President Trump’s tax law sent shock waves through the U.S. economy. It impacted every major industry, including manufacturing, transportation, and construction.
One part of the law has left some construction firms and property owners worried. That’s because it weakened an incentive program that has spurred property developments worth billions, and created millions of jobs. The program? The federal historic tax credit.
The Federal Historic Preservation Tax Incentives program has been around for four decades. Its purpose is to encourage developers to invest in and rehabilitate historic buildings. Because historic rehabilitation projects often have higher costs, the purpose of the tax credit is to encourage these types of projects in favor of new construction.
Nationally, the credit has spurred $132 billion in investment across 43,000 projects since 1976. It has also created more than 2.4 million jobs.
The program has been especially popular in Chicago. According to the Chicago Tribune, it has supported 90 projects and $2.4 billion of investment over the last ten years alone.
Another city that has relied heavily on the credit is New Orleans. Hurricane Katrina did billions of dollars’ worth of damage to the city’s buildings. Developers and property owners benefited from the credit to the tune of $460 dollars in rehabilitation funds across multiple projects.
President Trump’s most recent changes to U.S. tax law has left developers and preservationists worried.
In 1986 the government fixed the credit at 20%, to be reimbursed at the time of the rehabilitated building’s opening. But after the latest changes announced in December 2017, the credit will instead be parceled out over five years.
“The value of the credit [has been reduced] by roughly, plus or minus, 20 percent,” said John Hoffman, a director at Baker Tilly, a Chicago-based accounting firm that advises clients on the tax credit. “That means instead of it being worth a dollar, it’s worth 80 cents.”
The change to the credit means that certain rehab projects “simply won’t get done” at all, according to Nancy Finegood, executive director of the Michigan Historic Preservation Network.
And developer Don Peebles, who’s working on a $110 million rehab project in Philadelphia, said “it’s a 50-50 chance that we would end up having to abandon the project.”
However, some preservationists are relieved that the credit still exists at all. In November 2017, the House of Representatives voted to abolish the credit entirely. Only intense lobbying from developers and preservationists saved it.
The new bill, said Chicago developer Ghian Foreman, is “not as good as what we had, but it’s better than what we were facing.”
Sources: MacRostie Historic Advisors, Wall Street Journal, Chicago Tribune, Saving Places, Chicago Curbed, Michigan Historic Preservation Network