Old Buildings, New Rules: Bill Offers 30% Transferable Tax Credit for Small Historic Rehabs, Lowers Qualification Bar

This bill, the 'Historic Tax Credit Growth and Opportunity Act of 2025,' aims to give the federal Historic Tax Credit (HTC) a significant boost, particularly for smaller projects. It adjusts the existing 20% credit rules, introduces a higher 30% credit for qualifying smaller rehabilitations, makes that enhanced credit transferable, and lowers the bar for buildings to qualify in the first place. These changes generally kick in for properties put into service after the bill's enactment, though the standard 20% credit rule applies retroactively to property placed in service after December 31, 2023.

Bigger Bucks for Smaller Buildings (Especially Off the Beaten Path)

The headline feature is a new, more generous tax credit aimed at smaller-scale historic rehabs. Under Section 3, projects with total qualified rehabilitation expenditures (QREs) – essentially, the costs of fixing up the building – of $3.75 million or less can qualify for a 30% tax credit, up from the standard 20%. This could be a game-changer for Main Street revitalizations or fixing up smaller historic apartment buildings.

There's an extra boost for projects in designated rural areas: the QRE limit for the 30% credit increases to $5 million. The bill defines a rural area as anywhere outside a city or town with more than 50,000 people, or its adjacent urbanized area. This targets investment towards historic properties outside major metro zones.

Trading Credits Like Stocks? Almost.

Perhaps the most innovative part of Section 3 is making this new 30% credit transferable. This means a developer or owner undertaking a qualifying small project, who might not have enough tax liability to use the full credit themselves, can sell all or part of the credit to another taxpayer for cash. The buyer can then use that credit to lower their own tax bill.

This creates a new financing mechanism, potentially making it easier to get cash upfront for these smaller rehab projects. However, it also introduces complexity. The bill requires a formal certificate for transfers and directs the IRS to create regulations similar to those for existing transferable energy credits (under Section 6418), meaning there will be specific rules and reporting requirements to navigate.

More Buildings Get in the Game

Beyond the new credit tier, Section 4 makes it easier for any historic building rehab to qualify for the HTC (either the 20% or the 30% rate). Previously, a project had to involve expenses exceeding the building's adjusted basis (its cost for tax purposes) to be considered a 'substantial rehabilitation.' This bill lowers that threshold significantly: now, rehab expenses only need to exceed 50% of the adjusted basis.

This change could bring many more buildings into eligibility, particularly those with a relatively high basis where the old threshold was hard to meet despite significant work being needed.

Keeping More Value, Simpler Rules

Two other technical changes aim to sweeten the deal. Section 5 eliminates the basis adjustment requirement (under Section 50(c)) for the rehabilitation credit. Normally, claiming tax credits requires reducing the property's basis, which lowers future depreciation deductions. Removing this rule makes the HTC slightly more valuable over the long term.

Additionally, Section 6 tweaks the rules around tax-exempt tenants (like non-profits). It clarifies that stricter rules disqualifying expenses only apply if the tenant is a government entity. This could make it slightly easier for non-profit organizations to occupy space in a historic rehab project without jeopardizing the owner's tax credits.