What are historic tax credits?

Historic tax credits come in two powerful forms: The Federal Historic Tax Credit (HTC) and state historic tax credits — in our case, the Alabama Historic Rehabilitation Tax Credit (AHRTC). Used together, they can dramatically reduce the cost of redeveloping a historic property, making preservation viable for a wide range of projects. Let’s break them down:

The Federal Historic Tax Credit

The federal credit, permanently established in 1981 as part of a Reagan-era economic stimulus package, provides a 20% federal income tax credit for the certified rehabilitation of income-producing historic buildings — like apartments, offices, retail spaces and restaurants. 

To qualify, a building must be a certified historic structure — either listed individually on the National Register of Historic Places, or contributing to a registered historic district. Fortunately, Birmingham’s downtown is rich with qualifying buildings — from early skyscrapers to 20th-century commercial storefronts. 

The credit is claimed over five years, and applies only to substantial rehabilitations, meaning your Qualified Rehabilitation Expenditures (QREs) during a 24-month (or 60-month, for phased projects) window must exceed either $5,000 or the building’s adjusted basis — whichever is greater. The adjusted basis is generally the purchase price of the building, minus land value, plus improvements, minus any depreciation. 

The work must also follow the Secretary of the Interior’s Standards for Rehabilitation, ensuring the building’s historic character is maintained. 

The application process involves three parts: 

1. Part 1 confirms the building’s historic significance. 
2. Part 2 details the rehabilitation plans and how they meet preservation standards. 
3. Part 3 certifies that the completed work matches the approved plan. 

Applications are reviewed by the Alabama Historical Commission (our State Historic Preservation Office), then forwarded to the National Park Service. There’s a five-year compliance period, during which the credit can be partially recaptured if the property is sold or altered inappropriately — though the risk decreases by 20% each year.

The Alabama Historic Rehabilitation Tax Credit

To make preservation even more accessible, Alabama established its own companion program in 2013. The AHRTC offers a 25% refundable state income tax credit for the rehabilitation of historic, income-producing properties. Unlike the federal credit, this one is refundable, meaning it can provide a cash benefit even if your tax liability is low — a game-changer for nonprofits and smaller developers. 

The state program has caps ($5 million per project, $30 million annually across the state), but when paired with the federal credit, projects can potentially receive up to 45% of rehab costs back through tax incentives. 

Strengthening the Federal HTC with HTC-GO

While the federal HTC is effective, there’s room for improvement. That’s why preservation advocates across the country are rallying behind the newly reintroduced Historic Tax Credit Growth and Opportunity (HTC-GO) Act in the U.S. House and Senate. 

This legislation proposes several important updates: 

• Increasing the credit to 30% for smaller rehabilitation projects (under $2.5 million in costs) 

• Eliminating the basis adjustment, making the credit easier to combine with other incentives like the Low-Income Housing Tax Credit 

• Lowering the rehabilitation threshold from 100% to 50% of the adjusted basis 

• Simplifying the program, especially for nonprofit developers 

HTC-GO would make the credit more flexible and accessible — particularly important in cities like Birmingham, where small to mid-sized projects make a big difference in preserving neighborhood character and activating underused buildings.