The challenge facing many public and private sector owners and developers in today’s economy is how to successfully finance a project in the most efficient and cost-effective manner possible.
Often in renovation projects, project owners overlook and do not take advantage of the benefits of federal, state and local incentives and the positive financial impact those incentives may have on their projects. This article will discuss the various federal and state tax advantaged incentives available to Georgia property owners with a focus on non- metro communities and historic properties. A case study and additional details on the incentives can be found on GMA’s website.
Tax Incentives Are Revitalizing Downtowns
Historic Preservation Tax Credits (HTC): Historic Preservation Tax Credits are the most often used tax incentive in Georgia’s non-metro communities. These credits are generated from the rehabilitation of a certified historic building and can be transferred in the case of the Georgia Historic Credit and exchanged in the case of a federal Historic Credit for “cash” equity to reduce borrowing costs for a historic rehabilitation project. The federal credit is calculated at 20% of eligible hard and soft costs of rehabilitation and the state credit at 25% of qualified rehabilitation costs. Currently the Georgia State Historic Credit is capped at $300,000 for income- producing properties. It is possible to have 20 percent of project costs covered by cash received from these credits. The credits are sought by national and state investors to offset federal and state tax liabilities.
Rural Zone Credits (RZC): In effect since 2017, this Georgia DCA and DED Tax Credit provides tax credits to individuals creating jobs and making qualifying investments within historic downtown areas. The three tax incentives are the Jobs Credit offering $2,000 per new full-time equivalent job created, the Investment Credit equivalent to 25% of a building’s purchase price and the Rehabilitation Credit equivalent to 30% of qualified rehabilitation costs. This credit program is available on an annual competitive basis to communities under 15,000 in population. To date, 25 Georgia communities have been approved for this program.
New Markets Tax Credits (NMTC): NMTC is a 17-year-old federal tax credit program from the Department of Treasury’s CDFI Fund, which allocates tax credit authority to Community Development Entities (CDEs) through a competitive application process. CDEs are financial intermediaries through which private capital flows from an investor to a qualified business located in a low-income community. CDEs use their authority to offer tax credits to investors in exchange for equity in the CDE. Using the capital from these equity investments, CDEs can make loans and investments to businesses operating in low-income communities on better rates and terms and more flexible features than the market. Most downtowns qualify for this program.
The NMTC Program has supported a wide range of businesses including manufacturing, food, retail, housing, health, technology, energy, education and childcare. Communities benefit from the jobs associated with these investments, as well as greater access to community facilities and commercial goods and services. Generally, an eligible project must be at least $5 million in project costs to warrant the expense of closing a NMTC transaction as there are several players involved in these transactions.
Opportunity Zone Incentives (OZ): Created as part of the 2017 Tax Act, OZ incentives are a new investment tool that provides incentives for investors to invest in capital-starved urban and rural areas. Opportunities Zones are created by each state, and investors who invest in qualified OZ properties receive a postponement of federal taxes on “gains” they recognize if they invest the “gains” in an Opportunity Fund that invests in eligible projects in Opportunity Zones.
Tax Incentives at Work
Many Georgia non-metro communities and metro communities have benefited from tax incentives in re- vitalizing their downtowns. The author has provided tax incentive assistance to Georgia private businesses, cities and downtown development authorities including in Waycross, Milledgeville, Savannah, Fort Valley, Thomasville, Columbus, Perry, Dahlonega, Athens, Rome, Carrollton, Jonesboro, Ocilla, Albany, Jonesboro, Zebulon, Springfield, Washington and Social Circle.