Federal Rehab Tax Credit Amendments Enacted
President Bush signed the "Housing and Economic Recovery Act of 2008" (HERA) into law (P.L. 110-289) on July 30, 2008. HERA includes three amendments to the federal rehabilitation tax credit as part of the "Housing and Economic Recovery Act of 2008" on July 26, 2008. The net effect of these provisions would be to create a much greater incentive for using the federal rehab credit in the context of affordable housing while simultaneously providing relief from the Alternative Minimum Tax. The three provisions affecting the rehab credit include:
- Leaseback for not-for-profits. Under current law, taxpayers are not eligible for the full amount of the rehabilitation credit if more than 35% of a rehabilitated building is leased to a State or local government. In such a situation, expenditures that are allocable to the portion of the building that is leased by the government will not be counted in calculating the rehabilitation credit. Under the new law, this provision would allow taxpayers to qualify for the full amount of the rehabilitation credit so long as less than 50% of the rehabilitated building is leased to State and local governments or other tax-exempt entities.
- AMT relief for rehab projects twinned with the low-income housing credit. The alternative minimum tax (AMT) can increase the cost of implementing housing programs. Under current law, interest on tax-exempt housing bonds is subject to the AMT and both low-income housing tax credits and rehabilitation tax credits cannot be taken against the AMT. This limits the marketability of these bonds and limits the incentive effect of these credits. The bill would allow the low-income housing tax credit and the rehabilitation tax credit to be used to offset the AMT and would ensure that interest on tax-exempt housing bonds is not subject to the AMT.
- Including historic rehab under State QAP criteria. This provision gives State housing agencies greater flexibility to select sites for low-income housing projects and allocate adequate amounts of credit for projects while also including historic rehab as one of the twelve criteria under state Qualified Allocation Plans (QAPs).
However, only the amendment affecting the sale/lease back to tax-exempt entities was part of the original package of amendments included in the "Community Restoration and Revitalization Act." The National Trust and its preservation partners plan to push for the remaining amendments to the federal rehabilitation tax credit when the 111th Congress reconvenes next year.
Background
The rehab credit is the nation's largest federal incentive that promotes urban and rural revitalization through private investment in reusing historic buildings. It has attracted private capital to historic areas of cities and towns, generated thousands of jobs, strengthened property values, created affordable places to live, and increased revenues of state and local governments.
The "Community Restoration and Revitalization Act" (H.R. 1043/S. 584) is a package of amendments that would further the mission of the rehab credit by spurring greater investments in smaller commercial projects and Main Street commercial properties in older neighborhoods – particularly where there is a critical need for affordable housing and community revitalization. A key aspect of the bill highlights the usefulness of creating affordable rental housing in historic buildings. The law allows the rehab credit to be "paired" with the Low-Income Housing Tax Credit in certain projects. In 2006 the rehab credit alone produced a total of over 15,000 units of housing in the United States and – in conjunction with the affordable housing credit – about 40 percent of those units fell into the affordable range. In addition, the majority of the nation's historic districts overlap census tracts where the poverty rate exceeds 20 percent.
