Historic Preservation Tax Credit – Small Projects

The Historic Preservation Tax Credit program offers tax credits to developers who sensitively rehabilitate historic buildings to offer them new life. Iowa offers this tax credit program to ensure character-defining features and spaces of buildings are retained to help create distinct and vibrant communities. Approved projects may receive a state income tax credit of up to 25% of the project’s qualified rehabilitation expenses (QREs). QREs are defined as expenses allowed under Section 47 of the federal Internal Revenue Code ( https://www.nps.gov/tps/tax-incentives/taxdocs/IRC-Section47.pdf ) QREs do not include project expenditures financed by federal, state or local grants or forgivable loans, unless allowed under Section 47. Credits may be carried forward for 5 years, or until depleted. Tax credits are transferable and refundable. Eligibility Only an eligible taxpayer may apply for tax credits under this program. An eligible taxpayer is defined as the fee simple owner of the property or someone having a long-term lease, which meets the requirements of the federal historic rehabilitation credit. Units of government (cities, counties) are not eligible to apply for credits. Project buildings must be historically significant for the project to qualify for tax credits. Buildings must meet at least one of the following criteria: Building is listed on the National Register of Historic Places or determined by the staff at the State Historic Preservation Office to be eligible for listing Building is contributing to the significance of a historic district that is listed on or eligible to be listed on the National Register of Historic Places Building is designated as a local landmark by city or county ordinance Barn constructed before 1937 OR a barn that is listed on or eligible for listing on the National Register of Historic Places Projects must include substantial rehabilitation. Substantial rehabilitation is defined as: Commercial buildings: QREs must equal at least 50% value of the building (excluding land) before rehabilitation or $50,000, whichever is less Non-commercial buildings: QREs must equal at least 25% of the assessed value of the building (excluding land) before rehabilitation or $25,000, whichever is less The process for applying for Historic Preservation Tax Credits is a 3-part application process. Applicants MUST have approved Part 1 AND Part 2 applications approved by the State Historic Preservation Office prior to applying for tax credits through Iowagrants.gov. Application Instructions & Documentation Applications submitted for projects with estimated QRE’s at or below $750k are considered “Small Projects”. These projects may have Part 2B applications submitted year-round but are limited to a maximum of $187,500 in credits. Applicants must submit all required information and attachments. IEDA will only review complete applications. Financing documentation required The budget in the application automatically calculates “financial readiness” based on the status of all project funding sources listed. Applicants will list each funding source, the amount of the funding source, and the status of the funding source; The financial readiness amount is calculated based on this information. Financial readiness is calculated as follows: Term Sheet: 25% of the amount of financing listed -A term sheet is a document identifying interest in providing financing with general conditions outlined Commitment Letter: 50% of the amount of financing listed -A commitment letter is a document outlining approval of financing and general conditions and contains amounts, dates, and time periods. Executed Loan Agreement: 100% of the amount of financing listed -Executed loan agreement is a contact signed by both the borrower and lender The budget in the application will automatically deduct government funding from the amount of eligible QREs. “Government funding” or “funding originating from a government” includes but is not limited to: (1) Any funding the applicant received from a government; or (2) Funding from a third party or a series of third parties where those funds originally came from a government or were derived from a government payment, grant, loan, tax credit, rebate, or other government incentive; or (3) Funding from a third party or a series of third parties where those funds are derived from, secured by, or otherwise received in anticipation of a government payment, grant, loan, tax credit, rebate, or other government incentive. In some instances, government funding may be eligible to be included in QREs, depending on how the government funding is treated for tax purposes (i.e. If the funding is treated as taxable income). Applicants should consult with their tax advisor regarding questions on the eligibility of funds. Applicants must submit a memo for all public funding sources/government funding deemed eligible. Memos should include an itemized list of eligible public financing sources and reasoning of eligibility for each. Failure to produce supporting documentation will disallow sources/costs paid and reduce the amount of credits available to the project if awarded. Developer or investor equity included in the budget must be documented through 1) a signed letter of commitment from the developer/investor containing the dollar amount committed and 2) information from a bank, financial institution or third-party accountant that clearly demonstrates the committed equity is unencumbered and available for this project. Please note: Any Deferred Developer Fee shown in the project must be supported with documentation. However, deferred developer fees will not count toward the percentage of financing secured. Budgets submitted with contingency or in-kind costs will have those amounts subtracted from the allowable QRE calculations. Statutory, regulatory or contractual restrictions related to other government funding programs may limit the ability to claim a project expense for this program, if the expense is claimed under another state or federal program. Registration and Credit Calculation The maximum amount of credits that a project may be registered for will be calculated based on allowable qualified rehabilitation expenses plus an allowed overage allowance. This overage allowance will be 15% of QRE’s for projects less than $750K. Governance Iowa code chapter 404A shall govern all application under the Historic Preservation Tax Credit Program. If any provisions of this application or its instructions are inconsistent with Iowa Code Chapter 404A, the Iowa Code shall control. Eligible cost can be reduced by other government incentives as described. * “Government funding” or “funding originating from a government” includes but is not limited to: (1) Any funding the applicant received from a government; or (2) Funding from a third party or a series of third parties where those funds originally came from a government or were derived from a government payment, grant, loan, tax credit, rebate, or other government incentive; or (3) Funding from a third party or a series of third parties where those funds are derived from, secured by, or otherwise received in anticipation of a government payment, grant, loan, tax credit, rebate, or other government incentive. ** Project costs you finance with money from certain funding sources cannot be considered Qualified Rehabilitation Expenditures (QRE). Funding sources are disqualified if they are not treated as taxable income or, for corporations, if they are considered “capital contributions from a non-shareholder.” In addition, statutory, regulatory or contractual restrictions related to other Government Funding programs may limit your ability to claim a project expense for this program that you are also claiming under another program. Please consult with your tax advisor if you have questions about the eligibility of funds. All public sources of funding deemed eligible must have a memo submitted outlining the reason for eligibility. Failure to produce documentation supporting eligibility will disallow costs paid and reduce credits amount. Funding utilizing developer or investor equity in place requires at a minimum 1) a signed letter of commitment from the developer/investor containing the dollar amount committed and 2) information from a bank, financial institution or third party accountant that clearly demonstrates the committed equity is unencumbered and available for this project. Please note: Any Deferred Developer Fee documentation must be provided but will not count toward the percentage of financing secured. Iowa code chapter 404A shall govern all application under the HPCED Tax Credit Program. In the event that any provisions of this application or it’s instructions are inconsistent with Iowa Code Chapter 404A, the Code shall control. Part 3 Application Processing Fee Nonrefundable application processing fees are charged for reviews of Part 3 Request for Certification of Completed Work. Make check payable to “Department of Cultural Affairs” and add “STC Part 3” to the memo line. Applications will be placed on hold and will not be reviewed until payment is received. Send payment to: State Historic Preservation Office State Historic Tax Credit Program – 3rd Floor East 600 E Locust St Des Moines, IA 50319-0290 Listed in the following table are the nonrefundable fees for review of the Part 3 Request for Certification of Completed Work: Final Qualified Rehabilitation Expenditures Part 3 Review Fee $50,000 or less No Cost $50,001 to $100,000 $250 $100,001 to $750,000 $500 $750,001 to $6,000,000 0.5 percent of qualified rehabilitation costs (i.e., 0.005 x costs) Over $6,000,000 $30,000