Are you rehabilitating an older building?
Do you need financial assistance?
The Federal Rehabilitation Tax Credit may be able to help!
WHY USE TAX CREDITS?
Tax credit equity investments can be an extremely valuable part of a historic or older building rehabilitation financing plan. For profit developers can use the subsidies from tax credits as part of a “gap” financing strategy. In the case of a nonprofit developer, such as a community development corporation, the availability of tax credit equity can help a nonprofit with fundraising by showing prospective donors that tax credit equity will reduce the amount of charitable funds that have to be raised.
How Nonprofit Groups Can Use Tax Credits
Nonprofit organizations and public agencies do not pay federal or state income taxes and therefore have no tax liability against which to apply rehabilitation tax credits. Also, many for-profit entities are not in a tax position to make full use of the value of the credit. Fortunately, in these instances, it is still possible to tap into the value of the rehabilitation tax credit by transferring (or ’syndicating’) the tax credit to a corporate investor, or in certain instances, individuals, who then use the tax credit to offset some of their own tax liability.
How to Turn Tax Credits into Cash
Those building owners not able to fully utilize rehabilitation tax credits personally or who prefer cash during construction instead of a reduction in taxes owed after placement in service, may choose to syndicate or transfer the rehabilitation project’s credits to an investor. To do this, the building owner forms a limited partnership (LP) or a limited liability corporation (LLC) with a corporate or individual tax credit investor through which the investor becomes (and must remain) one of the building owners for a 5-year period. (Section 47 of the IRC states that the credits can only be claimed by project owners.) The investor is then able to claim the federal tax credits generated by the project to defray its federal income tax liability. In return, the corporate investor makes an equity investment in the project. While the market for RTCs has traditionally been widely held c-corporations, the Housing and Economic Recovery Act of 2008 has opened the door to RTC investments by individual real estate professionals.
The amount of the tax credit equity investment varies depending on the attractiveness of the transaction. ‘Pricing” is usually in the range of $.95-.99 cents on the tax credit dollar for the federal historic rehabilitation tax credit, $.65-.85 cents on the tax credit dollar for state historic tax credits, and $.65-.75 cents for the New Markets Tax Credit.
ETS Strategic Alliance with Stephanie Ferrell, FAIA
Stephanie Ferrell is an architect and consultant specializing in historic properties, historic preservation and urban design.
Historic Preservation Services offered by Stephanie Ferrell, FAIA
1. Preparation of National Register Nomination Proposals: Her work includes research, writing and preparation of nomination proposals for listing individual buildings, districts and multiple properties on the National Register of Historic Places and includes the mapping and photography required.
2. Cultural Resources Survey: Survey, identification and documentation of historic resources, preparation of historic master site files, evaluation of properties in regards to meeting eligibility criteria for listing in the National Register of Historic Places
3. Grant writing for historic preservation projects: Preparation of Survey and Planning Grant Applications, Acquisition and Development Grant Applications, Community Development Block Grant and private foundation grant applications. Ferrell has prepared many successful grant applications for both bricks and mortar preservation projects as well as for preservation planning and education.
4. Historic Preservation Federal Income Tax Credit Applications: Historic properties listed in the National Register of Historic Places may be eligible for the 20% Federal Income Tax Credit. Ferrell prepares the three-part application necessary for property owners to receive these credits. Properties must be rehabilitated according to the Secretary of the Interior’s Standards for Rehabilitation. She advises property owners as to how to meet these requirements and successfully obtain the credits. For properties eligible for, but not yet listed in the National Register, her office will prepare the nomination proposal needed.
5. New Markets Tax Credits: New Markets Tax Credits can sometimes be combined with Historic Preservation Tax Credits when historic properties are located in qualified census tracts. Ferrell’s office assists developers and property owners in determining if properties might qualify for both of these programs and facilitates the twinning of these programs.
6. Historic Preservation Design Review: Properties located in city or county historic districts or designated as local historic landmarks typically are subject to design review by an architectural review board or commission. Ferrell’s office represents property owners before these boards, assisting them and sometimes their architects with necessary board approvals, while helping owners meet their design goals. Some municipal historic districts provide financial incentives, such as a property tax exemption, for the appropriate rehabilitation of historic properties. Ferrell assists property owners in learning about these incentives and helping her clients obtain them.
7. Preparation of design guidelines: Stephanie Ferrell’s expertise includes writing and illustrating design guidelines for historic districts and landmark sites. Areas she covers include design guidelines for rehabilitation of historic structures, for compatible new construction as well as for the relocation of structures in historic districts. Her experience includes commercial, residential and mixed-use historic districts.
8. Historic Preservation Ordinance Consultation: Good preservation ordinances are best written by local governments when there is participation by the community — in consultation with attorneys, architects and planners experienced in historic preservation. Ferrell’s experience includes extensive collaboration in drafting historic preservation ordinances as well as preparing local historic district designations. Most recently she worked with the City of Tampa in the drafting of its Historic Preservation Transfer of Development Rights (TDR) ordinance.
If you would like further information or to set up a call with Stephanie, please contact me:
Matt Lister
tele: 239-253-0793
mlister@engineeredtaxservices.com
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