What are Historic Tax Credits?

This post intends to provide a basic introduction to both federal and state historic tax credits. Because Ogee is based in Austin, this post will emphasize Texas historic tax credits. Many states have historic tax credit programs, but each one is unique.

What is the purpose of historic tax credits?

Historic tax credits, state and federal, are intended to make old buildings economically viable. Historic tax credits are not about restoring historic buildings to their original use and appearance, though certain guidelines must be followed. Instead, tax credits encourage the preservation of original building materials, configurations, and appearance where possible while adapting the building for continued use in the modern world. The credits help offset the additional costs associated with the rehabilitation of historic buildings.

Historic tax credit projects create jobs and stimulate the economy. Because historic projects are more labor-intensive, they provide more jobs than comparable new construction projects. Rehabilitation preserves not only historic buildings, but also precious natural resources. By rehabilitating a building rather than demolishing and building new, historic projects preserve the embodied energy in the building and avoid sending waste to the landfill. Preservationists everywhere know that the greenest building is the one already built.

What guidelines govern historic tax credits?

Both state and federal historic tax credits rely on the Secretary of the Interior’s Standards for Rehabilitation. These guidelines are used by reviewers to determine whether proposed work is appropriate for a historically significant building. The standards are purposely open ended, such that reviewers can consider each project’s merits individually.

Projects are reviewed according the the Standards and proposed work is considered for its cumulative effect on historic resources. Though the Standards seem open-ended, fortunately, the National Park Service (NPS) provides technical briefs for guidance on a wide range of work including masonry restoration, making historic buildings ADA compliant, energy efficiency in old buildings, new construction, and much more.

What are Federal Historic Preservation Tax Incentives?

The federal historic preservation tax incentive program is often called “Rehabilitation Tax Credits” or “Historic Tax Credits”. Since its inception in 1976, the federal historic tax credit program has leveraged over $73 billion in private investment and preserved over 40,000 buildings. In fy2014 alone, the Federal historic tax credit program created:

  • 762 completed projects and $4.32 billion in rehabilitation work certified

  • 77,762 jobs

  • 6540 new low and moderate income housing units

  • 19,786 new or renovated housing units

Federal tax incentives provide an excellent return on investment, create jobs, and revitalize communities.

The National Park Service (NPS) within the Department of the Interior (DOI) oversee the Federal historic tax credit program. The federal tax credit is applied to your federal income tax for the year in which the project is completed. If needed, the federal credit can be sold to a tax credit investor.

Who is eligible for Federal historic tax credits?

In order to qualify for the federal credit, the rehabilitation project must meet the investment threshold, which is quite high. In order to qualify, the project must be “substantial” meaning that the Qualified Rehabilitation Expenditures (QREs) for the project must equal 100% of the adjusted basis of the property.

purchase price

- cost of land at purchase

- depreciation taken for an income-producing property

+ cost of capital improvements since purchase

= adjusted basis

For example, if the value of a parcel is $1 million and the value of the building is $500,000, the project would need to require at least $500,000 of work to qualify for the federal tax credit. Only buildings are eligible to receive historic tax credits. Landscapes, bridges, and other structures are not eligible. Projects must be income-producing. Private residences and non-profits are not eligible for the federal credit.

This credit can offset 20% of Qualified Rehabilitation Expenses. To qualify for federal historic tax credits, the building must be historically significant, meaning that the building(s) must be listed individually in the National Register of Historic Places or a contributing resource to a National Register of Historic Places Historic District. If a building is not presently listed on the National Register, a nomination may be submitted simultaneously with the tax credit applications. Check on the National Register website, the website of the local State Historic Preservation Office, and/or with the city to determine if a property is already listed on the National Register.

Projects must be income-producing, such as retail, offices, or rental housing. Private residences and non-profits are not eligible for the Federal credit.


The Federal credit has a 3-part application process (1,2,3):

  1. Certification that the building is historic. If a building is already individually listed on the National Register, this step is unnecessary. If a building is a contributing resource to a National Register historic district or certified historic district, the Part 1 provides physical description and a short historical narrative to confirm its contributing status. If the building is not yet listed on the National Register, the application can serve as a Determination of Eligibility. A draft National Register nomination may also be submitted as the supporting documentation for a Part 1.

