The Preservation of Historic Structures Tax Credit

The Preservation of Commercial Historic Structures Program (otherwise known as HPTC or the Historic Preservation Tax Credit) encourages the rehabilitation of historic commercial structures to support economic revitalization as authorized under C.R.S. 39-22-514.5.  A set amount of tax credits is made available each calendar year to reserve funds for qualified rehabilitation projects on a first-come-first-served basis (reservations for this tax credit must be made prior to 12/31/2029).

This incentive program is jointly administered by OEDIT and History Colorado; rehabilitation requirements conform to the The Secretary of the Interior’s Standards for Rehabilitation.  In addition to this Colorado income tax credit referred to as the “2014 Credit”, an additional commercial building tax credit referred to as the “1990 Credit” and the residential historic preservation tax credit as authorized by C.R.S. 29-22-514 are administered by History Colorado. Taxpayers claiming any of these tax credits should make sure to identify the appropriate tax credit on their Colorado State Income Tax Return; on the 2018 Individual Credit Schedule claim the HPTC on Lines 33 and 34 (see Colorado Department of Revenue Instructions & Forms). Taxpayers may not claim both the 1990 and 2014 tax credits for the same historic rehabilitation project.

Available HPTC Funding

The program is authorized to reserve up to $10 million in tax credits per calendar year.
$5 million is available for “small” projects where qualified rehabilitation expenses are less than $2 million
$5 million is available for “large” projects where qualified rehabilitation expenses are $2 million and more

Tax credits are reserved for Projects on a first-come-first-served basis. We recommend applying for reservation of the tax credit when you are planning the project and will be starting work within a year.

Eligibility

Property Control
You can apply for the Commercial Historic Preservation Tax Credit if you are the property’s:
– owner
– tenant with a lease of at least 39 years in urban areas or five years in rural areas
– holder with a property under contract

Historic Designation
– Your property needs to be at least 50 years old.
– Your property needs to be a certified historic structure at the Local, State, or Federal level by the time that the Issuance Application is submitted.
– Your project needs to meet the Standards for Rehabilitation of the US Secretary of the Interior.

Timeliness
– If the rehabilitation project is already complete when you apply, your application must be submitted within 120 days from the project’s end-date to be eligible.
– You may consider project costs as qualified if those costs where incurred no more than 24 months prior to submission of the application.

Substantial Remodel
– You must expend at least $20,000 in qualified rehabilitation expenditures.

 

Eligible Expenses

Qualified rehabilitation expenditures (QREs) are expenses necessary to restore a building for commercial use. QREs include but are not limited to: exterior improvements and repair, structural improvements, mechanical improvements, electrical improvements, demolition, carpentry, sheetrock, plaster, painting, ceilings, fixtures, doors, windows, sprinkler systems for fire protection, roofing and flashing, tuckpointing, cleaning.

These expenses are not QREs: appraisals; architectural; engineering and interior design fees; legal, accounting, and realtor fees; loan fees; sales and marketing; closing costs; building permits; use and inspection fees; bids; insurance; project signs and phones; temporary power; bid bonds; copying; rent loss during construction; acquisition; interior furnishings; new additions, except as may be required to comply with building and safety codes; total demolition followed by new construction; excavation; grading; paving; landscaping; repairs to outbuildings.

You may estimate QREs during pre-certification. To calculate the final tax credit amount for certification, a Certified Public Accountant (CPA) that is not affiliated with the owner or qualified tenant need to approve the QREs.

If your certified QREs are more than the amount of tax credits you reserved during pre-certification, Business Funding and Incentives will issue an overage for the difference. This is subject to annual limits and property limits up to the $1 million allowable per property per year.

If your certified QREs are fewer than the tax credits you reserved during pre-certification, Business Funding and Incentives will calculate your tax credit based on your actual QREs and the excess amount reserved will be returned to the tax credit pool for other projects.

Program Criteria

  • Applicants that fail to complete the rehabilitation or do not receive approval from History Colorado are subject to denial.
  • Maximum tax credit. The maximum tax credit that can be awarded is $1M per structure in any one calendar year. If multiple projects are approved for the same structure, the projects must be distinct and not overlapping in time.
  • Applicants must submit an Application fee to reserve tax credits and an Issuance fee that cannot be deducted from the tax credits.
  • Applicants may estimate QREs but the tax credit amount is based on Certified QRE’s approved by a CPA that is not affiliated with the owner or qualified tenant.
  • If Certified QREs exceed the amount reserved the office will issue an overage for the difference subject to annual limits and property limits up to the $1,000,000 allowable per property per year.
  • If the Certified QREs are less than the amount reserved, the tax credit issued will be calculated on the actual amount as long as funding is available.
  • Tax Credit Rates

In a regular area, the tax credit amount is 25% of the first $2,000,000 in QREs plus 20% of any additional QREs

