Massachusetts Historic Tax Credit

A tax credit for rehabilitating certain historic structures has been available at the federal level for a number of years. Now, such a credit is available at the state level. Specifically, Massachusetts allows for a tax credit in connection with rehabilitating certain historic structures for the five-year period beginning January 1, 2005 and ending December 31, 2009. There is an annual limitation of $10 million as to the credits that will be authorized. The following is a brief discussion of certain provisions contained in recently issued regulations. 

Similar to the federal tax credit, the state tax credit is generally 20% of the qualified rehabilitation expenditures. The key here is in the definition of "qualified rehabilitation expenditures" and the procedural aspects of obtaining the appropriate level of certification as to both the structure and the rehabilitation. The term "qualified rehabilitation expenditures" is defined, in general, as amounts incurred in connection with the "certified" rehabilitation of a "qualified historic structure". However, the term does not include personal property, personal use property, or the cost of acquiring any building or interest therein. In many ways, these rules parallel the federal rules. 

The entire certification process is somewhat involved and attention to deadlines and the sequence of procedures are important. The process begins with identifying the structure as a "qualified historic structure" which is defined as any building or structure that is located within the Commonwealth and is individually listed on the National Register of Historic Places or is a contributing building within a district that is listed on the National Register of Historic Places or has been determined by the Massachusetts Historical Commission to be eligible for listing on the National Register of Historic Places. 

The initial certification by the Massachusetts Historical Commission is the certification that the structure meets the definition of a qualified historic structure. The Commission issues a second certification if the project is chosen as one of the projects that are allocated a portion of the annual available credit. This certification is issued prior to construction and certifies that, if completed as proposed, the rehabilitation work will meet the standards required for certified rehabilitation. The final certification is issued when the project is completed, certifying that the work was completed as proposed and that the costs are consistent with the work completed. 

The final certification is based on the rehabilitation as having been substantial such that the qualified rehabilitation expenditures during a 24-month period selected by the taxpayer exceed 25 percent of the taxpayer's adjusted basis in the building and its structural components as of the beginning of the period. For example, where a qualified historic structure is purchased for $1 million, the qualified rehabilitation expenditures must exceed $250 thousand during the term of the 24-month period selected. 

The credit may be transferred, in whole or in part, to any individual or entity, without the requirement of transferring any ownership interest in the project or any interest in the entity, which owns the project. Further, any unused credits may be carried forward over a 5-year period. Importantly, the general 50% of tax limitation that applies to certain other credits does not apply to the historic tax credit. Finally, a portion of the credit may be recaptured if the rehabilitated structure is disposed of by the taxpayer within 5 years.

There are important planning considerations in connection with the Historic Rehabilitation Credit from the organizational aspects of selecting the appropriate timing for submitting the project for the initial certification to selecting the 24-month period and managing the completion date. Although the credit begins on January 1, 2005, the planning must begin now. 

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