  2. Scope of Work. The Part 2 application includes before photos, plans, specs, and a narrative description of existing conditions and proposed work. Should the scope of work change during construction, amendments to the Part 2 application may be submitted later.

  3. Certification of Completed work. The Part 3 application includes after photos and a short application.

The State Historic Preservation Office (SHPO) reviews each part of the application. The SHPO has 30 days to complete their review before sending the application onto the National Park Service (NPS) for another 30 day review period. Final approval comes from NPS.

What are Texas Historic Preservation Tax Incentives?

The Texas historic tax credit became available in January 2015 and is worth 25% of Qualified Rehabilitation Expenses (QREs). The credit is applied to the franchise tax burden. If the ownership entity does not owe a franchise tax, the credit may be sold to an investor. Projects that utilize the Texas credit may also utilize the Federal credit, accounting for tax credits equivalent to 45% of your QREs.

Who is eligible for Texas Historic Tax Credits?

To qualify for the Texas tax credit program, the building must be historically significant. This includes listing on the National Register of Historic Places and/or as a Recorded Texas Landmark. Unlike the Federal credit, the new use of a Texas tax credit project may be nonprofit (church, museum, etc.) or for profit (commercial, office, rental housing, etc.). Also unlike the federal credit, the minimum investment requirement for the Texas credit is just $5000 regardless of the value, size, or condition of the building. The low investment threshold for the Texas credit means that buildings can rehabbed in a piecemeal fashion, working bits at a time as the cashflow allows, and applying for the Texas credit each time. The low threshold also makes smaller projects that would otherwise not qualify for the Federal credit, such as small-scale Main Street type buildings, more accessible.


The Texas tax credit application process has three parts (A,B,C). These applications mirror the Federal applications and should be submitted concurrently with Federal applications if the project uses both:

A: Evaluation of significance. This application certifies that the building is historic and thus eligible for receiving the credit.

B: Scope of Work. This application is the most complex. It details the proposed work for the project. The application includes a narrative description of the proposed work (along with some persuasion of its merit and necessity), architectural drawings, any relevant structural or environmental assessments, specifications, product cut sheets, and photographs documenting existing conditions. This application must be approved before substantive work can begin on the project.

C: Completion of work. This application is submitted at the completion of the project. It includes a cost certification prepared by an accountant that details your QREs as well as after photos. A site visit by a state official usually accompanies the Part C.

Each of these applications is submitted to the Texas Historical Commission (THC), also known as the State Historic Preservation Office (SHPO). The THC takes about 30 days to review each application.

What does a historic preservation consultant, like Ogee, do for tax credit projects?

A historic preservation consultant’s job is to guide her/his clients through the tax credit application process to ensure that they secure the valuable credits. Consultants should have a good understanding of what the reviewers are looking for and can get a project approved. A consultant will guide her/his client and the design team through the design process, ensuring that the proposed work will meet the Secretary of the Interior’s Standards for Rehabilitation. A consultant will complete all photography, research, and applications for the tax credit programs as well as serve as the contact person for the reviewers at SHPO and NPS. A good consultant will be the project’s biggest advocate.

Please comment, email, or tweet (@ogeellc) with any questions about the program.

Useful Links

IRS: Tax Aspects of Historic Preservation

IRS: Rehabilitation Tax Credit Tips

Novogradac: Historic Tax Credit Resource Center

OCC: Historic Tax Credits: Bringing New Life to Older Communites

National Housing & Rehabilitation Association (NH&RA)

NPS: Federal Historic Tax Incentives

Federal Tax Credit Regulation: 36cfr67

National Trust for Historic Preservation: Historic Tax Credit Recapture Survey

National Park Service Guide to rehabilitating Main Street commercial buildings

Texas Historic Preservation Tax Credit Program (THC site)

Texas Historic Preservation Tax Credit Program (UT Thesis)


Adaptive Reuse - the reimagining of an old building into a new use. The conversion of old factories into loft apartments is a good example.

Adjusted Basis - Adjusted basis = purchase price - cost of land at purchase - depreciation + improvements made since purchase.

Certified Local Government (CLG) - a local government (city or county) that meets certain historic preservation planning requirements and is thus certified by the SHPO and NPS.

