The Preservation of Historic Structures Tax Credit

The Preservation of Historic Structures Tax Credit

(formerly known as the Commercial Historic Preservation Tax Credit)

 

About the Program

The Preservation of Historic Structures (based on House Bill 14-1311 and renewed by House Bill 18-1190) is a tax credit for owners and qualified tenants of designated commercial properties that commence a certified rehabilitation of their property. This program is jointly administered by OEDIT and History Colorado through a two-step process. The program is now accepting applications for both large and small rehabilitation projects. We encourage you to review the Fact Sheet as well as the updated program guide (Published: 7/1/2018), which has been posted below.

 

Program Updates 

To alleviate confusion between the 1990 Historic Preservation Tax Credit, OEDIT will now recognize the Commercial Historic Preservation Tax Credit Program as The Preservation of Historic Structures Tax Credit.

Major Updates from House Bill 18-1190 (see program guide for full details):

  • New definitions of “Municipality,” “Rural Community,” and “Denver Metropolitan Area.”
  • Starting 1/1/2020, a flat rate expenditure requirement of $20,000 will be in effect versus the current calculation {25% X (original purchase price – value of land)}.
  • Starting 7/1/2018, OEDIT will charge a nonrefundable $250 reservation fee for small rehabilitation projects (see below for full details).
  • OEDIT has the ability to suspend applications once we receive 15 small rehabilitation projects with a Qualified Rehabilitation Expenditure of $50,000 or less.
  • The 12 month reporting requirement to commence rehabilitation has been removed (keep in mind, property owners are still required to expend at least 20% of qualified rehabilitation expenditures within 18 months).
  • Starting 7/1/2018, all Issuance Requests will require an audit of the cost certification by an external CPA regardless of the dollar amount associated with the tax credit.
  • Starting 1/1/2020, properties in Rural Communities will get an additional 5% to their tax credit calculation (see below for full details).
  • The program has been extended till 12/31/2029.

 

Current Program Status

https://oedit.secure.force.com/oedit/PtHptcProgramExt

 

Program Funding

OEDIT will administer a tax credit cap of $10 million that will be divided into two funding categories separated by a $2M expenditure threshold.There is a limit on the dollar amount of credits that can be reserved and issued in any given calendar year to $1M. OEDIT has the discretion to move unused credits between categories and into subsequent years.

 

Requirements and Eligibility

This tax credit is available to the owner of a certified historic structure who performs a certified and substantial rehabilitation on their property in accordance to the standards for rehabilitation of the US Secretary of Interior. The owner must perform a rehabilitation for which the qualified rehabilitation expenditures must exceed twenty-five percent of the owner’s original purchase price less the value attributed to land {25%(original purchase price – value of land)}, and meet one of the following criteria:

  • Holds title to a qualified structure
  • Holds prospective title to a qualified structure in the form of a purchase agreement
  • Holds prospective title to a qualified structure in the form of an option to purchase
  • Holds a leasehold interest in a qualified commercial structure for a term of not less than 39 years or 5 years for rural area properties

 

Reservation and Issuance of Tax Credits
  • In order to apply for the credit, an applicant must first set up an account with OEDIT (Create Account).
    • Go to the “Apply” screen and click on “Historic Preservation Tax Credit Qualification.”
    • This will take the applicant through the qualification questionnaire.
    • Successful questionnaires will prompt access to the full application.
    • The owner submits a full application and rehabilitation plan to OEDIT for a reservation of tax credits.
    • Successful applications will earn a tax credit reservation for the owner depending on availability of credits.
  • There are two fees associated with this tax credit.
    • The first is an application fee, which is $500 when the estimated credits is over $250,000 and $250 when the estimated credits are under $250,000. The application fee is charged when the application and rehab plans are submitted.
    • The second fee is the issuance fee, which is charged when the credit is finally issued. This fee is expected to be 3% of the amount of the tax credit issued. Both of these fees must be paid directly to OEDIT, they cannot be deducted from the tax credit.
  • Owner must submit ongoing proof of construction.
    • 18 month report: projects must expend at least 20% of estimates total rehabilitation expenditures 18 months from the date of reservation
  • Upon completion of construction, the owner must apply for issuance of tax credit and submit documentation for final review.
    • OEDIT and History Colorado review the final documentation and upon approval, issue the tax credit certificate.
  • Since there are limits on the total credits the program can reserve each year, applications will be processed on a first come, first served basis. If multiple applications/rehab plans are received on the same day, a lottery process will determine the order in which they will be reviewed and reserved.

 

Calculating the Credit

The tax credit is calculated as a percentage of the actual qualifying rehabilitation expenditures. The percentage applied depends on two things: the actual amount of rehab expenditures and whether the structure is located in a recognized disaster area or not.

The following rates apply:

Regular Area Disaster Area
First $2 million of Actual Rehabilitation Expenditures 25% 30%
Any Rehabilitation Expenditures over $2 million 20% 25%

 

These percentages are added together, so a property not in a disaster area with $3 million in actual rehab expenditures would be eligible for a tax credit of $700,000 ($500,000 for the first $2 million, plus $200,000 for the amount over $2 million). The tax credit is based on the amount of actual qualifying expenditures, even though the reservation is based on the estimated expenditures. Owners can apply for multiple properties, but there is a limit of $1 million per year on any given property. The initial credit issued cannot be more than the amount of credit reserved. If actual qualifying expenditures exceed the amount reserved, the owner must apply for the difference, and (subject to annual limits and property limits) will be awarded a second tax credit certificate for the excess amount. If the actual rehab expenditures are less than the amount reserved, the tax credit issued will be calculated on the actual amount.

 

Using the Credit

The tax credit is a credit against Colorado income taxes. The credit is issued to the owner of the property when construction is complete and approved. The credit can be carried forward ten years, and any unused portion of the credit can be sold to third parties. If the owner chooses to sell the credit, both the owner and the purchaser of the credit must coordinate their transaction through the OEDIT website. After ten years, any unused and unsold credit will expire and cannot be refunded.

 

Other Programs

Participants in the Historic Preservation Tax Credit are encouraged to also participate in other OEDIT programs. Participating in the Historic Preservation Tax Credit does not limit your participation in most other state programs. Programs of interest:

History Colorado

Colorado Main Street Program

Dept of Local Affairs, Community Development Block Grant

Enterprise Zone Vacant Building Rehabilitation Program

 

For information on the 2014 Residential Historic Preservation Tax Credit, click here. For information on the 1990 Historic Preservation Tax Credit, click here

 

Wael Khalifa Program Analyst wael.khalifa@state.co.us