Twinned credits · LIHTC · Historic · New Markets
Historic credits rarely close the gap alone. Housing credits rarely justify saving the building. Twinned they do — if the structure is settled before the drawings are, because four of the decisions that matter get made on paper by an architect.
Historic credits alone rarely close the gap on a deep rehabilitation. Housing credits alone rarely justify saving a building worth saving. Together they do — but the structure decides how much of each you actually keep, and the structure has to be settled before the drawings, not after.
The dollar that cancels itself
In a single-tier deal the owner reduces depreciable and eligible basis by the amount of the federal historic credit. Every historic dollar comes straight back out of the housing basis it was supposed to help. People discover this late, and it is the single most expensive thing to discover late.
And it is not free
Pass the historic credit through to a master tenant and the landlord does not reduce eligible basis. The historic investor instead takes income equal to 100% of the credit, amortised over 27.5 years. Two tiers, two sets of documents, and two investors — who have to be genuinely different parties.
Roughly $10MM in historic credit
Below that, the legal and operating cost of the second tier eats the benefit. It is also usually the wrong answer on a 9% deal already carrying substantial excess eligible basis. Knowing when not to do it is worth as much as knowing how.
5, 10, 15, 30
Five-year historic compliance, a ten-year credit period, fifteen years of housing compliance, thirty years of extended use. The year-five flip and put have to be drafted against a right of first refusal that is two decades further out.
The 80% test
A building is residential rental when 80% or more of gross rental income comes from dwelling units, and New Markets cannot be combined with housing credits on the same property. On a mixed-use building the usual answer is a condominium regime — a commercial unit for New Markets, a residential unit for the housing credit. That declaration gets drawn from architectural plans, which makes it an architect’s problem before it is a lawyer’s.
Missouri 25%, Kansas 40%
State historic credits stack on top, and Kansas is uncapped and sellable, which is frequently what moves a rural or small-city deal from interesting to financeable.
Not structuring the deal — your counsel and your accountants do that. But four of the decisions above are made in drawings, and if the drawings are finished before anybody asks, they get made by accident.
What counts and what does not
Which work lands in qualified rehabilitation expenditure and which falls outside it is a design question long before it is an audit question. We draw knowing where that line runs.
Drawn, then declared
Splitting a mixed-use building into a commercial unit and a residential unit is an architectural act. Units, general and limited common elements, vertical and horizontal boundaries — the legal document is written from the drawing.
In house, on the filing calendar
Nomination, the rehabilitation proposal, and the certification that keeps the credit from being clawed back — filed on the calendar the closing depends on, not after it.
Where they actually collide
Unit counts, corridor layouts, window replacement, energy requirements and accessibility all have an answer the Secretary of the Interior’s Standards will accept and several they will not. Finding that answer early is the difference between a conditional approval and a redesign.
Everything on this page is a description of how these programmes generally work, not tax or legal advice, and none of it is a substitute for your own counsel and accountants. Rules change and the facts of a particular deal change the answer.
There are three ways people bring us in.
Tell us which one you are. Or send an address and we will tell you.
EXACT Architects
3901 Main Street, Suite 201
Kansas City, Missouri 64111
816.200.0340
office@exactarchitects.com
Mail app did not open? Write to office@exactarchitects.com
