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Taking Advantage of Federal Historic Tax Credits in Savannah's Landmark Historic District

Updated: Dec 8, 2020

There are two big factors that make investing in real estate more attractive than stocks for many investors - the ability to use debt, and the great tax savings that are available only to real estate investors. One of these tax incentives in the federal historic tax credit. In this post we will discuss the basics of the credit and how you can qualify and go into some detail about how investors in Savannah specifically can take advantage of it.


Part of this article has been adapted from Bullpen's Historic Tax Credit blog post. You can read their full post here.


Background


The federal historic tax credit dates back to 1978. The federal government implemented this credit in an attempt to curb the demolition of historic buildings. Renovating historic buildings is often more expensive than simply building a new one, so this credit is the way that the federal government incentivizes investors and developers to maintain and preserve our rich history for generations to come. The historic tax credit entitles developers to a 20 percent tax credit on eligible improvement expenses.


Why should Savannah real estate investors learn about this credit?


Savannah is home to the largest historic landmark district in the United States - our federally designated historic landmark district includes the entire area north of Gwinette street between MLK and East Broad. Other historic districts in the city include Cuyler Brownsville, Eastside, the Victorian district, and others. There are literally thousands of buildings in this city that may qualify for this tax benefit.


The city of Savannah, incorporated in 1733, is unique among almost any other city in the country because of it's lush, green spaces and high density of historic structures. It is Savannah's "urban forest," our rich history, and our vibrant culture and dining scene that makes Savannah such a desirable city today. We are fortunate that men like Georgia's first colonial governor James Oglethorpe had the foresight to plan the city around our network of town squares and open spaces, and we are also fortunate that programs like the federal historic tax credit exist to enable investors to save historic buildings - and savvy investors would be wise to take advantage of it whenever practicable.


Details on the tax credit


The historic tax credit, also called rehabilitation tax credit, is administered by the National Park Service and the Internal Revenue Service with assistance from the State Historic Preservation Offices. Since its inception, the tax credit has been used to revitalize communities by turning old buildings into viable spaces in the community. Over 43,000 historic buildings have utilized the historic tax credit for improvements, generating over 2.5 million jobs and leveraging over $144.6 billion in private investment.


The benefits of historic tax credit for developers is significant. No other tax credit in the United States provides as much incentive to preserve and restore historic sites as the federal historic tax credit.

With 20 percent of investment returned in a tax credit, it’s worth understanding how the historic tax credit works and how developers can benefit from it.


To qualify for the federal historic tax credit the building must be considered “historic” and be listed on the National Register of Historic Places. Further rules stipulate the building must undergo “substantial rehabilitation.” This means the funds spent on rehabilitation must exceed the greater of either:

  • $5,000

  • The adjusted basis of the building and its structural improvements. Generally, the adjusted basis is the purchase price minus the cost of the land, plus improvements already made, minus depreciation already taken.

Several other stipulations exist to qualify for historic tax credit:

  1. The improvements to the building must be completed within 24 month. If the renovation is completed in pre-approval phases, the timeline jumps to 60 months.

  2. The proposed renovations must comply with the Secretary of the Interior’s Standards for Rehabilitation and 36 CFR 67.7.

  3. The building must used as an income-generating property for commercial or residential use. Private residential use by the owner does not qualify for the tax credit.

  4. The building must be listed on the National Register of Historic Places (either individually or in a district), or be in a federally certified local district, to claim the credit. Any building that is a minimum of 50 years old and retains some of it original integrity may qualify for designation.

For those looking to take advantage of this credit specifically in Savannah - here are some links to check if a property you want to renovate might be in a qualifying historic district, and below is a map showing some (but not all!) of the federally designated historic districts around Savannah:

You can download spreadsheets of the historic places registry here

And here is an interactive map of the National Register of Historic Places






It is my belief that any property you wish to renovate and hold onto as a income producing property in any of the highlighted areas below would qualify for the credit. I am not an expert though, and I've come to this conclusion based on the roughly two hours of research I did for this article - I would recommend hiring a historic tax credit consultant to help in this project unless you have a lot of time on your hands. Consider these guys who have completed a ton of projects and have a very useful blog that helped me write this post: https://www.macrostiehistoric.com


Practical example


Let's talk a little bit more about using this credit specifically in Savannah. I'd like to start by discussing a failure in historic preservation - the DeSoto Hotel on Liberty St.


The DeSoto hotel was originally constructed in 1890 by William G. Preston, but closed in 1965 and was demolished. The modern DeSoto was opened in 1968. See below for some before and after photos.





Beauty is in the eye of the beholder of course, but I'm of the opinion that the original DeSoto looks better than the 1968 reconstruction. Perhaps if the federal historic tax credit had existed before the old DeSoto was demolished, Savannahians today could still enjoy the old building and the deal could still be lucrative for investors due to the tax credit. The 50s and 60s were a time when America saw incredible development, but much of that development came at the expense of the environment and our history.


I think that the America of today strikes a great balance between development and progress and preserving our history, and I think our beautiful city of Savannah stands at the forefront of historic preservation and progress walking hand in hand to a bright future.


Questions or comments about using the historic tax credit to invest in Savannah? Leave em in the comments, or reach out to the author Pat Wilver at pat@trophypointrealty.com.


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