GOP Tax Plan Clouds Future of Historic Renovations
Thursday, April 5, 2018
By Anna Huntsman/Broadcast version by Mary Kuhlman
Reporting for the Kent State-Ohio News Connection Collaboration.
Over the loud protests of preservation groups, Congress has repealed one tax credit for historic building restoration and changed the terms of another, sparking uncertainty about the future of historic rehabilitation projects in Ohio and across the nation.
Ohio ranked first in the nation for completed federal historic tax credit projects in 2016, with 103 approved across the state. In the GOP effort to simplify the tax code, the first draft of the Tax Cuts and Job Act eliminated federal historic tax credits entirely, despite the significant economic development they encouraged each year.
“We were living kind of a waking nightmare,” said Mariangela Pfister, the deputy state historic preservation officer for Ohio. “As Ohioans, I think we really see the benefit of the historic tax credit.”
Since 1976, individuals could receive 20 percent federal tax credit for restoring buildings listed on the National Register of Historic Places or in a designated historic district. If the building was constructed before 1936 but not on the Register, the individual could apply to receive a 10 percent federal tax credit.
The Tax Cuts and Jobs Act, however, now requires individuals to receive portions of the 20 percent credit over a five-year period, rather than in one lump sum. Congress also removed the 10 percent credit altogether.
The federal historic tax credit is used to help offset the enormous cost of rehabilitating an old building.
“A lot of projects that we’ve worked on would not even be feasible financially if it weren’t for that sort of tax credit being available,” said Eric Pros, project design manager at D.S. Architecture, which recently has helped renovate several buildings in Portage County. “The cheapest thing to do would to be to not reinvest in these old buildings, or the people that do have them would not be able to do as good of a job restoring them.”
Pros helped design two projects that used the federal historic tax credit in Portage County: Ravenna’s Phoenix Block, which was renovated in 2016, and the L.N. Gross Building in Kent, which was finished last year and now houses his company.
“With historic buildings...it was interesting going and seeing the existing conditions and how bad some of those conditions were, and then seeing the details on how to fix it,” Pros said. “Seeing the final result was a really incredible experience.”
Modern upgrades often are necessary to keep the structure up to code, but tax credits can only be used for restoring the historical aspects of the building. Pros said this is another reason federal aid is so crucial in completing the projects.
“The big goal of having these rules is to maintain the character of the building,” he said. “You can clearly respect the new aspects and understand the old as well.”
The Phoenix Block received funding from state grants, historical societies and loans from a local bank. The federal HTC was the second-highest amount of funding for the project -- second only to the state tax credit, which was roughly $100 more. The project was approved for $366,132 in federal tax credit, accounting for nearly 20 percent of the $1,986,682 used to help fund the project.
Under the rules that took effect Jan. 1, this project would have received $72,226 each year for five years, rather than receiving the lump sum at first.
Nationwide, the National Park Service certified 1,039 historic-preservation projects in 2016. The NPS estimates the average investment of these completed projects was $5.8 billion, creating more than 100,000 local jobs.
Advocacy groups including Heritage Ohio sprang into action when word spread that the credit was on the chopping block last fall. Executive Director Joyce Barrett helped lead this statewide effort.
“We knew it was coming; (then) we had to get to work,” Barrett said. “We reached out to our friends across the state.”
As the tax bill was rewritten multiple times from one legislative body to the next, advocates called Ohio lawmakers, wrote editorials in newspapers, lobbied Congress members and accumulated thousands of signatures on a Change.org petition. Barrett said they met on a conference call every Monday to touch base and figure out the next plan of action for the new week.
“(Barrett) was able to join these forces together in this...‘Ohio movement’ to support the federal historic tax credit,” said Pfister.
Congress members sought to overhaul the U.S. tax code to provide tax cuts to Americans and simplify its rules. Pfister added that the 10 percent HTC was not used as often, which could explain why it was repealed under the new bill.
If both the 20 percent and 10 percent federal historic tax credits had been eliminated, Ohio projects could still attempt to get credit through the state’s program, which is managed by the Ohio Development Services Agency. Ohio’s state tax credit is independent from the federal program and undergoes a separate review process. In addition, individuals receive a higher tax credit - 25 percent - through the state than the federal program. A person can receive both federal and state tax credit for renovating a structure.
Some states, however, do not have their own tax credit program, which is why Barrett said keeping the federal credit was crucial.
“Thirty-six states have state historic tax credits,” Barrett added. “What if the federal went away? Would there be enough for the state?”
What happens now?
To receive credit according to the old rules, you must have had possession of the property by Dec. 31, 2017, and work must commence within 180 days after the tax law was passed. No further information has been released on what the transition rules entail.
Tom Boccia, a Cleveland-based tax accountant, specializes in the historic tax credits and has worked alongside numerous Northeast Ohio projects. He said the changes to the tax credit could affect investors’ and developers’ interest in pursuing new historic rehabilitation projects.
“[The change] just means that the investor can’t get that credit all up front,” Boccia said, “so they’re not going to invest the same dollars to get credit over five years versus one year.”
Boccia said this has real economic cost to a developer, and could prevent future projects from completion.
“That delta between what they were getting before and what they’re getting now, it’s got to come from somewhere,” he said. “That could cause projects to not go forward.”
This collaboration is produced in association with Media in the Public Interest and funded in part by the George Gund Foundation.
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