of this year and the new date.

The deadline extension also applies to the transition rule, which allows projects that began before the December 2017 tax law change to operate under the pre-change structure. Under the 2017 change, a developer must claim credits at 4% a year over five years rather than the 20% at once that was previously allowed.

Developers and advocates for the historic preservation tax program are also pushing the U.S. Senate to include enhanced tax credit provisions in the under-negotiation COVID-19 relief package. The U.S. House of Representatives $1.5 trillion Moving Forward Act includes several provisions, both permanent and temporary, that boost the credit's incentives, but the Senate and White House versions don't.

The House bill:

  • Temporarily increases the historic rehabilitation tax credit percentage from 20% to 30% for projects completed 2020-24. That phases down to 26% in 2025, 23% in 2026, and returns to 20% in 2027;
  • Permanently increases the percentage from 20% to 30% for projects up to $2.5 million;
  • Eliminates the depreciable basis adjustment, which goes from 100% to zero;
  • Reduces the substantial rehabilitation test from 100% to 50% of adjusted basis;
  • Makes the the tax credit substantially easier access for nonprofits to use;
  • Allows public school buildings to use the tax credit.

Maine Preservation, in a news release, said the permanent increase from 20% to 30% for projects up to $2.5 million would be a big boost for Maine's downtown projects, many of which are in that cost range.

The federal Historic Preservation Tax Incentive program, administered by the IRS and the National Park Service, is designed to spur private investment in redeveloping historic buildings, and since 1976 has leveraged nationally more than $84 billion in private investment nationally to preserve 42,293 historic properties.

Support from Collins, King

Last month, a group of developers and historic preservation advocates called Sen. Susan Collins, R-Maine, to advocate for inclusion of the Historic Preservation Tax Credit provisions in the Senate bill.

Collins, according to the news release, said she'd signed the letter to U.S. Treasury Secretary Steve Mnuchin requesting the IRS extention, and also told the group she has sponsored a bill in the past with provisions similar to those in the House Moving Forward Act.

Collins in 2017 pushed for the Historic Tax Credit Improvement Act, which increased the credit to 30% for projects up to $750,000 and also expanded the types of projects that could be eliglble. That act wasn't enacted, and the tax credit was weakened in the December 2017 federal tax adjustment.

Taking part in the call, which was initiated by Shaw Sprague, of the National Trust for Historic Preservation, were Maine developer Jim Brady, Anne Ball of Maine Downtown Center of Maine Development Foundation and Ali Barrionuevo and Greg Paxton, of Maine Preservation.

A spokesman for Sen. Angus King, I-Maine, said the issue is on King's radar and he, too, supports temporarily increasing the historic preservation tax credit.

Paxton said in this week's news release that the provisions "will greatly aid our communities’ recovery from the COVID-19 crisis, as the 2008 state credit did during and after the Great Recession."

Maine historic tax credit momentum

Paxton also said that a report on the economic impact of the tax credit in Maine, due out later this quarter, shows that the taxes raised directly as a result of historic preservation projects using the credit since 2008 "far exceeds" the total cost of state credits issued "and will continue to return a profit to Maine taxpayers in the years to come."

The pandemic hit just as greater historic preservation incentives were picking up traction in Maine.

In January, the Maine Legislature agreed to extend the state version, the Maine State Rehabilitation Tax Credit, from a completion date sunset of 2023 to 2030. The move was supported by Maine Preservation, the Maine Real Estate and Development Assn., Coastal Enterprises Inc., GrowSmart Maine and Greater Portland Landmarks, among others.

The Maine tax credit is 25% for any historic rehabilitation that also qualifies for the 20% federal credit and the project must meet all of the requirements of the federal tax program. There is also a credit for small projects that don't meet the federal cost threshold. Maine projects of between $50,000 and $250,000 can also credit 25% of costs that qualify. The Maine credit includes an additional 5% if the project includes affordable housing.

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