In the designated Historic Districts of the City of Richmond, historic rehabilitation tax credits have served as a driving force in encouraging homeowners and developers to flock to the city, relishing the opportunity to restore dilapidated and abandoned homes and buildings that were once ravaged by the passage of time but are now aglow in their architectural splendor. Rehabilitation tax credits offer significant incentives that help preserve the original architectural character of older historic structures. Equally important, rehabilitation tax credits have become a mechanism that helps reduce financial risks in the restoration business. Restoring and preserving historic structures can often result in more expenses than originally expected and may represent a financial risk for newcomers to the business. Use of tax-credit incentives reduces the risk and can make the difference between a project generating a reasonable profit, a much lower profit than anticipated, or even a loss.
Robin Miller, one of the best-known developers in Richmond and well-respected for restoring and preserving old homes and buildings, asserts that tax credits have tremendously influenced the rehabilitation of many historic structures in Richmond. Miller acknowledges that the 25-percent state tax credit, granted for owner-occupied and/or income-producing structures, and the 20-percent federal tax credit, specifically for income-producing structures, are very appealing to the qualified owner or business. But he cautions that one must first learn the state and federal regulations. Further, Miller suggests that borrowing construction funds from a lending institution that understands rehabilitation tax credits can be advantageous for the borrower and the bank. As a guru of rehabilitation tax credits, Miller recommends that initial applicants should hire a rehabilitation-tax-credit consultant to assist in the three-part application process.
The application process is administered by the Virginia Department of Historic Resources; reviewed by the National Park Service (NPS) to ensure conformance with the U.S. secretary of the interior's standards; and requires understanding of Internal Revenue Service regulations regarding qualified rehabilitation expenses and other tax-credit provisions. The first and most important process Evaluation of Significance -- determines whether the building to be rehabilitated is in a historic district and is a certified historic structure. To be certified, the structure must meet state or national standards -- or both, if applying for state and federal tax credits. Also required are a description of the structure's major exterior and interior features, a statement of how the building enhances a historic district, and clear photographs and maps showing the building and surrounding area before rehabilitation.
The second part -- Description of Rehabilitation Work -- emphasizes submission of the construction work plan; information about the structure, including its prior and future use and the estimated rehabilitation cost; and "before photographs."
Without before photographs, rehabilitation project approval is virtually impossible. The photographs and the rehabilitation plan allow the NPS to assess conformance with the secretary of the interior's Standards for Rehabilitation. The standards essentially convey that the existing structure must be preserved and stabilized but also protected from any damaging physical or chemical treatments. If the initial rehabilitation plan does not satisfy standards or if prior to submitting the plan construction work performed does not satisfy standards, then the entire tax credit will be denied until the plan is adjusted as necessary. Kelvin Hanson, an astute developer dedicated to preserving old homes and buildings in his Jackson Ward community and other historic districts, strongly advises that initial applicants should not start construction until the rehabilitation plan has been officially approved. By awaiting approval, time and costs can be saved.
Even though some have opted to rehabilitate historic structures in their own way, others have found the rehabilitation standards an asset. The standards encourage preservation but also allow installation of modern conveniences (e.g., heating and air conditioning, plumbing, electrical systems) without affecting architectural originality, thus helping to create a desirable functional structure.
The third part -- Request for Certification of Completed Work -- requests the NPS to approve the project as a "certified rehabilitation," and requires submission of "after photographs" that correspond to the before photographs, and the final rehabilitation costs. Since the eligible rehabilitation costs serve as the basis for the tax credits, in most cases, the bulk of the costs must occur within a two-year period after the project starts, unless otherwise approved. When the NPS certifies the project, the applicant is eligible for the 25-percent state tax credit, or the 20percent federal tax credit -- or 45 percent for both tax-credit programs based on all eligible rehabilitation costs. To receive the full benefit of the tax credits, the owner must maintain ownership of the structure for a full five years after completing the rehabilitation project.
Historic rehabilitation tax credits are an impetus for revitalization. The Fan and Church Hill historic districts are examples of communities that have benefited immensely from the aggressive use of historic tax credits. Similarly, the traditionally and historically important African-American historic districts of Carver and Jackson Ward are becoming increasingly popular, and tax credits are incentives that helped influence preservation of the architectural beauty in these old and proud neighborhoods. Both communities are returning to their former glory, as evidenced by neighborhood beautification, economic development, increased property values, reduced crime, ever-growing community pride, and affordable housing in the community -- thanks to the effective programs of the Virginia Housing Development Authority (VHDA).
Clearly, community revitalization in these designated historic districts serves as a strong indicator that should encourage and convince the city government to take an aggressive leadership role in assisting communities in identifying more historic districts in Richmond. In effect, a win-win situation will exist for city government, communities, homeowners, developers, and businesses when all parties collaborate in this worthwhile effort. Thus, additional historic-district designations will enhance revitalization efforts and enrich the quality of life in our traditional neighborhoods.
To continue the revitalization and growth in our unique communities, we must eventually realize that the best rehabilitation is one that will preserve and protect the original features and character of our historic homes and buildings that are found only in the City of Richmond.