Tax credit for historic preservation is part of NC budget negotiations

kcanada@newsobserver.comJune 16, 2014 

  • Changes proposed

    Currently home owners can receive a tax credit of up to 30 percent for rehabilitating a historic home.

    The House budget would change that to 20 percent of expenses up to $200,000 over 24 months if the house is valued at less than the statewide median home value. Homeowners can also collect 15 percent of expenses up to $200,000 with a value less than 150 percent of the statewide median home value. Expenses must exceed $10,000 in a 24-month period.

    The credit would also change for those redeveloping an income-producing building. Currently the credit is 20 percent. That would change to a 15 percent tax credit for spending up to $10 million dollars, an additional 10 percent for rehabilitation that costs between $10 million and $20 million and an additional 5 percent for rehabilitating a structures in Tier I and Tier II areas.

The future of a popular state tax that has helped communities across the state save historic homes and revitalize downtowns could be decided this week.

As House and Senate lawmakers negotiate their differing state budgets one of the line items they’ll be looking at is the Historic Rehabilitation Investment Program, which provides a 20 percent to 30 percent tax credit to those who restore historic homes and buildings. The credit is set to expire at the end of this year. House lawmakers want to extend the credit, but their counterparts in the Senate do not.

Greg Hatem, whose Empire Properties has used the credit to restore several properties in downtown Raleigh, said it was the catalyst for much of the other development downtown.

“It starts when you renovate a historic building,” said Hatem, whose numerous holdings – all in restored buildings – include the restaurants The Raleigh Times and The Pit. “What follows is you have office spaces and restaurants, and this creates active uses that bring a downtown back to life.”

In cities and small towns across the state, historic rehabilitation also plays a role in cultural preservation by providing context and identity for people from North Carolina, Hatem said.

Organizations like Preservation North Carolina have called for an extension of the program. Robert Parrott, Preservation NC’s interim regional director, said the North Carolina economy benefits from the program.

“You can see that these projects have a tremendous effect because when you put tenants in the commercial buildings, that helps spur the economy of the area,” Parrott said. “When you put homes in buildings that were previously vacant, it encourages homeowners to pay taxes and spend money in the area.”

He said without the tax credit, property buyers would be discouraged from rehabilitating historic buildings in the first place.

In 2009, Justin Boner and his wife, Kierna McGorty, purchased a house built in the 1860s from Preservation North Carolina. Before they began renovating, the house was deemed uninhabitable by the city of Raleigh. But its location in the Oakwood area made it an appealing prospect.

So far, the credit has reduced their taxes by $45,000 – 30 percent of their total expenditures.

If the House and Senate agree to extend the credit, Boner and McGorty plan to continue their renovation over the next five years.

“Having an expiration date has hastened construction for us,” Boner said. “It was originally a 10-year period.”

If the credit isn’t extended, they’ll wrap up by Dec. 31, the eve of the credit’s expiration.

Economic benefits

Smaller towns across the state have taken advantage of the program as well.

Siler City officials transformed Siler City High School, which was built in 1922, into Braxton Manor Apartments 15 years ago with the help of the tax credit.

Jack Meadows, the director of planning and community development in Siler City, said the old building needed to be modernized with heating and air conditioning as well as new electrical systems and plumbing. Meadows said the tax credit “made the deal work.”

Supporters of the program point to its economic benefits. The North Carolina Department of Commerce estimates that the credits cost the state an average of $14.2 million a year but that they bring in $124.5 million in annual investments.

Overall, the tax credit has generated $1.7 billion in private investments for the state since 1976, when it was first granted to businesses and developers. The credit was extended to homeowners in 1998.

House, McCrory changes

Gov. Pat McCrory, who backs the program, extended it in his budget proposal but with modifications. The House budget originally did not extend the credit but it was added as an amendment, mirroring the governor’s plan. His proposal reduces the overall cost of the program from $20.7 million to $13.2 million by reducing the credit home owners and business could receive.

Rep. Dean Arp, a Republican from Monroe, sponsored the effort to include the tax credit in the House budget. He said McCrory’s proposed reductions are effective.

“The program is very worthy in terms of economic development, and it provides an increased tax base for revenue,” Arp said. “This is a case where we can take public dollars and leverage private investment.”

But Sen. Bob Rucho, who co-chairs the finance committee, said eliminating incentives was part of a larger plan to lower tax rates throughout the state. Instead of picking winners and losers when it comes to incentives, he said, everyone would be able to enjoy lower income taxes.

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