Louisiana Historic Tax Credits: What developers need to know

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Paul Simoneaux

To a real estate developer in Louisiana, state Historic Tax Credits (HTC) often times make the difference between a historic rehabilitation project being economically feasible as opposed to an undevelopable project. Here’s what developers need to know about the benefits of the HTC and the steps involved in obtaining the credit.

What Is a Louisiana Historic Tax Credit?

First adopted in 2002, the Louisiana historic tax credit is a dollar-for-dollar tax credit, as opposed to an expense deduction, against Louisiana income or corporation franchise tax for the amount of eligible costs and expenses incurred by a property owner during the rehabilitation of a historic building located in a Louisiana downtown development district or a cultural district.

The Louisiana Division of Historic Preservation within the Office of Cultural Development (sometimes referred to as the state historic preservation office or “SHPO”) maintains tax incentives maps that show the boundaries of all the National Register Historic Districts, Downtown Development Districts and Cultural Districts, and individual buildings listed on the national register of Historic Places across Louisiana.

Which properties are eligible?

Only nonresidential real property and residential rental property are eligible for the state historic tax credit. In order to qualify, a building must be historic (i.e., over 50 years old), located in a downtown development district or cultural district, and either listed on the National Register of Historic Places or certified by SHPO as contributing to the historical significance of a district.

The SHPO Process – Part 1:

SHPO also administers the state historic tax credit program and oversees the tax credit approval process. First, a property owner seeking credits must file a “Part 1 – Certification of Contributing Status” form with SHPO, which if approved by SHPO, confirms the building contributes to the historical significance of either a Downtown Development District or Cultural District and makes the property eligible for state historic tax credits.

The SHPO Process – Part 2:

Second, a property owner files a “Part 2 – Proposed Work Description” form with SHPO, which if approved by SHPO, confirms that the renovation work proposed for the building is consistent with the historic character of the building and the district in which it is located and also meets the U.S. Secretary of the Interior’s guidelines for historic preservation.

The SHPO Process – Part 3:

Finally, once the renovation work is completed, the property owner files a “Part 3 – Request for Project Certification” with SHPO which, if approved by SHPO, confirms the completed rehabilitation meets the U.S. Secretary of the Interior’s guidelines for historic preservation and is consistent with the historic character of the property and the district in which it is located and, as a result, is a certified rehabilitation.

What are the eligible costs and expenditures?

The amount of the credit currently equals 20% of the eligible costs and expenses incurred during the rehabilitation of an historic building. (Recent legislation awaiting the governor’s signature would increase this percentage to 35% in rural areas and 25% elsewhere). Eligible costs and expenses are defined by reference to the definition of “qualified rehabilitation expenditures” under the federal historic tax credit statute. Generally speaking, eligible costs and expenditures are those which are capitalizable into the basis of a building. This includes hard construction costs and may include soft costs such as construction period interest, architectural fees, engineering fees and reasonable developer fees.

The tax credit for eligible costs and expenses is earned in the year in which the property benefiting from the eligible costs and expenses is placed in service – which in most instances means the year of construction completion. If the amount of the state historic tax credit exceeds a taxpayer’s state taxes for the year the property is placed in service, any unused credit may be carried forward up to five years. A taxpayer who is awarded tax credits may also elect to sell its unused tax credits to one or more individuals or entities. The tax credits may be sold or transferred an unlimited number of times. For each sale, the seller and buyer of the state HTCs register the sale by jointly filing form R-6140 with the Louisiana Department of Revenue.

What Are the limitations?

The state historic tax credit does have some limitations that property owners should keep in mind. One is timing. SHPO will not approve projects as eligible for state HTCs after the fact, so it is best for the filing and approval of the Parts I and II to occur prior commencement of renovation work.

The second set of limitations are monetary in nature. A taxpayer cannot claim more than $5 million of credits annually from any downtown development or cultural district, regardless of the number of properties rehabilitated by the taxpayer in the district. In addition, the maximum aggregate total of tax credits that may be reserved annually for all Louisiana taxpayers is $125 million with the credits reserved for applicants on a first come, first served basis.

With this in mind, a property owner can apply for a reservation of credits by filing a “Tax Credit Reservation Form” with SHPO. It is advisable that the reservation form be filed with SHPO contemporaneously with the Part I and Part 2 in order for the property owner to avoid bumping up against the state’s $125 million cap which may come into play in the latter part of a given fiscal year.

Note, however, that the state’s tax credit program has been underutilized in recent years and unclaimed state HTCs from one fiscal year get added to the next fiscal year’s amount of available credits. This means the total amount of credits available for a fiscal year can actually exceed the $125 million cap and this holds true for fiscal year 2023. Per SHPO as of June 6, 2023, the total amount of state historic credits available for this fiscal year was in excess of $315 million.

Paul Simoneaux is a partner at Steeg Law Firm, LLC. His practice focuses on commercial real estate sales, development, financing and leasing.

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