The Alabama Historic Tax Credit (the “Tax Credit”) ended its first year in action. The Alabama REALTORS® Public Policy Team provides you with a detailed review of the Tax Credit’s use, along with a map of the properties that have been approved to receive the Tax Credit.

Brief Overview

With support from the Alabama REALTORS®, the Tax Credit was re-established in 2017 as a way to encourage the rehabilitation of historic buildings, especially in aging city and town centers.[i]  

• Program Parameters – Limited to tax years 2018 through 2022, the program provides a refundable tax credit up to 25% of eligible costs for the substantial rehabilitation of historic properties. The Tax Credit is capped at $20 million per year for those five years and must be split 40% to rural counties and 60% to urban counties.[ii] The Alabama Historical Commission developed a helpful Q and A on the 2017 Historic Tax Credit, which can be found here.
• The Process - Applications are first sent to the Historical Commission, which determines if the project meets initial criteria. If an application receives initial approval, the Historical Commission refers the application to the Historic Tax Credit Evaluating Committee[iii] for approval and grading.
• Project Requirements - The Committee grades projects based on factors set out in the Alabama Code.[iv] These factors include the relative value of the proposed project to the particular community, the possible return on investment for the community, the geographic distribution of projects, and the strength of local support for the project. The statute does not differentiate between residential or commercial use, although the factors usually favor commercial or large-scale residential projects due to the larger overall benefit compared to historic, single-family homes.[v]
• Credits Subject to Rescission – When a Tax Credit is reserved for a project, expense benchmarks must be met or the Tax Credit can be rescinded. The owner of the project has 18 months to spend 20% of the estimated costs, 36 months to spend an additional 50% of the estimated costs and 60 months to complete the project.[vi]

During the past year, the Committee approved and graded 45 properties, 11 in rural counties and 34 in urban counties. The 45 properties represent over $54 million in tax credits. The annual urban allocation of $12 million has been reserved through 2020 with a portion of the 2021 and the entire 2022 allocation remaining. A portion of the 2019 rural allocation and all the rural allocations for 2020 through 2022 remain unreserved.

As can be seen in the map below, the projects are scattered across the state. Viewing the projects on a larger scale gives a sense of the potential impact for the Tax Credit.
 

2018 Allocation

The $20 million allocation for 2018 was reserved for 13 projects, six in rural towns and seven in urban cities. The $8 million tax credit for the six rural, historic buildings are:

• $1,000,000 to the St. James Hotel in Selma,
• $86,059.50 to the Old Baptist Hospital[vii] in Selma,
• $5,000,000 to the Pratt Continental Gin in Prattville,
• $1,545,349 to the Howell School in Dothan,
• $221,250 to the Fain Theater in Wetumpka, and
• $147,341.50 to Womack’s Hardware in Monroeville.

The $12 million in urban tax credits for 2018 was reserved for seven projects with three in Mobile, three in Birmingham, and one in Tuscaloosa. The tax credits and buildings are as follows:

• $5,000,000 to the Protective Life Building in Birmingham,
• $5,000,000 to the Merchants National Bank building in Mobile,
• $1,668,318 to the Family Service Laundry Building in Birmingham,
• $62,000 to the Kennedy-Foster House in Tuscaloosa,
• $50,000 to the Foote-Heisterhagen House in Mobile,
• $37,500 to the Lyons Building in Mobile, and
• $182,182 to the Martin Building[viii] in Birmingham.

Rural Tax Credit Analysis

As mentioned above, the rural portion was partially allocated for 2019, with the $8 million annual tax credit remaining for years 2020, 2021, and 2022. Below are the buildings, locations, and amounts for the 2019 rural allocation.

• $2,038,940.50 to the Old Baptist Hospital[ix] in Selma,
• $37,500 to the Nichols-Cobb Building in Monroeville,
• $575,000 to the William M. Cannon Building in Fayette,
• $181,272 to the Fort McClellan Building in Anniston,
• $875,000 to the Bedsole Furniture Co. Building in Thomasville, and
• $9,000 to the Pride & Mason Confectionaries Building in Decatur.
   

Including the 2018 allocation, the 11 rural projects are in nine different counties, with two projects each in Dallas and Monroe Counties.[x] Autauga County has the project with the largest reservation of $5 million.

It is important to note that the Tax Credit has unreserved allocations for rural projects. This presents a great opportunity for real estate agents in rural areas to remind clients that the Tax Credit is available.

2018-2021 Urban Tax Credit Analysis

The urban portion has been allocated entirely through 2020, with a portion of the 2021 and all of the 2022 Tax Credit remaining. As can be seen below, Birmingham and Mobile have been the primary beneficiaries of the Tax Credit so far, with 88% of the projects (30) and almost 90% of the Tax Credit ($37.8 million) reserved for projects in those two cities. By itself, Birmingham projects stand to receive nearly 56% of all urban allocations to date.

Conclusion

The Historic Tax Credit is set to expire after 2022. Continual review of the Tax Credit and its impact may prompt the Legislature to renew the Tax Credit if the results are positive. REALTORS® can play an important role in raising awareness of the Tax Credit, spurring economic development through the renovation of old buildings. To assist you in this endeavor, the Alabama REALTORS® Public Policy Team will continue to keep you informed of the Tax Credit allocations.