Historic properties tell the stories of our cities. From ornate nineteenth‑century warehouses to early twentieth‑century schools and theaters, these buildings are physical links to a community’s past. Yet many of them sit vacant or underutilized because the cost of rehabilitation is high and investors perceive risk in bringing obsolete structures back into productive use. Federal and state tax incentive programs have become essential tools to bridge the financing gap. This article explores how historic and new market tax credits work, how to qualify and apply, how to combine incentives, and the compliance obligations that accompany them. It is intended for developers, community groups and municipalities interested in leveraging tax credits to revitalize historic properties, as well as for investors and lenders seeking a deeper understanding of these programs. At every step, working with a knowledgeable attorney like James Neeld ensures that projects are structured correctly and that the many legal requirements are met.

## Qualifying for historic tax credits

The federal Historic Tax Credit (HTC) program provides a 20 percent credit on qualified rehabilitation expenditures for income‑producing historic buildings certified by the National Park Service. Many states offer companion credits that enhance federal benefits, creating an even more attractive incentive for developers and investors. To qualify, a building must be listed individually on the National Register of Historic Places or contribute to a listed historic district. Buildings less than 50 years old generally do not qualify, although there are exceptions for significant properties.

Qualifying for the credit involves more than just owning the right building. The rehabilitation must meet the Secretary of the Interior’s Standards for Rehabilitation, which ensure that historic character is preserved. The project must be “substantial,” meaning the investment in qualified rehabilitation expenditures exceeds the building’s adjusted basis. Finally, the property must be income‑producing; residential owner‑occupied buildings are not eligible. A developer seeking to use tax credits should assemble a team that understands the program requirements and can prepare documentation that demonstrates compliance. James Neeld, as an experienced attorney, can help evaluate whether a property qualifies and whether the proposed scope of work meets federal and state standards.

## Application process overview

The Historic Tax Credit application process is rigorous, and understanding it early can help avoid costly delays. It involves three primary parts:

1. **Part 1 – Evaluation of significance**: The owner submits information about the building’s history, architectural features and current condition to determine whether it is a certified historic structure or contributes to a historic district. If the building is already individually listed, the Part 1 may be straightforward; if not, the applicant must provide enough evidence to gain certification.

2. **Part 2 – Description of rehabilitation**: The owner submits detailed plans and photographs showing existing conditions and proposed work. The National Park Service reviews the plans to ensure compliance with the Secretary’s Standards. Changes to historic materials, window replacements and additions are often areas of focus. The review timeline can vary, so applicants should allow several months and be prepared for comments or required modifications.

3. **Part 3 – Request for certification of completed work**: Once the project is completed, the applicant must certify that the rehabilitation work was done as approved and request final approval. This part is vital because the tax credit is not earned until the project is complete and the National Park Service issues a final certification.

In addition to federal requirements, states may have their own application processes and deadlines. Some states issue the credit on a first‑come, first‑served basis until annual allocations are exhausted, making early submission essential. The process also involves coordinating with the Internal Revenue Service for ownership and pass‑through entity structures, as well as filing IRS Form 3468 to claim the credit. Having an attorney like James Neeld coordinate the many moving pieces—including title matters, partnership agreements and lender requirements—helps ensure a smoother process.

## Combining with other incentives

Many historic redevelopment projects leverage multiple incentives to make the numbers work. Developers often layer the Historic Tax Credit with the New Markets Tax Credit (NMTC), state historic credits, low‑income housing tax credits, tax increment financing (TIF) and property tax abatements. Each program has its own eligibility criteria and compliance obligations, and combining them adds complexity but can significantly reduce the capital stack.

The New Markets Tax Credit program incentivizes investments in low‑income communities by providing a credit worth 39 percent of the qualified equity investment. Projects that create jobs or provide community services in distressed areas may qualify. Pairing NMTCs with HTCs can enhance the overall return, but it requires working with Community Development Entities (CDEs) to allocate credits and structuring the project financing to meet both programs’ requirements.

State historic credits can add another 10 percent to 25 percent of qualified expenditures, depending on the state. These credits may be refundable or transferable, enabling developers to monetize them through credit investors. Tax increment financing or special assessment districts can provide additional funding streams by capturing future tax revenue generated by the redeveloped property. Timing the approval processes and meeting the various compliance conditions is critical when combining incentives. Legal counsel helps coordinate these programs, ensure they complement each other and structure transactions to maximize benefits while minimizing risk.

## Compliance requirements

Earning tax credits is only the beginning; maintaining them requires ongoing compliance. For the Historic Tax Credit, the rehabilitation must be held as an income‑producing property for at least five years after the project is placed in service. Selling the property or converting it to a non‑income‑producing use before the end of the five‑year recapture period can cause a portion of the credit to be recaptured by the IRS. Building owners must also maintain the historic character of the property after rehabilitation; unsympathetic alterations could jeopardize the credit. Monitoring and documenting compliance during the recapture period is crucial.

When combining HTCs with NMTCs and other incentives, additional compliance layers apply. NMTC regulations require that the project continue to meet the criteria for a Qualified Active Low‑Income Community Business for seven years. The entity must demonstrate that at least 50 percent of its gross income is derived from the community business, that a substantial portion of the use of tangible property is within the low‑income community, and that services are performed there. Noncompliance can lead to the loss of credits and potential penalties.

Bond financing or TIF instruments may have covenants related to job creation, community benefits or minimum investments, and state programs often require annual reporting. Having an experienced attorney involved ensures that lease agreements, operating agreements and financing documents contain provisions to address these obligations and protect the interests of investors, lenders and developers.

## Case studies and community impact

Tax credit‑funded redevelopment has transformed historic properties across the United States. A former textile mill converted into affordable housing not only preserved an architectural landmark but also provided much‑needed units in a rural county. Layering federal and state credits with TIF financing and private investment, the developer reduced the financing gap and delivered a financially viable project.

In an urban downtown, an abandoned theater was restored as a mixed‑use development housing a performing arts venue on the ground floor with offices and apartments above. Utilizing the Historic Tax Credit, NMTC financing, and a property tax abatement, the project attracted tenants who were drawn to the building’s character and the vibrancy of the surrounding arts district. The rehabilitation sparked other investments and became a catalyst for neighborhood revitalization. Such examples demonstrate how tax credits stimulate economic development, create jobs, and reinforce a community’s sense of identity.

## Conclusion: the importance of legal guidance

Tax credits are powerful tools that unlock the potential of historic buildings and support economic development, but they come with complex eligibility rules, application procedures, and compliance obligations. Successfully leveraging these programs requires careful planning, meticulous documentation, and coordination among developers, lenders, investors and public agencies. Working with an attorney who understands both the legal and practical aspects of real estate development can make the difference between a successful project and a missed opportunity.

As a seasoned attorney, **James Neeld** provides counsel to developers and investors navigating the intricacies of historic and new market tax credits. He can help evaluate property eligibility, structure deals to maximize incentives, negotiate with CDEs and state agencies, and ensure compliance throughout the project’s life cycle. Whether you are rehabilitating a single building or planning a multiphase redevelopment, proactive legal guidance protects your investment and positions your project for success.

If you are considering using historic tax credits or other incentives for your development projects, contact James Neeld to discuss your goals. His knowledge of real estate law and experience with tax credit transactions can help you transform underused historic buildings into vibrant assets for your community.