The Historic Tax Credit Improvement Act (HTCIA) is scheduled for introduction in the House of Representatives in September.
The bill’s new Ways and Means champion is Rep. Mike Kelly, R-Pa. Rep. Earl Blumenauer, D-Ore., who represents Oregon’s 3rd district, will again serve as the Democratic original co-sponsor. Proponents of the measure also expect introduction in the U.S. Senate later this fall, with Sen. Ben Cardin, D-Md., as the lead Senate Finance Committee Democratic champion.
Bill Summary (By Novogradac)
The HTCIA is the successor bill to the CAPP Act that had been introduced in the last two Congresses. Some old provisions, notably the 2 percent energy-efficiency incentive, have been dropped and several new modifications have been added that would modernize the HTC and increase its economic impact.
- Sections 2 and 3 modify the previously proposed 30 percent small-deal credit by lowering the maximum transaction size to $2.5 million in qualified rehabilitation expenditures (QREs), and making the credits transferable via a tax certificate, similar to many state HTC statutes. These changes should increase the use of the federal HTC on smaller transactions in Main Street communities across the country.
- Section 4 creates a new substantial rehabilitation, or minimum property expenditure definition. The substantial rehab test would be reduced to 50 percent of adjusted basis rather than the current 100 percent. This provision would increase the use of the HTC on “moderate rehabilitation” projects and will hopefully increase the overall number of transactions completed each year. While QREs have returned to their pre-recession level of about $4.3 billion, the number of transactions, according to National Park Service (NPS) records, has remained relatively flat–between 750 and 850 buildings annually. The change should also increase the number of qualifying projects in areas where property values are the highest.
- Section 5 reduces the current depreciable basis adjustment from 100 percent of the credit amount to 50 percent. This provision would put the HTC in line with new markets tax credits (NMTCs) and renewable energy credits. There is no basis adjustment for the low-income housing tax credit (LIHTC). The Tax Equity and Fiscal Responsibility Act of 1982 set the HTC basis adjustment at 50 percent. It was increased to 100 percent as part of changes to Section 47 made by the Tax Reform Act of 1986.
- Section 6 would eliminate federal taxation of the proceeds of state HTCs. This change would end market uncertainty over federal tax treatment of state HTCs that began in 2011 with the U.S. Court of Appeals 4th Circuit decision in Virginia Historic Tax Credit Fund v. Commissioner. This provision would certainly be a fairer outcome for state tax payers whose incentives for historic rehabilitation are worth only 65 cents on the dollar after reductions for federal ordinary income tax.
- Section 7 proposes to make nonprofit sponsorship of HTC transactions easier by eliminating 3 of 4 “disqualified lease rules” which apply when more than 50 percent of the leasable space is rented to tax-exempt organizations and the sponsoring nonprofit developer has used the building before the certified rehabilitation. Prohibitions on a future fixed sale price back to the nonprofit, use of tax exempt bonds and the 20-year nonprofit tenant lease limitations would be removed. Only the rule against a sale and lease back of the property to the original nonprofit owner would be retained.
- Section 8 is drafted to end current NPS regulations related to Part 3 certification for buildings that are part of a functionally related site such as a mill complex. The current ability of the NPS to delay Part 3 approval on an initial phase of such projects until subsequent phases are reviewed and approved would be replaced by a rule that every building in a functionally related site would be approved individually without regard to the later treatment of other properties.
Advocates who want to urge their members of Congress to co-sponsor the HTCIA should go to www.historiccredit.com/take-action/write-your-representative-and-senators/ to take action.