The Historic Tax Credit:
How Old Buildings Become New Opportunities
Every city has one.
It may be an old school building behind a chain-link fence. It may be a downtown warehouse with beautiful brickwork and broken windows. It may be a former hotel, factory, church, department store, or apartment building that everyone recognizes but no one quite knows what to do with.
The building has character. It has history. It may even be loved by the community. But love does not pay for a new roof, modern plumbing, elevators, fire-safety systems, accessibility upgrades, environmental remediation, or the cost of turning an obsolete building into something useful again.
That is the central challenge of historic preservation in real estate development. A building can be culturally valuable and financially difficult at the same time.
The Historic Tax Credit exists in that gap.
At its best, the Historic Tax Credit is not just a preservation tool. It is a development tool, a housing tool, a neighborhood revitalization tool, and a way to bring private capital into buildings that might otherwise sit vacant, deteriorate, or be demolished.
But like most public-private financing tools, it is not simple. It creates value, but it comes with rules. It can help close a financing gap, but it does not eliminate the need for debt, equity, grants, or other subsidy. It can make a difficult project more feasible, but it also requires the developer to preserve the historic character of the building while adapting it for a modern use making executing on the development harder.
What Is the Historic Tax Credit?
The federal Historic Tax Credit, often called the HTC, is a financial incentive for rehabilitating historic buildings that will be used for an income-producing purpose. In plain English, it helps make it financially possible to restore and reuse older buildings instead of allowing them to remain vacant or be torn down.
The current federal HTC generally provides a 20% credit for qualified rehabilitation expenditures and requires it to be claimed over five years. A simple example helps:
If a historic rehabilitation project has $10 million of qualified rehabilitation expenditures, a 20% federal credit would generate $2 million of Historic Tax Credits. That does not necessarily mean the project receives $2 million in cash on day one. In many transactions, the credits are monetized through a tax credit investor, often at a discount to the face amount of the credit. But even after pricing, transaction costs, and structuring complexity, the HTC can create a meaningful source of equity.
That is why developers, preservationists, housing agencies, and local governments pay attention to it.
Why the HTC Matters for Development
The Historic Tax Credit matters because old buildings are often expensive to save.
New construction is difficult enough. Historic rehabilitation adds another layer of complexity. Older buildings may have outdated systems, unknown structural conditions, environmental issues, inefficient layouts, obsolete life-safety systems, or code challenges. A developer may also be dealing with historic windows, masonry, corridors, stairways, rooflines, storefronts, interior features, or structural systems that cannot simply be removed because they are inconvenient.
Without a tool like the HTC, many of these projects do not pencil out.
The credit helps address that problem by recognizing that preservation has public value. A rehabilitated historic building can preserve community memory, reduce blight, support downtown activity, create housing, generate jobs, and return underused real estate to productive use.
For a developer, the question is often more direct: can this credit help make the capital stack work?
The Basic Eligibility Test
The Historic Tax Credit is not available for every old building. Age alone is not enough. A building may be old, interesting, or beloved, but that does not automatically make it eligible.
At a high level, several things generally need to be true.
The building must be a certified historic structure. A certified historic structure is generally a building that is either individually listed in the National Register of Historic Places or located in a registered historic district and certified as significant to that district.
The building must be used for an income-producing purpose. That can include rental housing, commercial space, office, hospitality, industrial, or mixed-use development.
The rehabilitation must be substantial. This is not a program for minor cosmetic improvements. The rehabilitation must meet the Secretary of the Interior’s Standards for Rehabilitation. The credit is calculated on qualified rehabilitation expenditures, not the entire development budget.
Qualified Rehabilitation Expenditures
One of the most important concepts in the Historic Tax Credit is that the credit is not calculated on total development cost.
It is calculated on qualified rehabilitation expenditures, often called QREs.
A development budget may include acquisition costs, site work, financing costs, reserves, furniture, appliances, marketing, lease-up, landscaping, additions, and other items. Not all of those costs generate Historic Tax Credits.
Here is a simple hypothetical.
A developer acquires and rehabilitates an old school building into affordable housing apartments. The total development cost is $18 million. The acquisition cost is $2 million. Site work, landscaping, furniture, reserves, and other non-QRE costs total another $3 million. The qualified rehabilitation expenditures are $13 million.
The federal HTC is not calculated on $18 million. It is calculated on the $13 million of QREs.
