The Mena/Polk County Chamber of Commerce recently hosted a Lunch & Learn focused on opportunities to strengthen our community through historic preservation, outdoor recreation, and economic development.
Our guests included Revis Edmonds with Arkansas Heritage and Amanda Hamilton with the Arkansas Office of Outdoor Recreation, who shared information about resources and strategies communities like Mena can use to build upon the assets we already have.
One of the opportunities highlighted during the discussion was a powerful economic-development tool that many local property owners may not realize is available: historic rehabilitation tax credits.
For Mena, with our historic commercial district, distinctive downtown architecture, and opportunities for redevelopment, these incentives can potentially help make the rehabilitation of aging or underused properties more financially feasible.
Historic preservation isn’t simply about protecting the past. Done strategically, it can be part of how we grow Mena’s economy for the future.
The Mena Commercial Historic District has been listed on the National Register of Historic Places since 2009. At the time of its National Register nomination, the district included 34 contributing buildings and 27 noncontributing buildings, along with four contributing resources that had previously been individually listed on the National Register.
Within a historic district, the distinction between a contributing and noncontributing property is important. A contributing property is one that adds to the historic significance and character of the district.
A building doesn’t have to be an elaborate landmark to be historically important. Traditional storefronts and commercial buildings collectively create much of the character that makes a historic downtown distinctive.
For property owners, that designation can also have financial significance. A building that is individually listed on the National Register or certified as contributing to a registered historic district may qualify as a certified historic structure for purposes of the federal rehabilitation tax credit, provided the other program requirements are met.
One of the most important takeaways from the Lunch & Learn was just how significant Arkansas’s Historic Rehabilitation Tax Credit can be in smaller communities.
Arkansas bases the percentage of its Rehabilitation Tax Credit partly on the population of the city in which a property is located. For qualifying projects in cities with populations below 10,000, the state credit is 40% of eligible rehabilitation expenses.
For an income-producing property, the minimum investment is $25,000. Up to $1.6 million in qualifying expenses may be claimed under the regular Arkansas Rehabilitation Tax Credit. At the 40% rate applicable to communities under 10,000, that represents a potential maximum state credit of $640,000, subject to eligibility, approval, qualifying expenses, and applicable tax rules.
For a qualifying non-income-producing property, the minimum investment is $5,000 and the maximum claim amount is $100,000. At the 40% rate, the maximum potential credit is $40,000.
Arkansas Rehabilitation Tax Credit information
Consider a qualifying historic commercial building with $500,000 in eligible rehabilitation expenses.
At a 40% Arkansas credit, those expenses could potentially generate $200,000 in state historic rehabilitation tax credits, assuming the expenses and project qualify and the necessary approvals are obtained.
Depending on the property, its use, the scope of work, and other requirements, the project might also qualify for the federal Historic Rehabilitation Tax Credit.
This doesn’t mean an owner simply receives 40% of the construction cost back in cash. Tax credits are not the same as grants or construction reimbursements, and the amount an owner can ultimately claim or benefit from depends on program rules, project approval, eligible expenses, ownership and tax circumstances.
However, the potential value demonstrates why historic tax credits deserve consideration when evaluating the feasibility of rehabilitating an older property.
They can become one component of a project’s broader capital stack, which may also include conventional financing, owner equity, grants, and other eligible incentives.
The federal Historic Rehabilitation Tax Credit provides a credit equal to 20% of qualified rehabilitation expenditures for qualifying historic buildings.
There are important conditions.
The building must be a certified historic structure, the rehabilitation must be substantial, the work must meet the Secretary of the Interior’s Standards for Rehabilitation, and the building must be depreciable and used for a business or other income-producing purpose. An owner-occupied private residence does not qualify for the federal rehabilitation credit.
Under current federal law, the 20% credit is generally allocated ratably over five years.
Arkansas Heritage also confirms that a qualifying project may earn the federal credit in addition to one of Arkansas’s two state rehabilitation tax-credit programs. However, an applicant cannot earn credits under both Arkansas state rehabilitation programs for the same property.
For qualifying income-producing historic properties, the federal and Arkansas historic rehabilitation tax credits can be used together. A qualifying project in Mena may be eligible for the 20% Federal Historic Rehabilitation Tax Credit in addition to an Arkansas state rehabilitation tax credit. Arkansas offers two state programs, the regular Arkansas Rehabilitation Tax Credit and the Major Rehabilitation Tax Credit, and a project may qualify for one state program, but not both.
Property owners should work with Arkansas Heritage and a qualified tax professional to determine which credits apply to their particular project.
National Park Service Historic Tax Credit Basics
One misconception about historic preservation is that preserving a building means freezing it in time.
That’s not the goal of rehabilitation.
The Secretary of the Interior’s Standards specifically allow a historic property to continue its historic use or be adapted to a new use when that use requires minimal changes to the characteristics that define the building and its historic setting.
That opens the door to adaptive reuse.
A former storefront might become a restaurant or retailer. Upper floors could potentially become apartments. An underused commercial building could become offices, lodging, or another productive business space.
