In December, Washington passed the much-debated Federal Tax Cuts and Jobs Act, which brought sweeping changes to the tax structure for individuals and companies in the United States. For many, this bill represented a potential turning point for the American economy.
Locally, and in cities across the country, much concern was paid to the future of the Historic Tax Credit (HTC) and other urban development incentives. Many feared that such programs would be eliminated all-together or, at the very least, altered so significantly that they would be rendered useless. In fact, in the House of Representatives, their version of the tax bill did just that, eliminated the HTC as one concession to enable more significant cuts to the corporate tax rate. The Senate bill maintained the program and ultimately, to the relief of its proponents, the HTCs were included as a part of the final tax bill signed by the President.
Some modifications to the program were made in this process, impacting its value to local development. The first being the lengthening of the reimbursement period. Credits now must be claimed over five years after project completion. Previously, all credits could be claimed immediately upon completion of the project. Secondly, the lowering of the corporate tax rate is expected to lessen the pool of investors interested in purchasing tax credits. Both of these changes provide new challenges to utilizing the program, however, it is a better case scenario than losing the program altogether.
The following chart offers a glimpse of how the new tax bill impacts the Historic Tax Credits as well as a number of other development-related programs:
|Measure||Former Law||Federal Tax Cuts & Jobs Act|
|Historic Rehabilitation Tax Credit (HTC)||20 percent credit claimed when historic property is placed in service||20 percent credit retained, but claimed over 5 years|
|Low Income Housing Tax Credit (LIHTC) basis boost||30% basis boost for projects in distressed areas||No changes|
|Nonhistoric rehabilitation tax credit||10 percent credit, for nonresidential buildings placed in service before 1936||Repealed after 2017|
|Private Activity Bonds (PAB)||$100 per capita/$305 million small state minimum||Retained|
|4 Percent Low Income Historic Tax Credit (LIHTC)||$3 to $4 Billion a year||Retained|
|Corporate tax rate||Top corporate rate of 35%||Top corporate rate of 21% beginning in 2018|
|Mortgage-interest deduction||Can deduct interest on up to $1 million in loans on property value||Can deduct interest on up to $750,000 in loans on property value|
|State and local income and property tax deduction||Can be deducted from federal income taxes||Caps deduction at $10,000|
|Standard deduction||$6,350 for individuals, $12,700 for couples||$12,000 for individuals, $24,000 for couples|
|Estate Tax||40% on value that exceeds $5.5 million||40% on value exceeding $10 million|
|*source: Curbed, CNN, Washington Post, New York Times, Novogradac & Company|
A more recent challenge to the Historic Tax Credits and other similar programs is now being waged at the state-wide level. Governor Cuomo’s Executive Budget proposal includes the deferment of several state tax credits including credits available for brownfield and historic rehabilitation projects. The Governor’s proposal would apply to new and existing projects where the credits total more than $2M. The credits would be deferred until January 2021. The Buffalo Niagara Partnership adamantly opposes this plan and will be highlighting our concern when we discuss our state budget priorities with the WNY State Delegation at our February 9 Legislative Lunch and beyond.
Deferment of these tax credits is bad for business and bad for the Buffalo Niagara region. As you know, the Partnership worked aggressively to secure a long-term extension of the Brownfield Cleanup Program as part of the 2015-2016 State Budget and has long championed Historic Tax Credits at both the federal and state level. This is not the time to weaken vital incentives that have been fundamental to rebuilding Buffalo Niagara and are essential to our future success as a region. We will continue to update you on this issue as budget negotiations move forward.