Michigan’s State Historic Credit Is Made Richer, More Flexible

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Tax Credit Advisor March 2009: After years of lobbying by advocates led by the Michigan Historic Preservation Network (MHPN), Michigan has significantly improved its 25% state historic tax credit. The changes made by the legislation signed 1/9/09 (SB 973, HB 6496) include to increase by as much as 400% the amount of the state credit when combined with the 20% federal historic rehabilitation tax credit.

“We’re very, very excited” about the new changes,” said MHPN Executive Director Nancy Finegood. She expects the changes to generate more projects, and more equity for more projects. “I think we’re going to see a lot more activity,” Finegood said. “We’ve had a lot of developers that have been waiting for this to happen, particularly in our urban centers like Detroit and Grand Rapids.”

“This is just a huge win,” said Grand Rapids, MI-based Jim Manning, a partner in the accounting and consulting firm of Plante & Moran. “A lot of good things will happen with this [enhanced] credit.” He anticipated the changes should boost pricing for Michigan’s state historic credit – a certificate – to about 85 to 90 cents per credit dollar from 75 to 80 cents before.

Michigan’s state historic tax credit is equal to 25% of the qualified rehabilitation expenses for historic income-producing properties or historic homes. It can be used by taxpayers to offset tax liability under the state’s single business tax (i.e. corporate income tax) or personal income tax.

Key changes made by the new laws ease a penalty for projects that also receive the federal historic tax credit, and create three tiers, or levels, of tax credit projects.

Previously, if a project received the 20% federal historic tax credit, the state tax credit amount was reduced to 5%. Under the new legislation, projects receiving the federal historic credit are still limited to a base 5% state historic credit. However, sponsors may now apply for additional state credit, to the Michigan Department of History, Arts, and Libraries (HAL). HAL can approve additional state credit of 10% to 15%, for projects with rehab expenses below $1 million, or up to 15%, for larger projects. As a result, a project receiving federal historic credits could receive as large as a 20% state historic credit. HAL must evaluate requests for extra credits against specified criteria.

The legislation caps the total amount of these additional (Tier II) credits that can be approved annually, at $8 million in 2009, rising by $1 million each year to $12 million in 2013.

The legislation also authorizes additional credits annually for a small number of very large projects, or “high community impact” Tier 3 projects that meet certain criteria. These projects also need to apply for and be approved by HAL for these additional state credits, equal to as much as 15% extra credit on top of the base state credit amount. The number of authorized Tier III projects is three in 2009 and two annually during 2011-2013. The legislation caps at $3 million the maximum amount of state credit that can be claimed annually by any single taxpayer.

The legislation promotes and facilitates smaller historic projects. Of the annual Tier II credit ceiling amount, at least 25% must go to projects with $1 million or less in rehab expenses.

The legislation also:

  • Permits the state credit to be assigned to another party (e.g. investor) that isn’t part of the project’s ownership entity, as was previously required to claim the state credit.
  • Permits a refund for 90% of the amount of state tax credit in excess of the taxpayer’s annual tax liability, where the state credit amount is less than $250,000.
  • Permits the state tax credit for historic condominium development projects. Manning described this as beneficial and suggested that condo projects could be good candidates for state credit-only deals.

HAL’s Web site noted program information should be available around the end of February.

(http://www.michigan.gov/ hal/0,1607,7-160-18833_18873_ 18887-54166Ñ,00.html)