At 20%, the project would generate $2.6 million of federal Historic Tax Credits.
That $2.6 million is the face amount of the credit. The actual equity raised would depend on pricing, investor appetite, transaction structure, timing, compliance risk, and tax considerations. But the basic point is clear: the HTC can create a real source of capital, particularly when the rehabilitation scope is a large part of the budget.
For affordable housing developers, that can matter a great deal. Affordable housing projects already face a gap because restricted rents limit net operating income, which limits supportable debt. If the building also has historic rehabilitation costs, the financing gap can become even larger. The HTC can help fill part of that gap.
The Building Is Not a Blank Canvas
The Secretary of the Interior’s Standards for Rehabilitation are the preservation principles behind the credit.
At their core, the Standards allow a building to be adapted for a new use, but they require the project to preserve the portions and features that convey the building’s historic, cultural, or architectural value. The NPS guidance describes rehabilitation as making possible a compatible use through repair, alterations, and additions while preserving the features that convey those values.
That distinction is important. Historic rehabilitation does not mean freezing a building in time. It does not mean every building must become a museum. The whole purpose of rehabilitation is to allow a property to serve a useful contemporary function.
But the building is not a blank canvas. A developer may want larger windows, but the existing window pattern may be character-defining. A housing layout may work better if a corridor is removed, but that corridor may be part of the historic plan. A new addition may be needed, but it must be compatible with the historic building without pretending to be original.
This is where the developer’s balancing act becomes real. The project still has to meet building codes. It still has to work operationally. It still has to be financeable. It still has to be constructible. It still has to attract residents, tenants, lenders, investors, and public partners. But it also has to respect the building.
The Historic Tax Credit and Affordable Housing
The connection between the Historic Tax Credit and affordable housing is stronger than many people realize. This is especially important because many historic buildings are well-suited for housing conversion.
Old schools can become senior apartments. Former hotels can become supportive housing. Historic apartment buildings can be recapitalized and preserved. Warehouses and mills can become mixed-income or affordable apartments. Main Street buildings can support ground-floor commercial space with affordable housing above.
These projects can do several things at once. They can preserve a building, add housing, revive a commercial corridor, and create activity in neighborhoods where vacant buildings have become symbols of disinvestment.
But combining HTC and LIHTC is not simple.
Each credit has its own rules, investors, underwriting concerns, compliance requirements, timing issues, and legal structure. The LIHTC investor is focused on affordable housing compliance, eligible basis, credit delivery, lease-up, operating risk, and long-term affordability. The HTC investor is focused on qualified rehabilitation expenditures, historic approvals, placed-in-service timing, tax credit delivery, recapture risk, and the structure required to use the credits.
When both credits are used together, the project team has to coordinate two different systems. That can add legal complexity, accounting complexity, design complexity, and closing complexity. But when the project works, the combination can be powerful.
For affordable housing, the HTC can provide equity that helps offset costs without relying entirely on additional debt. That matters because affordable rents often cannot support the same debt levels as market-rate rents. In that context, every additional source of equity can be the difference between a project that stalls and a project that moves forward.
Preservation as Development Strategy
The Historic Tax Credit is often described as a preservation program. That is true, but incomplete.
It is also a real estate development program. It takes buildings that may no longer function in their original form and helps them become useful again. It allows old schools to become housing, former warehouses to become apartments, vacant hotels to become mixed-use projects, and underused Main Street buildings to become active contributors to neighborhood life.
That matters because cities are not built only through new construction. They are also built through reinvestment, reuse, and the patient work of adapting what already exists.
The Historic Tax Credit recognizes that old buildings can still have a future. Not every building can be saved. Not every project will work. Not every preservation requirement will be easy to reconcile with modern development needs.
But when the tool is used well, the result can be more than a restored building. It can be housing. It can be jobs. It can be neighborhood activity. It can be a new chapter for a place that people already know and care about.
That is the real promise of the Historic Tax Credit: it does not simply preserve the past. It helps make the past economically useful for the future.
About the Author
Charles Sims is an affordable housing developer and community builder with over a decade of experience leading real estate projects that prioritize people, equity, and long-term impact. He has helped shape award-winning multifamily communities across the Mid-Atlantic and South Florida. Charles is passionate about creating housing that not only provides shelter but supports dignity, stability, and connection.