New Jersey developers and homeowners could be eligible for tax credits under new legislation that seeks to encourage the rehabilitation and preservation of historic properties. If the legislation becomes law, New Jersey would join 35 other states that already have historic rehabilitation tax credits in place.
The Historic Property Reinvestment Act (Senate Bill 2031) establishes separate tax credits for businesses and homeowners. In both cases, the credits would cover up to 25 percent of the cost of rehabilitating New Jersey historic properties. The tax credit for homeowners is capped at $25,000 per property during a ten-year period; meanwhile, the one for businesses is not capped. The homeowners’ tax credit applies against homeowners’ gross income tax liabilities, while the business tax credit applies against corporate business tax and insurance premium tax liabilities.
Properties Qualifying for Historic Preservation Tax Credit
Properties listed on the National Register of Historic Places or the New Jersey Register of Historic Places or designated (or located in a district designated) by the Pinelands Commission as a historic resource are eligible for the credit. Properties located in a historic district must also be designated by the State Historic Preservation Office (SHPO) or other agency as contributing to a district’s historic significance. Alternatively, historic properties may be individually identified (or located in a district composed of properties identified) for protection as a significant resource in accordance with criteria established by the appropriate municipality and approved by the SHPO. Such properties must also be certified by the SHPO as contributing to the district's historic significance.
Requirements to Obtain Historic Property Tax Credit
Under the Historic Property Reinvestment Act, a homeowner seeking a tax credit must spend no more than 60 percent of the cost of rehabilitation on interior rehabilitation and must own and occupy the qualified property as the homeowner’s principal residence for 12 consecutive months following the completion of the rehabilitation. Moreover, rehabilitation expenditures must be at least 50 percent of the equalized assessed value of the structure for local real estate tax purposes as indicated on the most recent property tax bill for the property prior to the start of the rehabilitation.
A business seeking the tax credit must, during a selected 24-month or 60-month rehabilitation period, have eligible rehabilitation expenditures of the greater of $5,000 or the property’s adjusted basis of the structure used for federal income tax purposes. The bill provides that the cumulative amount of tax credits approved cannot exceed $15 million in the first fiscal year, $25 million in the second fiscal year, $40 million in the third fiscal year, and $50 million in the fourth fiscal year and thereafter. The bill requires that in any fiscal year in which tax credits are issued, at least 25 percent of the total monetary amount of tax credits approved be granted for the rehabilitation of qualified properties by homeowners and at least 65 percent of the total monetary amount of tax credits approved be granted for the rehabilitation of qualified properties by business entities.
The Senate State Government, Wagering, Tourism and Historic Preservation Committee recently advanced the bills. We will keep you posted as the legislation proceeds through the New Jersey legislature. In addition, Scarinci Hollenbeck’s environmental & land use and commercial real estate attorneys are available to advise owners of historical properties about the bill’s potential benefits.
If you have any questions, please contact us
If you have any further questions, feel free to reach out to me, William C. Sullivan, Jr., at 201-806-3364.