Key Questions When Determining Eligibility for State Historic Tax Credits

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Real estate developers have long had ample reasons to take on projects involving historic buildings, courtesy of Section 47 of the Internal Revenue Code of 1986. As amended, Section 47 (the “Code”) provides for a rehabilitation tax credit, also commonly known as the historic tax credit (“HTC”) equal to 20% of qualified rehabilitation expenditures (“QREs”) with respect to a qualified rehabilitated building (“QRB”), taken over the five-year period beginning in the year the QRB is placed in service. The credit is a win-win for historic preservation and for the developers who might not otherwise be able to justify the associated costs to restore such properties.

In addition, many states also provide HTCs of their own. The state credits are another important source of financing for these costly endeavors, and also attract additional private investment themselves.[1] Each of the 37 states with an HTC, however, has a different regime. Some states rely heavily on the federal criteria, and others have developed their own systems. This DE Insight examines the state HTCs available in several East Coast states.

Rhode Island

Rhode Island’s recently extended HTC[2] is for 20% of QREs incurred in the substantial rehabilitation of a certified historic structure (“CHS”) unless 25% or more of the entire rentable area or all of the first floor of the CHS was made available for a trade or business. A CHS is property located in the state of Rhode Island and (i) listed individually on the National Register of Historic Places; (ii) listed individually in the state register of historic places; or (iii) located in a registered historic district and certified by either the Rhode Island Historic Preservation & Heritage Commission or Rhode Island’s Secretary of the Interior as being of historic significance to the district.

The credit can be carried forward up to 10 years, is transferable, and is refundable if allocated to partners in a partnership that are exempt from tax under sections 501(c)(3), 501(c)(4) or 501(c)(6) of the Code. The Rhode Island HTC is capped at $5 million per project, as well as an aggregate cap of sums estimated to be available in the historic preservation tax credit fund as determined by the Division of Taxation. For the 2022 fiscal year, this resulted in an aggregate cap of $28 million.


Massachusetts gives a credit equal to 20% of QREs, other than personal property, personal use property or the cost of acquiring any building or interest therein, with respect to a qualified historic structure which has received final certification and has been placed in service. A qualified historic structure is any building or structure located within the Commonwealth of Massachusetts that is individually listed on the National Register of Historic Places or is a contributing building within a district that is listed on the National Register of Historic Places or has been determined by the Massachusetts Historical Commission to be eligible for listing on the National Register of Historic Places, and which all or any portion of which is owned, in whole or in part, by the taxpayer. The credit may be carried forward up to five years.  Although the credit is transferable, partnerships may not allocate the credit among their partners other than pro rata. State law currently caps the available aggregate credit at $55 million.

New York

New York has a credit of 20% of QREs (capped at $5 million), or 30% of QREs for projects placed in service after January 1, 2022 with total QREs of no more than $2.5 million. Properties must, however, be located in a qualifying census tract, which is a federal census tract where the median family income is at or below the state family median income. Separate credits exist for homeowners and historic barns. Tax credits are not transferable, but they are refundable.

North Carolina

North Carolina allows a credit for QREs with respect to certified historic structures (as defined in section 47 of the Code) equal to 15% of the first $10 million of QREs, 10% for the next $10 million of QREs, and an additional 5% for projects located in development Tier 1 or Tier 2 areas, located in a targeted investment site, or used for educational purposes before and after the rehabilitation. Under North Carolina law, a development Tier 1 area is a county whose annual ranking is one of the 40 most economically distressed in the state. A development Tier 2 area is a county whose annual ranking is one of the next 40 highest in the state. Eligible targeted investment sites are certified historic structures located in North Carolina that: (i) were used as a manufacturing facility or for purposes ancillary to manufacturing, as a warehouse for selling agricultural products, or as a public or private utility; and (ii) has been at least 65% vacant for a period of at least two years immediately preceding the date the eligibility certification is made.

North Carolina law provides for an overall per-project cap of $4.5 million. Disproportionate allocations among partners are allowed as long as each partner’s adjusted basis is at least 40% of the credit allocated to that owner.

South Carolina

South Carolina allows a credit of 10% of QREs for a certified historic structure (as defined in Code section 47) for taxpayers claiming the federal credit, or a credit of 25% of QREs (capped at $1 million) for taxpayers not eligible for the federal HTC. Taxpayers must take the credit in equal installments over three years, and may carry it forward up to five years. The statute allows disproportionate allocations among partners, including, without limitation, an allocation of the entire credit or unused carryforward to any partner who was a member or partner at any time in the year in which the credit or unused carryforward is allocated, in a manner agreed to by the partners or members. Separate 25% credits exist for former mills or abandoned buildings.


From these varied schemes we can discern the following: Investors seeking a state HTC as well as the federal HTC must ask the following questions in each state:

  • Does eligibility for the state HTC mirror eligibility for the federal HTC?
  • What percentage of QREs are eligible?
  • Under what circumstances can taxpayers receive an additional credit?
  • Is there a cap on the state HTC, and is it an aggregate statewide cap, or does the cap apply per project?
  • Is the credit transferable to another taxpayer or refundable (i.e., refunded to the taxpayer if it exceeds the amount of tax for the year in question), and if not, can it be carried forward and how long is the carryforward period?
  • Are disproportionate allocations of the credit allowed among partners in a partnership?

Each state that provides an HTC also has its own approval process requiring application to that state’s historic preservation commission. All these regimes have one thing in common, however: They encourage private investment in these otherwise costly projects. It is important, therefore, to consult with experienced counsel to navigate both the requirements for eligibility and to receive the credit.


This DarrowEverett Insight should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This Insight is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this Insight, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.

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[1] National Trust for Historic Preservation, 2023 State Historic Tax Credit Guide.

[2] Rhode Island’s HTC was due to expire on June 30, 2023, but it was extended for another year before it sunsets.