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Michigan’s new historic tax credit: Your FAQ

January 13, 2021 / 5 min read

Michigan’s legislature recently passed Senate Bill 54, reinstituting and modifying the state historic tax credit (HTC) program. This FAQ will help you understand and utilize the revived Michigan HTC.

The Michigan legislature recently reinstated the state’s popular HTC program after being eliminated with other incentives in 2011. The following FAQ provides an overview of the new program and the process for claiming credits.

How are Michigan HTCs calculated?

Michigan HTCs can be claimed on 25% of qualified rehabilitation expenditures (QREs), as defined for federal HTC purposes.

Michigan QREs can include expenditures on properties not eligible for federal HTCs, including:

Michigan HTCs can be claimed on 25% of qualified rehabilitation expenditures (QREs), as defined for federal HTC purposes.

Michigan QREs can’t exceed the preapproval amount unless credit capacity remains and the State Historic Preservation Office (SHPO) approves a request for additional credits.

When can Michigan HTCs be claimed?

Michigan HTCs can be claimed upon issuance of a certificate of completed rehabilitation by the SHPO, even if the project’s federal HTCs are claimed over five years.

Qualified taxpayers must initially claim credits within five years after receiving a certificate of completed rehabilitation.

Projects receiving a certificate of completed rehabilitation after Dec. 31, 2030, aren’t eligible to receive a credit.

What taxes can Michigan HTCs be used to offset?

Michigan HTCs can offset Michigan corporate or individual income tax.

Can Michigan HTCs be assigned or transferred?

Michigan HTCs may be freely assigned and reassigned in the year the certificate of completed rehabilitation is issued.

A pass-through entity’s Michigan HTCs may be claimed against its owners’ tax liability based on their proportionate ownership or an alternative method approved by the SHPO.

When are Michigan HTCs subject to recapture?

Michigan HTCs vest pro rata over a five-year compliance period, at a rate of 20% per year. During this period, assignors retain the recapture risk. Michigan HTC recapture is triggered upon:

What projects are eligible for Michigan HTCs?

Eligible resources include publicly or privately owned historic buildings, structures, sites, objects, features or open spaces that are:

Nonincome-producing property (e.g. an owner-occupied home) is eligible for HTCs.

Rehabilitation must conform with the secretary of interior’s standards for rehabilitation, which may increase construction costs.

Minimum QREs:

Rehabilitation must begin within one year of preapproval and must be completed within eight years.

Are projects undergoing rehabilitation eligible to apply for Michigan HTCs?

Projects that commenced rehabilitation are eligible for Michigan HTCs if they haven’t received a certificate of completed rehabilitation before 2021. 

What is the Michigan HTC application process?

Applicants must submit an application and receive preapproval to claim Michigan HTCs. They’re reviewed on a first-come, first-served basis. In addition:

Applicants must submit an application and receive preapproval to claim Michigan HTCs. They’re reviewed on a first-come, first-served basis.

When will the SHPO start accepting applications?

Before finalizing the application process, the state is required to go through a public rule-making process, which will have a public comment period; consequently applications will likely not be available until spring 2021.

What are the odds an application will be approved?

The statute includes several low annual caps, including an annual $5,000,000 statewide Michigan HTC cap, allocated as follows:

Factors to consider:

Subsequent legislation could increase annual caps.

How does claiming or selling Michigan HTCs impact taxes?

Applying tax credits against state tax liability will reduce federal tax deductions because state tax payments are reduced. Proceeds from the sale of Michigan HTCs to a third party are generally regarded as taxable income.

What’s changed compared to the previous program?

There are several changes to be aware of:

Anything else?

Reinstating Michigan HTCs at 25% of QREs is great news for Michigan’s preservation and development communities. For more information about the new program and how it can benefit your rehabilitation project, give us a call.

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