Kentucky’s Historic Preservation Tax Credit offers a 30 percent credit for qualified rehabilitation projects of owneroccupied residential properties. A minimum investment of $20,000 is required, with the total credit not to exceed $60,000.
A 20 percent credit is available for all other properties, as long as there is a minimum investment of $20,000 or the adjusted basis, whichever is greater, up to $400,000. These others include commercial and industrial buildings, income-producing properties, historic landscapes, and properties owned by governments and nonprofit organizations.
During the last legislative session, in January 2015, lawmakers introduced HB 118, that would have created a refundable income tax credit for qualified rehabilitation expenses, and removed the $5 million cap on the aggregate total credit amount for each calendar year. When the aggregate total exceeds $5 million, officials apply an apportionment formula to determine the amount of the credit that will be awarded per project. This creates some uncertainty for investors, because the final credit awarded to each project could be less than the amount for which the project is eligible.
Although the furthest the legislation went was to the Appropriations and Revenue Committee, there is still hope for a cap adjustment. When he was a gubernatorial candidate, Gov. Matt Bevin, who took office in December of 2015, went on record with Preservation Kentucky as being willing to “seriously consider” increasing the cap to $10 million. He also promised to include the Kentucky Historic Preservation Tax Credit in his budget, reasoning that it has “an appropriate level of return on investment from both a fiscal standpoint and a cultural one.”
Though a $10 million cap is better than $5 million, Insider Louisville suggested that the Bluegrass state’s “meager” tax credit program puts it at a disadvantage relative to others. Ohio has an annual $60 million cap on historic tax credits, Missouri’s is $140 million, and 18 states, including Illinois, Virginia, and North Carolina, have no caps.
Referring to a study commissioned by the Louisville Downtown Partnership, Insider Louisville noted that if the Kentucky historic tax credit program was not so “meager,” then Kentucky could have reaped an estimated $164.7 million in tax revenue during a 10year-period from just seven commercial renovation projects in Louisville and Lexington. These projects, either recently completed or still in progress, represent an estimated $305.2 million in investment and 2,734 new jobs.
The article quoted Valle Jones, the founder and CEO of the Louisville commercial real estate company Mayin LLC, who lamented the uncertainty of the underused program, and pointed out that “there is no clear way to tell how much money a project will receive, especially since the cap is low.”
Jones further argued for the program’s benefits: Kentucky “is never out a dime. ...The projects are always paying into the state faster than the state is paying out.” The study calculated that the state would pay out an estimated $33.8 million in historic tax credits for the seven projects, but not until after construction is complete. During the construction phase alone, they would generate a total of $16 million in tax revenue.
In addition, local governments stand to gain. The study found that the Louisville Metro Government would receive an additional $2 million in tax revenue each year, while Jefferson County Public Schools would see almost $1.3 million in new tax revenue.
“Investment in Louisville creates a ripple effect that makes the city a cooler, better place,” said Jones.