Certified Local Historic District - a locally-designated (city or county-designated) district in a community that is a Certified Local Government that has been approved by the National Park Service. Buildings within Certified Local Historic Districts are eligible for the Federal historic tax credit program.

Cumulative Effect - the overall effect of proposed work on a historic resource. SHPO and NPS reviewers, when assessing historic tax credit applications, consider the effect of the entire scope of work on the building. Consequently, a project may be derailed by an incompatible addition even if the rest of the scope is appropriate or, if many small changes are proposed for a building, the cumulative effect of those changes may mean death by a thousand cuts for the project.

Department of the Interior - the large federal department that oversees a number of programs and units, including the National Park Service, the governing body that oversees the Federal historic tax credit program.

Embodied Energy - the energy consumed by all of the processes associated with the production of a building, from the mining and processing of natural resources to manufacturing, transport and product delivery. Preservation of historic buildings and materials preserves the embodied energy of those materials and features.

National Park Service (NPS) - Federal agency that oversees a number of programs, including the Federal historic tax credit program and the National Register of Historic Places.

National Register of Historic Places (NR) - Federal program that registers historically significant buildings, structures, monuments, landscapes, archaeological sites, and historic districts. To be listed in the National Register, a Nomination must be completed, filed, and approved by the SHPO and NPS. A National Register nomination is roughly equivalent to a graduate level thesis in terms of research, length, and scope. Buildings listed in the National Register are eligible to receive historic tax credits. Listing in the National Register does not lead to regulation of properties or prevention of demolition, unless federal funds are used to do so.

Preservation - the act or process of applying measures necessary to sustain the existing form, integrity, and materials of an historic property. Work, including preliminary measures to protect and stabilize the property, generally focuses upon the ongoing maintenance and repair of historic materials and features rather than extensive replacement and new construction. New exterior additions are not within the scope of this treatment; however, the limited and sensitive upgrading of mechanical, electrical, and plumbing systems and other code-required work to make properties functional is appropriate within a preservation project. Secretary of the Interior Standards for Preservation

Qualified Rehabilitation Expenses (QREs) - Those expenses that are eligible to receive historic tax credits. In general these are expenses that relate directly to the repair, restoration, or maintenance of the historic building. QREs include both hard and soft costs. As a general rule for hard costs, if you took a building, turned it upside down, and shook it, whatever did not fall out is a QRE. An accountant familiar with historic tax credits is the best source for determining what is a QRE.

Rehabilitation - the act or process of making possible a compatible use for a property through repair, alterations, and additions while preserving those portions or features which convey its historical, cultural, or architectural values. Secretary of the Interior Standards for Rehabilitation

Restoration - the act or process of accurately depicting the form, features, and character of a property as it appeared at a particular period of time by means of the removal of features from other periods in its history and reconstruction of missing features from the restoration period. The limited and sensitive upgrading of mechanical, electrical, and plumbing systems and other code-required work to make properties functional is appropriate within a restoration project. Secretary of the Interior Standards for Restoration

Secretary of the Interior’s Standards for Rehabilitation - the standards that guide reviewers in assessing whether proposed work will adversely affect historic resources. These standards are utilized by SHPOs and NPS for reviewing tax credit projects; local historic preservation commissions when reviewing work on landmark buildings; and by SHPOs and NPS when reviewing proposed projects that may affect historic buildings. The guidelines are open to interpretation.

State Historic Preservation Office (SHPO or HPO) or Tribal Historic Preservation Office (THPO or HPO) - the state or tribal office, established by the National Historic Preservation Act, charged with overseeing historic preservation in their given state/tribal lands. HPOs are responsible for reviewing National Register nominations, historic tax credit applications, and Section 106 applications. HPOs also oversee CLG programs, statewide preservation initiatives, statewide preservation planning, and historic resource surveys.

Substantial Rehabilitation - the threshold that a project applying for the Federal historic tax credit must meet to qualify. Equivalent to 100% of the adjusted basis.

Texas Historical Commision (THC) - the name for the Texas State Historic Preservation Office (SHPO). Some states call their SHPOs by names other than SHPO or HPO, such as Texas.

updated: January 4, 2018 em-r

#historicpreservation #historictaxcredits #rehabilitation #redevelopment #adaptivereuse #Texas

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