Kentucky’s Historic Preservation Tax Credit program expanding from $5 million to $100 million
An expansion of the Kentucky Historic Rehabilitation Tax Credit – passed by the Legislature in 2021 – has finally taken effect, boosting its annual funding allocation from $5 million to $100 million.
The Kentucky Historic Rehabilitation Tax Credit was established in 2005 and incentivizes investment in the state’s historic structures for commercial, residential and cultural purposes. This – in conjunction with the Federal Historic Rehabilitation Tax Credit (HTC) – helps to fuel economic development and cultural preservation efforts statewide.
Craig Potts oversees the administration of these funds as the executive director of the Kentucky Heritage Council and the State Historic Preservation Officer. He said this gives Kentucky “one of the stronger programs in the country” when it comes to preservation tax credits.
“Developers and investors from outside of Kentucky that wouldn't have looked at us before, or now are now looking favorably on doing projects here,” Potts said. “This is one of the best tools that we have in the preservation toolbox. We're just really excited that this will make a difference for communities and for the Commonwealth as a whole.”
Potts projects the extra funds will have a “catalytic effect” on Kentucky communities’ economic development efforts.
“Healthy communities have a good balance of their historic structures and their new construction. They need to be doing both, but if the numbers don't work on some of those key properties that are maybe holding neighborhoods or commercial districts back, then you can't expect there to be a revitalization,” Potts said. “It changes the face of the neighborhood, if you bring some of those previously neglected buildings back online, and they're also contributing to the tax rolls, again.”
One quarter of the $100 million will be allocated to owner-occupied residential projects and the other three-quarters will be allocated for all other qualifying property types, including commercial.
The funding increase was approved by the Kentucky General Assembly in 2021. The Legislature followed the allocation increase with an additional bill drastically increasing the maximum eligible credit for commercial projects from $400,000 to $10 million. That provision doubles the current owner-occupied project cap to $120,000 based on Qualified Rehabilitation Expenses (QRE) of $400,000.
This aspect of the expansion, Potts noted, is what will drive large-scale economic development efforts.
“One [commercial] project can get twice as much as the entire state could get previously. That means that now for some of those larger projects that have just kind of sat there and not moved forward, now they're going to start moving forward,” he said. “We’ll start to see $50 million, $60 million, and $80 million projects start to develop because that $10 million cap per project is now going to incent those to move forward.”
Kentucky ranked 9th nationally among states utilizing the federal HTC, with 30 successfully completed projects generating nearly $80 million of private investment. That same year, 98 of the more than 100 applications for the state credit were approved, signifying nearly $137 million in proposed private investments for rehabilitation in Kentucky.
Since being established in 2005, the Kentucky Historic Rehabilitation Tax Credit has fueled the rehabilitation of nearly 1,200 buildings and helped bring $709 million in private investment to state historic buildings leveraged through $51.5 million in credits.
Potts said this expanded funding pool has generated increased interest in the credit and “there’s a very good chance” the entirety of the $75 million earmarked for commercial parties will be allocated.
“Last year, what we received was closer to probably $10 million in [residential] requests and $50 million in requests on the commercial side. This year, we're expecting as much as $75 million-plus on the commercial side,” he said. “That's your proof right there that a better incentive is going to leverage a lot more private dollars going into these properties.”
The deadline for applications is April 29. More information on the credit programs is available on the Kentucky Heritage Council’s website.