Tools in the toolbox: State Historic Tax Credits
Historic buildings can be some of the most compelling - and challenging - development opportunities. They often come with high rehabilitation costs, design constraints, and unpredictable conditions. State Historic Tax Credits (SHTCs) are a powerful tool that can help bridge those gaps while preserving the character that makes these projects special.
While federal historic tax credits get much of the attention, state credits can be just as impactful - and in some cases, the deciding factor in whether a project moves forward.
What are State Historic Tax Credits?
State Historic Tax Credits are incentives offered by individual states to encourage the rehabilitation and reuse of historic buildings. Each state program is different, but most are designed to complement the federal historic rehabilitation tax credit.
In general, SHTCs:
- Provide a state income tax credit based on qualified rehabilitation expenditures
- Apply to certified historic structures
- Are claimed after the project is placed in service
- Can often be combined with the federal 20% historic tax credit
Some states offer refundable credits, while others allow credits to be sold or transferred—features that can significantly affect project financing.
Why developers use State Historic Tax Credits
State historic credits can materially improve project feasibility, especially for older buildings that require substantial investment.
Common benefits include:
- Closing financing gaps caused by higher rehabilitation costs
- Improving project returns
- Making adaptive reuse projects more competitive
- Encouraging investment in downtowns and legacy neighborhoods
How state programs differ
Unlike federal credits, state historic tax credit programs vary widely. Key differences may include:
- Credit percentage (often ranging from 10% to 30% of qualified costs)
- Competitive application or allocation processes
- Geographic or project-type preferences
- Transferability or refundability of credits
Because of these differences, understanding a specific state’s program is essential before structuring a deal.
Key considerations and pitfalls
While state historic tax credits can be extremely valuable, they come with their own set of challenges:
- Strict compliance with historic preservation standards
- Additional layers of review and approval
- Timing issues tied to allocation rounds or funding cycles
- State-specific legal and tax requirements
Early coordination among developers, architects, preservation consultants, and legal counsel can help avoid costly redesigns or delays.
Combining state and federal historic credits
One of the most effective uses of SHTCs is in combination with the federal historic tax credit. Together, they can:
- Significantly reduce the net cost of rehabilitation
- Attract equity investors
- Support more ambitious or complex restorations
In many transactions, state and federal credits are layered with other tools - such as NMTCs, tax increment financing, or grants - to fully capitalize the project.
When State Historic Tax Credits make sense
State historic credits are most effective when:
- The building qualifies as a certified historic structure
- Rehabilitation costs are substantial
- The project team is experienced (or well-advised) in historic compliance
- The developer is willing to engage early in the approval process
State Historic Tax Credits can transform preservation challenges into financially viable development opportunities. When used strategically, they not only protect historic assets but also support vibrant, economically sustainable communities.
If you’re evaluating a historic building or considering a rehabilitation project, I’m happy to help assess whether state historic tax credits may be available and how they could be integrated into your financing plan. Reach out to discuss how this tool might work for your project.
