Fixing Up History Just Got Cheaper: Bill Supercharges Tax Credits, Adds Transfer Option

This bill, the 'Historic Tax Credit Growth and Opportunity Act of 2025,' significantly revamps the federal tax credit designed to encourage fixing up old and historic buildings. The proposed changes aim to make the credit more valuable and accessible, particularly for smaller projects. Key updates include getting the full credit value upfront, boosting the credit percentage for smaller renovations (especially in rural areas), making it easier for buildings to qualify, removing a tax downside, and allowing developers to sell their earned credits for cash.

Faster Cash for Fixer-Uppers

Currently, the main 20% historic tax credit (HTC) is often claimed over five years. Section 2 of this bill changes that, allowing the full credit amount to be claimed in the single tax year the renovated building is officially ready for use ('placed in service'). This applies to projects completed after December 31, 2023. For developers or property owners, this means getting the tax benefit much faster, which can free up cash flow for other needs or help pay down project loans sooner. It basically shortens the wait time for the financial reward of undertaking a historic rehab.

Big Boost for Main Street & Rural Revivals

Section 3 introduces a higher credit rate—30% instead of 20%—for 'qualifying small projects.' A project qualifies as 'small' if the total renovation costs eligible for the credit don't exceed $3.75 million. For projects located in designated 'rural areas' (generally, outside cities/towns over 50,000 people and their suburbs), this spending cap is even higher, at $5 million. This could make renovating that old downtown theatre or a landmark building in a smaller community more financially feasible, potentially sparking local economic activity.

Perhaps the biggest structural change in Section 3 is transferability. This allows the entity earning the credit (like a developer) to sell all or part of it to another unrelated taxpayer purely for cash. Crucially, the cash received from selling the credit wouldn't count as taxable income for the seller. Think of it this way: if a smaller developer completes a project and earns a credit but doesn't owe enough taxes to use it fully, they could sell it to a larger company that does have significant tax liability. The developer gets immediate cash to potentially reinvest, while the buyer gets the tax credit, likely at a slight discount. This mirrors a system already in place for some clean energy credits (under Section 6418), but raises questions about who ultimately benefits most from this new market – the local developer or the large investor buying the credits.

Cutting Through Red Tape (and Tax Bills)

Several other technical changes make the credit more attractive. Section 4 modifies the 'substantial rehabilitation' test. Previously, renovation costs generally had to exceed the building's adjusted basis (its value for tax purposes). This bill changes the threshold, potentially requiring costs to exceed only 50 percent of the adjusted basis, making it easier for more buildings to qualify for the credit.

Furthermore, Section 5 eliminates the 'basis adjustment' rule (under Section 50(c)). Currently, when you claim the HTC, you usually have to reduce the building's basis (its tax value) by the amount of the credit, which lowers future depreciation deductions. This bill removes that requirement, meaning developers could get the full value of the tax credit plus the full depreciation benefits over time – a significant enhancement to the project's bottom line. Section 6 also slightly tweaks rules regarding buildings leased to tax-exempt entities, potentially broadening eligibility in some specific cases involving non-governmental tax-exempt tenants.

Overall, these changes represent a major potential expansion and simplification of the Historic Tax Credit, aiming to drive more investment into preserving and reusing older buildings across the country, from Main Street to rural communities. The introduction of transferability, however, adds a new layer of complexity and warrants watching to see how the market develops and who captures the value.