Unlocking the Potential of Historic Properties: How Rehabilitation Tax Credits And Grants Can Help
As Understood by an Ypsilanti Realtor Specializing in Historic Properties
Historic properties can be a rewarding investment, but they also come with their own set of challenges. Rehabilitating a historic building can be expensive, time-consuming, and requires a significant amount of planning and expertise. Did you know that special tax credits and grants exist specifically for historic properties? There are a number of incentives available to help offset the costs and make the process more manageable. In this article, we will explore the benefits of historic rehabilitation tax credits and how they can help unlock the potential of these unique properties.
The Cost Problem
One of the biggest challenges of rehabilitating historic properties is the cost. These buildings often require extensive repairs and upgrades to bring them up to modern standards, and the materials and skilled labor required for these projects can be expensive, particularly when it comes to meeting code requirements for things like accessibility and fire safety. And even with funds in hand, certain trades and contractors are often in short supply and have to schedule new work months or years in advance.
In addition to the cost of the actual renovation, there are also a number of soft costs that can add up, including architectural and engineering fees, permit and planning fees, and compliance with historic preservation requirements such as committee hearings. Many of these projects can be called a “Money Pit” (and if you’re thinking of rehabilitating a historic property, be sure to watch Tom Hanks’ 1986 film by the same name) or a “time sink”.
Another major challenge of rehabilitating historic properties is the time and effort required for the planning and contracting process. Historic rehabilitations are often prone to delay or other construction issues, it can be particularly frustrating when contractor issues require work to be done over a second time if the first attempt did not go as planned. Or in other instances, building department officials may refuse to issue permits or require plan revisions. We’ve seen half-completed projects where frustrated owners simply walked away and offered assets up for sale to a new end user. In order to ensure that the building’s historic character is preserved, special care must be taken in the planning and execution of the project. This often requires working closely with architects, engineers, preservation experts, and tax accountants to ensure that the work is done correctly and in compliance with the standards set forth by the National Park Service and other regulatory agencies. Tax accountants can help property owners understand the tax bases for the historic tax credit’s subject property, and how to take full advantage of these incentives.
Historic Rehabilitation Tax Credits: Rewards for Preservation
Despite these challenges, many property owners find that the rewards of rehabilitating a historic property are well worth the effort. A good way to offset the costs of these projects is through the use of historic rehabilitation tax credits. These credits provide a financial incentive for property owners to invest in the renovation and restoration of historic structures.
Federal Historic Tax Credit Program
At the federal level, the Historic Rehabilitation Tax Credit program was established in 1976 as part of the Tax Reform Act. Under this program, property owners can claim a credit of 20% of the cost of rehabilitating a historic building, provided that the building is placed in service as a commercial or income-producing property. To qualify for the credit, a building must be listed on the National Register of Historic Places or be located in a registered historic district, and the rehabilitation must be certified by the National Park Service as meeting certain standards for the preservation of historic character. You can find more information about the federal program on the IRS website.
State Historic Tax Credit Program
In the state of Michigan, historic preservation tax credits are also available to property owners. The Michigan State Historic Preservation Tax Credit program provides a credit of 20% of the cost of rehabilitating a historic building, with a maximum credit of $5 million per project. To qualify, a building must be listed on the National Register of Historic Places or be located in a registered historic district, and the rehabilitation must be certified by the Michigan State Historic Preservation Office as meeting certain standards for the preservation of historic character. You can find more information about the Michigan program on the Michigan State Historic Preservation Office website. We also found a resource from the Michigan Historic Preservation Network via YouTube which we found helpful to understand this program:
Municipal / City Grant Programs Also Available
In addition to the state and federal credit, Michigan also has a Local Historic Districts Act and a Local Historic Districts Tax Act. These allow municipalities to create local historic districts, and then provide property tax abatements and exemptions to property owners who rehabilitate their properties in accordance with the Secretary of the Interior’s Standards for Rehabilitation.
The City of Ypsilanti’s Downtown Development Authority (DDA) covers Depot Town as well as our historic downtown in providing grants and other opportunities. The most popular grant provided by Ypsi’s DDA would be their ‘Facade and Rehab’ grants which provide a cost matching for eligible property owners or their tenants, this particular program has been utilized by many of the most popular landmark businesses in downtown and Depot Town; more info about City of Ypsilanti’s facade grants can be found here: https://ypsilantidda.org/grants
Another program administered by Ypsi’s DDA (provided by the Michigan Economic Development Corporation) is the Match on Main program, which as of the time of writing this offers a funding reimbursement up to $25,000 towards place-based businesses relocating or expanding here, making for a nice incentive for business owners looking to relocate or for tenants to use while relocating/expanding inside the DDA. For more info on the Match on Main program, visit: https://www.miplace.org/small-business/match-on-main/
Rehabilitating a historic property can be a challenging and costly endeavor, but the rewards of preserving these unique and important structures help make it worth it. These programs can turn eye-sores into landmarks, and often mean the difference between a stalled project and a completed one. Historic rehabilitation tax credits are a valuable tool that can help property owners offset the costs of preservation and make these projects more financially viable. We’re a fan of these programs as tools for preserving a wide range of properties and helping revive and bring our local historic resources back to life.
Let’s Discuss Over Coffee!
If you’re thinking of buying or selling historic properties, or just want to discuss historic tax credits and/or grant programs with a local Ypsilanti Realtor who has personally navigated some of these programs, feel free to reach out !