Indy Rewind: A Primer On Historic Rehabilitation Tax Credits For Income Producing Buildings

Editors’ Note: On July 26, the Jones Library’s building project bulletin contained an article on historic preservation tax credits, optimistically suggesting that the building project could receive up to $2 million in additional funds towards the Jones renovation project for incorporating certain historic preservation features into the work. . Back in December of 2022, Indy Editor Kitty Axelson Berry and former Jones Library Trustees President Sarah McKee, wrote about why the prospects of receiving these credits was unlikely. Not much has changed since then that would enhance the Jones’ application for these funds and those of us who have been following the Jones renovation story still think that the town’s chances of getting that money are a long shot. But implying that the receipt of the money is likely, could be used to support an argument that there is money on the table that will be lost if the project is cancelled or modified. We’ve been hearing that argument more frequently around town – that we just can’t afford to undertake any alternative to the Jones renovation/demolition as currently proposed and that the current plan will prove to be the least expensive option regardless of the final cost. More on that in the coming weeks. But for those who are counting on those tax credits, we think that revisiting Axelson-Berry’s primer on the subject and the linked interview with McKee will be enlightening.

The Jones Library is counting on the sale of Massachusetts historic rehabilitation tax credits, perhaps garnering as much as $6 million, for its planned remake of the Jones Library, and they seem to have already contracted with Epsilon Associates for help in qualifying for and securing the credits. But there are reasons to doubt the project’s likelihood of success. One is that to be awarded rehab credits, the transformed building would have to be an income-producing entity.

Here’s a primer on the Massachusetts Historic Commission’s Historic Rehabilitation Tax Program, based on a Zoom workshop in mid November with the commission’s Elizabeth Sherva, Director of Architectural Review, and Jenn Doherty, its Local Government Programs Coordinator. Note that the program is a pilot program with a total of $55 million available annually. The program is set to expire on December 27, 2027.

Income-producing projects can be identified as residential, commercial, or industrial rental property, and the examples provided were apartment complexes, life-care facilities, hotels, offices, restaurants, stores, and theaters. Typically, successful rehab projects transform former factory complexes or municipal buildings into housing developments or shopping complexes.

Regardless of their former or planned uses, the property must be listed in the National Register of Historic Places or be certified as eligible for such a listing; must undergo a thorough evaluation of the property’s historic significance; must accurately describe every aspect of the current and proposed structure, accompanied by photographs and architectural plans, and must discuss every detail with the Massachusetts Historic Commission (MHC), from the exterior envelope and windows to the walls, flooring, ceilings, layout, and mechanicals; must alter and resubmit the architectural plans when requested by the historic tax credit reviewers, who evaluate each project to determine whether it meets Secretary of Interior standards for rehabilitation.

“A lot of detail goes into these projects,” the presenters emphasized, “and if it doesn’t meet the Secretary of Interior standards, we’ll tell the developer exactly why, and sometimes we’ll make a suggestion or we’ll say, ‘You might want to explore XYZ as an option.’ Sometimes they’ll take that [suggestion] and sometimes they won’t —they’ll walk away from the tax credit.”

Finally, tax credits cannot be awarded until after a project has been fully executed and certified as having fulfilled agreements between the developer and the MHC.

Support from local residents is important, too. “We don’t know the 350 communities in Massachusetts or the details of every development project, so it’s very helpful to see how a project fits into the community, what the community thinks of it. We want to get local context about how a project will, for example, support affordable housing goals.”

If a rehab project qualifies, it can receive up to 20 percent of the cost of Qualified Rehabilitation Expenditures (QREs) in state income tax credits. Tax credits aren’t useful to non-profits but can be sold and used by businesses. Typical QREs include construction costs but not costs associated with new construction, such as expansions or additions, site improvements, acquisitions, appliances, furniture, and other expenses.

Last summer, there were applications for $315 million in tax credits, creating stiff competition for the $55 million allotted for the year. The mandate is for credits to go to the projects that provide maximum public and preservation benefit, such as affordable housing projects, preventing demolition or other loss of buildings, revival of a beloved building that has been vacant and that the community is excited about and supports being redeveloped, as well as need and direct economic impact.

The workshop summed rehab tax credits this way: “Being able to sell income tax credits to companies or people with large tax debt is a way to incentivize developers to redevelop historic buildings.”

For more information, see interview with Sarah McKee about tax credits