Historic Tax Credit Gets Major Boost: 30% Rate for Small Projects, Credits Now Transferable

The “Historic Tax Credit Growth and Opportunity Act of 2025” is a big deal for anyone interested in real estate development, historic preservation, or just seeing old downtown buildings get a second life. This bill takes the existing federal tax credit for rehabilitating historic properties and throws a significant amount of jet fuel on it, making these projects much more financially attractive.

The New Bottom Line: 20% Is the Standard

Starting with property placed in service after December 31, 2023, the bill locks in the standard rehabilitation tax credit at a flat 20 percent of qualified expenditures (SEC. 2). That’s a solid, reliable incentive. But the real game-changer is how the bill treats smaller projects, especially those outside of major cities.

Small Projects Get a 50% Bonus and Rural Boost

If you’re tackling a “qualifying small project,” you get a massive bump up to a 30 percent credit rate, provided your expenses don't top $3,750,000 (SEC. 3). For a developer planning to restore a small Main Street theater or an old factory into apartments, this 50% increase in the credit rate is huge. It can be the difference between a project penciling out or sitting vacant.

Even better, if that small project is located in a rural area—defined as outside of a city of 50,000 or its immediate urban area—the spending cap jumps to $5,000,000. This provision is clearly designed to inject capital into smaller, often overlooked communities where revitalization is desperately needed. It means more money flowing into local construction jobs and breathing life back into historic districts that have seen better days.

Cash Flow: You Can Now Sell the Credit

One of the biggest practical hurdles for developers is that tax credits are only valuable if you have a huge tax bill to offset. This bill solves that problem by making the credit transferable (SEC. 3). This is massive for cash flow. A developer can now sell all or part of their newly generated tax credit to another taxpayer—say, a large corporation—for cash. This means the developer gets the project funding upfront, and the buyer gets a dollar-for-dollar reduction in their tax liability. Crucially, the transferor (the developer) doesn't have to count the cash they receive from selling the credit as taxable income. This mechanism de-risks projects and opens the door for smaller, less tax-savvy developers to participate.

Simplifying the Tax Math

Two provisions in the bill clean up the accounting mess that often accompanies these credits. First, the bill eliminates the requirement that you have to reduce the cost basis of the property when you claim the rehabilitation credit (SEC. 5). Right now, if you claim a $100,000 credit, you usually have to reduce the property’s value for tax purposes by $100,000. Under the new rule, you get the full credit and you keep the full basis. This is a significant double benefit that makes the credit substantially more valuable.

Second, the bill changes the eligibility rules for older buildings. To qualify for the credit, the cost of rehabilitation must exceed a certain threshold related to the building’s adjusted basis. The bill changes this calculation so that only 50 percent of the adjusted basis is used for the threshold test (SEC. 4). This makes it easier for more buildings to meet the necessary spending requirements to qualify for the credit in the first place.

The Catch: Who Pays?

While these changes are fantastic news for developers, preservationists, and construction workers, it’s important to remember that tax credits are essentially government spending through the tax code. These enhanced incentives—the higher rates, the transferability, and the elimination of the basis adjustment—will significantly reduce federal tax revenue. In short, the public is subsidizing this historic preservation push. The success of this bill will ultimately be measured by whether the resulting economic activity and revitalization outweigh the cost to the federal budget.