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HTC guide
What you need to know about Historic Tax Credits.
What Are HTCs?
The Federal Historic Tax Credit (HTC) was created by Congress to encourage the rehabilitation of historic buildings. Certified by the National Park Service, the federal credit equals 20% of qualified rehabilitation expenditures on income-producing historic structures.
Unlike a deduction—which reduces taxable income—an HTC is a dollar-for-dollar reduction in federal tax liability. For a project with $5M in qualified costs, the owner can earn a $1M credit against federal taxes owed.
Many states also offer their own Historic Tax Credits, which can be layered on top of the federal credit to increase total credit value. State HTCs range from 5 to 30% of qualified costs depending on the state.
How They Work
HTCs are not a grant; they require a certified historic structure and a certified rehabilitation. The process is a three-part application overseen by the National Park Service (NPS), the Internal Revenue Service (IRS), and the State Historic Preservation Office (SHPO) in the state where the project is located.
HTCs are typically syndicated: a developer sells the right to claim the tax credit to an investor (or a group of investors pooled through a fund). The investor pays the developer a discounted amount for the right to claim the tax credit over time, providing the developer with upfront equity.
This equity helps fill the gap between what a conventional lender will provide and what the project actually costs, which is often significant in historic buildings, in some cases even exceeding replacement value.
Federal HTC Process
NPS Part 1 Application
Establish the building's historic significance with the National Parks Service (NPS).
NPS Part 2 Application
NPS reviews and approves the rehabilitation plans before construction begins.
Construction
Rehabilitation work is completed in accordance with the Secretary of the Interior's Standards.
NPS Part 3 Certification
NPS certifies the completed rehabilitation and the credits are formally allocated.
Compliance Period
Five-year period during which credit recapture risk exists if the project is sold or ceases to qualify.
HTC guide
Is HTC Investing right for you?
The answer depends on multiple factors; consult your own tax professional.
RDP does not provide tax or investment advice
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Developers
What We Look for in an HTC Project:
Historic eligibility and a clear path through the approval process
Adequate contingency and sufficient sources to complete
A defined rehabilitation scope and preliminary QRE budget
Strong development, design, and construction teams
A credible sources and uses with identified financing sources
An ownership structure that can accommodate HTC investment
A realistic construction, approval, and placed-in-service timeline
A plan to bridge HTC equity through project completion
investors
Investor FAQs
Q:
How long before I see a return?
A:
Initial tax credit delivery (20% of total expected tax credits) typically occurs at Part 3 certification, 2–24 months after closing.
Q:
What is my potential downside risk?
A:
The largest risk is failure to complete construction. Beyond that, if the project fails to comply with HTC requirements or is sold/transferred within the five-year compliance period. This could cause some or all credits to be recaptured. We work to mitigate this risk through upfront diligence, careful structuring, sponsor requirements, legal protections, and ongoing compliance monitoring.
Q:
Do I need to be an accredited investor?
A:
It depends on the structure of the investment and the specific terms of each offering. Certain direct project investments may be available to community investors, provided they meet the eligibility requirements for that offering and are suitable to participate. Fund investments, however, generally require investors to be accredited. In all cases, investor eligibility is reviewed before participation, and the applicable offering documents will control who may invest.
Q:
What K-1 reporting do I receive?
A:
Annual K-1s from the investment entity for the life of the investment.
Q:
Can I sell my interest?
A:
Generally not during the compliance period. We design our structures with this in mind.
glossary