Considering Purchasing a Historic Building?
The Law Offices of Thomas J. Skinner, IV, LLC Provides An Overview of Alabama Historic Tax Credit Programs and Facts to Know
In recent years, there has been a movement to restore and rehabilitate historic buildings in our nation. Beginning on October 1, 2013, State of Alabama joined this movement. The Alabama program is called The Historic Rehabilitation Tax Credit Program. The tax program is expiring in 2016 after its three year run, but the program could be revitalized with additional funding from the legislature. Further there are federal programs as well which provide for tax incentives to rehabilitate historic buildings.
Under the Alabama program, 25% of the qualified rehabilitation expenditures were certified historic buildings which were used for income-producing residential purposes can be credited for taxes. Further, a 10% of qualified rehabilitation expenditures were pre-1936 non-historic buildings which were used for income-producing purposes can also be claimed as a credit. Historic buildings are those buildings which are listed individually in the National Register of Historic Places (NRHP); buildings listed as a contributing resource in a NRHP district, or a building is eligible for listing in NRHP. Tax payers who file a State of Alabama tax return or entities that are exempt from federal income tax who own title to a building or own a lease hold interest in a building for a term of 39 years or more may be apply for the tax credit. The eligible projects include both commercial developments and single-family residential projects.
There are certain requirements under the program as to required expenditures. The act requires project expenditures must exceed 50% of the owner’s original purchase or $25,000, whichever is greater. Further, the work must follow guidelines from the Secretary of the Interior’s standards for rehabilitation which ensure the improvements are consistent with the historic character and that the improvements maintain the historic integrity of the structure. Acquisition costs, realtor fees, personal labor by the owner, furnishings and appliances, sales and marketing costs, and landscaping or site work outside the footprint of the qualified structure do not qualify for the credit.
The Alabama Historical Commission accepted applications on the first-come, first-serve basis. The commission had up to 90 days to review the application and make a decision. Tax credits are reserved for approved projects in the order which they are received.
The tax credits are taxed for commercial projects to a reservation of $5 million dollars. Residential projects are limited to a tax credit reservation of $50,000. A total of $20 million dollars in tax credits are reserved each year for a period of three years.
Some examples of historical buildings which have been rehabilitated using the Alabama Historical Tax Credit include the Brown Marx Tower in Birmingham which was to be renovated into retail and apartments, Redmont Hotel in Birmingham which is to be renovated and remain a hotel, 1951 Government Street Building in Mobile which is to be renovated into retail on the ground floor and apartments on the upper floor, the Norton-Cochrane-Fitts residence in Tuscaloosa which is to be renovated into a private residence, the Jefferson Davis Hotel in Montgomery which is to be renovated into apartments and the Fort McClellan Headquarters and Barracks in Anniston which is to be developed into an independent living facility. There have been numerous other projects around the state as well.
In addition to the Alabama Historic Rehabilitation Tax Credit, there’s also the opportunity to obtain a Federal Rehabilitation Tax Credit which allows a federal income tax credit of 20% of the amount spent to rehabilitate income-producing historic buildings. Such buildings must be listed in the NRHP and must be income-producing to the owner. Rehabilitation costs must be substantial meaning that the rehabilitation expenses must exceed the adjusted basis of the property. Like the Alabama program, the rehabilitation must follow the rehabilitation standards that protect the historic character, nature and materials that make up the building. Plans for these projects must be approved in advance by the National Park Service.
There is one other incentive in Alabama for owners of historic commercial buildings. Under the Alabama Property Tax Incentive, a commercial historical building can be assessed for ad valorem tax purposes at 10% instead of the usual 20%. This is a fairly simple process where you complete an application for your historic building, submit the application and photographs, and a location map to the Alabama Historical Commission and take the positive response letter from the Alabama Historical Commission to your local tax assessor for the property tax reduction.
We hope this overview of the historical tax credits available to property owners in Alabama is helpful. Please feel free to contact us at The Law Offices of Thomas J. Skinner, IV, LLC, if you have a historical building and would like to explore any of these options further.