Historic tax credits can transform communities.
Here’s how they work.

A historic preservation consultant can help developers navigate this process as well. Applications for historic tax credits are routed through the State Historic Preservation Office, which coordinates approvals with the National Park Service. The first step involves demonstrating the historical significance of the original structure. Later, developers submit detailed plans, architectural drawings and descriptions of the proposed rehabilitation work, which are reviewed to ensure they meet the Department of the Interior's rehabilitation and construction standards.

“After the building rehab is complete, developers must demonstrate that the work was carried out in accordance with the approved application,” said Rosin. “Developers can claim the tax credit only after the completed project is certified by the National Park Service.”

Because it takes a wealth of information to get a building listed on the National Register, the process is often best navigated with the help of a historic preservation consultant, said McMichael.

Trained in the preserving and rehabilitating historic buildings and sites, these professionals typically get involved early in a project — often before a developer purchases a property — to evaluate and assess its eligibility for the National Register, according to Elizabeth Rosin, Sr. Vice President, Business Strategy of Heritage Consulting Group in Kansas City. “If a building meets the criteria, the consultant prepares the nomination for the State Historic Preservation Office,” she explained. The submission includes detailed descriptions of the building’s architecture and history, maps, photos and other supporting documentation.

The value of a historic tax credit is based on a percentage of the money spent on approved restoration work, McMichael explained. For example, the state of Missouri provides a 25% tax credit for most projects, with the credit increasing to 35% for properties in rural areas. On a $1 million project, in other words, a developer can claim a $250,000 to $350,000 Missouri state tax credit, depending on its location.

The tax credit percentage varies by state, ranging from 20% to 25% or more, according to McMichael. The federal government also offers a 20% tax credit for the certified rehabilitation of income-producing historic buildings. When state and federal programs are combined, developers can reap tax credits totaling 45% or more of approved restoration costs.

While not awarded until after a project is complete, historic tax credits can significantly reduce project costs and play a crucial role in financing, according to McMichael. “Developers often use bridge loans to cover the initial costs of rehabilitation. These loans can be secured against the expected tax credits and repaid once the credits are received and sold to a third party.”

Historic tax credits offer other benefits as well. Developers can use the proceeds from the sale of tax credits to reduce their long-term debt obligations or refinance a project. They can also include the anticipated tax credits in their project’s financial projections, which helps demonstrate the project's financial viability to potential lenders and investors.