A Million Dollars Goes to the Best Preservationist
Originally published on February 13, 2019 by the Montrose Daily Press.
In my June 13, 2018 column, “How will we know it’s us without our past?” we talked about the importance of preserving our historic places. It is an easy idea to get behind. We want to retain these cool old buildings and sites that define the character of Montrose. More than retain them, we want to see them repurposed or restored in a useful way.
If you own or lease one of these old buildings, you know this is a lot more expensive than it sounds. Restoring or repurposing an old building costs a lot of money, time, and dedication. All levels of government recognize the challenges with historic preservation and thus there are some very rich incentives available to lessen the burden.
Let’s back up the historic train for just a moment though. What even qualifies as a historic property and what factors should you look for in your property when determining eligibility?
In order to receive any type of tax incentives, a property is required to be at least 50 years old and on a historic registry marking its historic significance. There are registries at the federal, state (and soon to be) local levels. The federal and state governments validate and recognize local registries of Certified Local Governments (which Montrose just became). Though our Historic Preservation Commission has not yet defined its standards, it is likely that they will resemble federal standards:
• The association of the property with events that have made a significant contribution to history;
• The connection of the property with persons significant in history;
• The apparent distinctive characteristics of a type, period, method of construction, or artisan;
• The geographic importance of the property;
• The possibility of important discoveries related to prehistory or history.
Applying for this designation is somewhat involved. As our local historic preservation process evolves, you can expect more education and resources to become available. If you’re interested in moving forward now, it is recommended that you pursue either federal or state designation. There are professionals who can assist in the process if your budget allows.
The first step is getting designated, the next step is applying for and receiving the incentives (you can also apply for both simultaneously). On May 30, 2018 the Colorado Bill 18-1190 was signed. This bill modifies the Colorado Job Creation and Main Street Revitalization Act. Lucky for us, many of those modifications focus on rural preservation. The changes with the bill begin in January 2020.
So what’s in it for you? Let’s say you own a qualified historic property. Let’s say you’ve received bids to revitalize the building into a useable commercial space. The bids came in at a “cool” $3M. You realize there is no way to make that pencil out to profitability; at least not in this lifetime.
But wait… there’s tax credits.
In Colorado alone (not even taking available federal and local credits into consideration), property owners can receive a maximum of $1 million in tax credits per property owned. These credits can be used against the property owner’s own tax liability much like a gift certificate or they can be sold at roughly 85 percent of value. We’ve been told that there is a waiting list of eager tax credit buyers.
With the new rural (all of Montrose is considered rural) modifications to the tax bill, property owners will receive a 35 percent tax credit (up from 25 percent) on the first $2 million spent on their project and an additional 30 percent on the remaining costs. Again, tax credits cannot exceed $1 million and are obtained on a first-come, first-serve basis each year. So on your $3 million renovation above, the math looks like:
$3M in qualified expenditures
$2M x 35 percent=$700K
$1M x 30 percent=$300K
If you elected to sell these tax credits, you would expect a check for roughly $850K. Some developers/building owners will take out a construction loan to carry them through the construction and transfer of the tax credits and use the equity to pay off a portion of this loan. Some non-profits have used grant funding and fundraising to pay for development costs and then taken the sale of their tax credits as operating capital. Under the new modifications, businesses leasing a space also qualify for tax credits as long as they have a five-year lease in place.
So let’s review: Do you own or lease a building of historic significance that is 50 or more years old? Is this property income producing (for-lease residential counts)? Do you wish to make improvements to the building that are at least $20,000 (rural only)?
Then you might want to give these tax credits some serious consideration.
Though we didn’t dive into it today, there are many other incentives available for preservationists. The federal government offers a 20-percent tax credit, the City of Montrose offers fee abatement and site improvement incentives, and the DDA has a facade grant available. This is all independent of the new Opportunity Zone program; which is something to look into especially if you’re considering investing in the purchase and improvement of commercial property in Montrose.
Our old buildings hold a sense of specialness. Our history lives within them. We owe it to our children’s children and our grandparents’ parents to keep that history alive.
Chelsea Rosty is the director of business innovation for the City of Montrose.