      • In a disaster area, the tax credit amount is 30% of the first $2,000,000 in QREs plus 25% of any additional QREs
      • Starting 1/1/2020, in rural areas, the tax credit amount is 35% of the first $2,000,000 in QREs plus 30% of any additional QREs
      • The tax credit rate applied to a project is based on the area being identified as “regular”, “disaster”, or “rural” on the date that project work commenced.
      • See example for calculation of tax credits in a Standard Area:
        • If QREs are $2,000,000 then the tax credit is $5,000,000.00 {.25($2M) = $500,000}
        • If QREs are $3,000,000 then the tax credit is $700,000.00 {.25($2M) + .20($1M) = $700,000}
      • See example for calculation of tax credits in a Disaster Area:
        • If QREs are $2,000,000 then the tax credit is $600,000.00 {.30($2M) = $600,000}
        • If QREs are $3,000,000 then the tax credit is $850,000.00 {.30($2M) + .25($1M) =$850,000}
      • See example for calculation of tax credits in a Rural Area: (applicable 1/1/2020)
        • If QREs are $2,000,000 then the tax credit is $700,000.00{.35($2M) = $700,000}
        • If QREs are $3,000,000 then the tax credit is $1,000,000.00{.35($2M) + .30($1M) =$1,000,000)

 

How to Apply

To apply for State of Colorado Commercial HPTC Program visit the OEDIT Application Portal.  The online application system is only compatible with certain web browsers: Google ChromeMozilla FirefoxSafari and Internet Explorer 10

Step 1: Submit the Qualifying Questionnaire

  • Go to the “OEDIT APPLICATION PORTAL.”
  • Click on “The Preservation of Historic Structures Tax Credit Program” tile.
  • Locate the “APPLY FOR FUNDING OPPORTUNITIES” tile.
  • Apply for “The Preservation of Historic Structures Tax Credit Qualification.”
  • Successful questionnaires will automatically prompt access to the full application when the page is refreshed.

Step 2: Apply for the Reservation of Tax Credits

  • Go to “Edit/View My Applications”
  • Fill out and submit the “HPTC Full Application.”
    • Ideally, the application is submitted prior to project commencement; if applying after a project is complete, the application must be submitted within 120 days of the project completion date.
    • Familiarize yourself with the Project Cost Worksheet. Use it to understand which costs are qualified and which are not. Track your project costs using the spreadsheet or a similar format as you will submit this when applying for issuance of the tax credit.
  • Required Attachments:
    • Proof of Property Control evidenced by one of the following:
      • County Assessor Report
      • Title
      • Prospective Title (Purchase Agreement or Option to Purchase)
      • A leasehold agreement of at least 5 years in rural areas and 39 years in non-rural and metropolitan areas
    • Project/Construction Work Plan Including Costs
    • Photographs of the Property Before Rehabilitation
    • Construction Drawings
  • Application Fee:
    • $250 for reservations of tax credits at or under $250,000
    • $500 for reservations of tax credits over $250,000

Step 3: Submit Reports Once the Full/Reservation Application is Approved

  • 18 Month Report: rehabilitation must expend at least 20% of estimated QREs within 18 months from the date of reservation.
  • 24 Month Report: on going progress
  • 36 Month Report: on going progress
  • 48 Month Report: on going progress

Step 4: Apply for the Issuance of Reserved Tax Credits

  • Submit the Issuance Request within 1 year from when the property is placed in service or when the certificate of occupancy or completion is issued.
  • Go to “Edit/View My Applications” and locate the reserved “HPTC Full Application.”
  • Click on the “orange” icon to access the “Issuance Request.”
  • Required Attachments:
    • Pictures After Rehabilitation
    • Project Cost Worksheet (see model)
    • CPA Audit of Project Costs
      • The statutorily required audit must be conducted by a licensed certified public accountant that is not affiliated with the owner.
      • The audit certifies that the expenses documented in the worksheet:
        • are associated with the rehabilitation project plan as outlined in the full/reservation application – work outside of the approved project plan cannot be submitted.
        • were paid by the applicant
        • are categorized appropriately as qualified or non-qualified following the Secretary of the Interior’s Standards
      • The audit letter
        • describes the scope of testing conducted in accordance with General Auditing Standards
        • and declares that the project costs comply with the standards for rehabilitation adopted by the Department of the U.S. Interior and Colorado Revised Statutes 39-22-514.5.
    • Documentation of Project Completion – Certificate of Occupancy, Certificate of Competition, or a Placed in Service date
  • Review and Approval by History Colorado and OEDIT.
  • Once QREs are confirmed, an Issuance Fee (3% of the approved tax credit amount) must be paid.
  • Once approved, a tax credit certificate will be delivered via email as a PDF from OEDIT’s application system.

Step 5: Claim, Use, and Transfer of Tax Credits

  • The Commercial Historic Preservation Tax Credit (HPTC) is a credit against Colorado income tax liability.
  • The taxpayer may claim the HPTC tax credit as early as the tax year that the property was placed in service (or project completed) even if the credit was issued in a following year.
  • The entity that earned the credit has up to 10 years to use and/or transfer the tax credit. The initial tax credit does expire.
  • Any or all unused portions of the credit can be sold or transferred to third parties. The third party may claim the tax credit as early as the year that the property was placed in service (or project completed).
  • The HPTC credit is not refundable.
  • To transfer a credit, you will need a notarized transfer agreement signed by both parties. Complete the transfer request through the “OEDIT APPLICATION PORTAL” . The transfer can be initiated by either the holder of the tax credit or by a broker.