by Lucy E. Zahnle

Created on: September 16, 2009   Last Updated: September 17, 2009

The Future of the Past: Historic Preservation and State and Federal Tax Incentives

The manner in which the U. S. Congress and the president decide to spend annual tax money is always a controversial topic for Americans. A cause or project that one group of citizens views as a waste of funds may be embraced by another group as indispensable. Historic preservation, the saving of those places, buildings, and things that have cultural or historical significance to a people, is just the sort of cause that some may feel is a tax incentive rat hole. However, although state and federal tax incentives for historic preservation come out of the taxpayer's pockets, the money spent proved to be a lucrative economic and environmental investment in local communities.

Although individual efforts at preserving important historical and cultural edifices can be documented throughout mankind's history, the United States government first recognized the need for official involvement in the pursuit of historic preservation in 1966. At that time, Congress issued a policy statement to the effect that "the historical and cultural foundations of the Nation should be preserved as a living part of our community and development in order to give a sense of order to the American people." It would take ten years, though, for tax laws biased against building preservation and re-use to change.

The Tax Reform Act of 1976 offered an uncapped twenty-five percent tax credit to commercial developers who renovated existing historic buildings that met certain federally specified criteria. The renovations had to follow certain guidelines laid out in the government document, The Secretary of the Interior's Standards for Rehabilitation. This publication became and still remains the ten point guide for determining whether a given project's rehabilitation plan is a candidate for historic preservation tax incentives. Then, as now, the federal tax credits were only available for income-producing projects, not residential properties.

The Tax Reform Act of 1986 reduced the preservation tax incentive from twenty-five percent to twenty percent, but, as in 1976, did not cap the amounts that could be credited. The passage of the 1976 law saw a boom in applications for federal historic preservation projects, but the reduction mandated in the 1986 statute caused a seventy percent decrease in investments in historic buildings and an eighty percent decline in applications for new federal historic preservation projects.

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