Passage of the Nebraska State Historic Tax Credit – Nebraska Job Creation and Mainstreet Revitalization Act (LB 191)
On April 16, 2014, Governor Heineman signed Legislative Bill 191, which creates a historic tax credit at the state level to further incentivize real property owners and developers to revitalize historically significant real properties throughout Nebraska. The Nebraska historic tax credit will serve as a valuable incentive to allow Nebraska real property owners to offset Nebraska income, deposit or premium tax amounts equal to twenty percent of “eligible expenditures” on “improvements” made to “historically significant real property.”
The real estate development community in Nebraska has lauded the passage of LB 191 as a needed and justifiable financing incentive for the redevelopment and utilization of properties of historic nature in Nebraska. With the passage of LB 191, Nebraska is now the 36th state to provide a historic tax credit at the state level, which is a tax credit that is separate and distinct from the federal historic tax credit.
LB 191 establishes a $15,000,000 tax credit pool, and the Nebraska State Historical Society (“SHPO”) will handle the annual allocation of the credits for the 2015, 2016, 2017 and 2018 tax years. SHPO will begin accepting applications on January 1, 2015. SHPO will review each application, and allocations will be on a competitive basis if applicants seek more than $15,000,000 in credits during any given year. SHPO will review the completeness of each application within 21 days of their receipt of the application. The date SHPO determines the application to be “complete” becomes the application’s “priority date” relative to its position among the other applications applying to receive credits from the annual pool (i.e., first come, first served). SHPO will notify applicants whether their applications were approved or denied.
Applicants will need to submit a complete application to SHPO prior to commencing work on the historically significant real property. LB 191 does not allow credits to offset expenditures that were incurred prior to SHPO’s approval of an application, except for expenditures related to architectural and engineering fees, and work done to prevent deterioration of a historically significant real property (must be incurred within six months of an application’s submission date). No project may receive credits in excess of $1,000,000 under LB 191. Any credits not allocated by SHPO in a given year will carry over to subsequent years. Applications must be received by SHPO on or before December 31, 2018. To qualify for the Nebraska historic tax credit, LB 191 requires that the project be “historically significant real property,” which LB 191 defines as any building or structure, except for a single-family detached residence, that is:
“(a) individually listed in the National Register of Historic Places; (b)(i) located within a National Register district; and (ii) determined by the State Historic Preservation Officer to be historically significant to the district; (c)(i) individually designated pursuant to a landmark ordinance or resolution enacted by a political subdivision of the state, which ordinance or resolution has been approved by the officer; and (ii) determined by the officer as being historically significant; or (d)(i) located within a district designated pursuant to a preservation ordinance or resolution enacted by a county, city, or village of the state or political body comprised thereof providing for the rehabilitation, preservation, or restoration of historically significant real property, which ordinance or resolution has been approved by the officer; and (ii) determined by the officer as contributing to the historical significance of the district or to its economic viability.”
These requirements are broader than the federal requirements and are designed to ensure LB 191 will benefit smaller and more rural communities and projects, rather than simply being an adjunct to the federal credit for big city projects.
Furthermore, the applicant must establish that the “improvement” being redeveloped contributes to the basis, functionality, or value of a historically significant real property and has a total development cost which equals or exceeds twenty-five thousand dollars; or for any historically significant real property that is located in a city of a metropolitan or primary class, the greater of (i) twenty-five thousand dollars, or (ii) twenty-five percent of the property’s assessed value. Finally, the credit may only be used to offset “eligible expenditures”, meaning any costs incurred for the improvement of historically significant real property located in the State of Nebraska, including, but not limited to, qualified rehabilitation expenditures as defined in section 47(c)(2) of the Internal Revenue Code of 1986.
Applicants must start redevelopment work on a project within 24 months of SHPO approving the application. Thereafter, Applicants must seek SHPO’s approval of the project within 12 months of placing the renovated building into service. Applicants may elect to use the credits in the year the SHPO approves the completed project, or any year thereafter, until December 31, 2024. An applicant that is a tax exempt 501(c)(3) entity or a political subdivision may freely transfer a portion of, or all of the credits, multiple times and without limitation (a valuable facet of LB 191 for purposes of obtaining equity investors on a project). All other applicants may only transfer up to 50 percent of the credits received. All credit awards are subject to recapture if an owner undertakes additional work not in conformance with the approved application. Recapture liability lies with the person owning the historically significant real property at the time the recapture event occurs.
Brent W. Beller