Senators introduce bi-partisan legislation that would improve the Historic Rehabilitation Tax Credit

American Brewing Building, Baltimore, MD
The American Brewery Building in Baltimore, MD, was redeveloped with the help of the Historic Preservation Tax Credit. Photo via the National Trust for Historic Preservation.

In June Senators Ben Cardin (D-MD) and Susan Collins (R-ME) introduced S. 1141 The Creating American Prosperity Through Preservation (CAPP) Act, a bill that would encourage developers to invest in and restore historic buildings by updating the Historic Rehabilitation Tax Credit program.

Since its inception in 1976, the Historic Rehabilitation Tax Credit program has leveraged more than $106 billion of private-sector investment to preserve and rehabilitate more than 38,000 historic properties. The credit program has rehabilitated more than 75,000 low- and moderate-income housing units. In fact, nearly 75 percent of Historic Tax Credit projects are in low-income areas.

The CAPP Act would make the tax credit easier to use and available to a wider number of projects. It would expand the amount of credit available to small projects, and index the date for non-historic older buildings to make more eligible for rehabilitation. It would support the 30 states that have enacted state historic tax credits by encouraging the development of historic properties. The bill would also facilitate the reuse of older buildings by nonprofits, creating projects with high community benefit, while also stimulating on-going job and economic growth in low-income, underserved areas. In addition, Act would increase the credit to cover 15 percent on an individual building.

These recommendations are similar to ones released by Smart Growth America and our coalition of real estate developers and investors LOCUS last month. Federal Involvement in Real Estate: A Call for Action calls for a series of reforms to federal real estate programs that update outdated programs to achieve better outcomes for household, communities and taxpayers, and includes proposed changes to the Historic Rehabilitation Tax Credit:

Rehabilitating existing buildings can reduce costs for municipalities and add to the local tax base, but these projects can be cost-prohibitive for developers. The Rehabilitation Tax Credit is designed to encourage this rehabilitation. However, the current scope of the Rehabilitation Tax Credit limits its effectiveness. Smart Growth America recommends increasing the credit to 15 percent of rehabilitation costs; broadening eligibility to include project-wide redevelopment costs; making residential buildings eligible; and changing the age criteria so that any building over 50 years old would be eligible for the credit.

While the CAPP Act would increase the percentage of the credit and update the placed-in-service requirement, it would not expand eligibility to residential properties and can only be claimed one building at a time—two key components of our recommendations. Some revitalization projects need to go beyond a single building to be effective and economically feasible.

In addition, the credit could be used to promote mixed-use development if eligibility were expanded to include both commercial and for-sale residential buildings. Under the current program, eligible buildings must be income-producing, which limits the use of the buildings to commercial properties and rental housing units. The CAPP Act would not expand the credit in this way.

Smart Growth America commends Senators Cardin and Collins for introducing the CAPP Act. If passed, the bill would encourage greater economic growth through private sector investment in America’s existing communities. We look forward to following this bill as it progresses through Congress.