The Standards are intended to preserve the materials, features, spaces, and characteristics that make the property historically significant while still allowing historic buildings to serve useful purposes today.
Timing is extremely important.
For federal projects, the rehabilitation is reviewed through a formal certification process involving the State Historic Preservation Office and the National Park Service. The federal application includes documentation of the building, the proposed rehabilitation work, and ultimately the completed project.
That means property owners should investigate eligibility and preservation requirements before beginning rehabilitation work or making major design decisions.
A property being old, or even being located within a historic district, does not automatically mean every renovation will qualify for a tax credit.
Early conversations can help an owner determine whether the property is eligible, what work may qualify, and how a proposed rehabilitation can meet applicable preservation standards.
Arkansas has a second state program designed for particularly large income-producing rehabilitation projects.
The Arkansas Major Rehabilitation Tax Credit applies to qualifying income-producing projects with at least $1.5 million in eligible rehabilitation expenses. The state program provides a 25% credit and has different limits and requirements than the regular Arkansas Rehabilitation Tax Credit. An owner cannot claim both state programs for the same eligible property.
For communities working to attract larger-scale private redevelopment, the existence of a program designed specifically for major historic projects adds another potential tool to the economic-development conversation.
Arkansas Heritage also administers historic-preservation grants, but it’s important to understand that there is not a general restoration grant available to every private owner of a National Register property.
Arkansas Heritage states that, because of the number of historic buildings in Arkansas and limited grant funds, it generally cannot make preservation/restoration grants directly to private owners of National Register-listed properties.
There are specific exceptions and programs.
For example, Historic Preservation Restoration Grant Option 1 can provide up to $10,000 for qualifying properties on the Arkansas Register of Historic Places or properties identified as noncontributing within a National Register district when the proposed project will make the property eligible for National Register listing and the owner completes that listing process. These grants also have matching requirements.
Other grant opportunities are available for qualifying properties owned by municipalities and nonprofit organizations.
The takeaway for property owners is not that every historic property has grant money waiting for it, but rather:
Ask what programs may apply before assuming none are available.
Explore Arkansas Historic Preservation grants
Another preservation tool discussed during the Lunch & Learn was the preservation easement.
A preservation easement is a legal mechanism through which an owner can protect historically significant characteristics of a property over time. Arkansas Heritage’s easement process involves documentation of the property, agreed-upon restrictions, review by the Arkansas Historic Preservation Program, execution of an easement deed, and recording of that document in local records.
In some circumstances, donation of a qualifying historic-preservation easement may also have federal tax implications. Eligibility for a federal deduction has specific requirements; for example, Arkansas Heritage notes that the property must be individually listed on the National Register or be a contributing component of a National Register historic district.
Because preservation easements create significant long-term legal obligations and tax questions, property owners should consult Arkansas Heritage and qualified legal and tax professionals before pursuing one.
Historic preservation and economic development don’t have to be separate conversations.
When a vacant building becomes a restaurant, retail shop, office, or other productive space, that’s economic development.
When an entrepreneur rehabilitates a storefront and opens a business, that’s economic development.
When unused upper floors are successfully converted into housing, that adds activity and investment to the commercial district.
And when private investment brings an aging property back into productive use, the benefits can extend beyond a single building.
Historic rehabilitation can support new business creation, expansion of existing businesses, housing, private investment, neighborhood revitalization, and stronger commercial districts.
Just as importantly, it allows Mena to pursue growth while preserving some of the architecture and character that make our community distinctive.
Our Lunch & Learn with Revis Edmonds of Arkansas Heritage and Amanda Hamilton of the Arkansas Office of Outdoor Recreation served as an important reminder that economic development doesn’t always mean starting from scratch.
Sometimes our opportunities are already here in our historic buildings, our downtown, our outdoor assets, and the people willing to invest in them.
For someone considering an aging storefront or underused downtown building, the first question doesn’t always have to be:
“How much will this cost to fix?”
Another question should be:
“What resources are available that could help make this investment possible?”
The Mena/Polk County Chamber of Commerce will continue working to connect businesses, property owners, entrepreneurs, and prospective investors with programs, information, and resources that can help turn ideas into investment.
Our historic buildings helped build Mena once. With thoughtful investment, they can help build its next chapter, too.
Historic rehabilitation tax credits, grants, easements, and other incentives are subject to individual eligibility requirements, application procedures, available funding or program allocations, certification, and approval. Not all historic properties or rehabilitation expenses qualify. Tax credits are not the same as grants or direct reimbursements, and the ability to claim or use a credit depends on individual tax circumstances. Property owners should consult Arkansas Heritage and qualified tax, legal, financial, and preservation professionals before purchasing a property, beginning work, or making investment decisions based on a potential incentive. This article is intended for general informational purposes only and does not constitute tax, legal, financial, or investment advice.
Mena’s Commercial Historic District has been listed on the National Register of Historic Places since 2009.
Within a historic district, an important distinction is whether an individual property is considered “contributing.” A contributing building is one that helps convey the historical or architectural significance of the district.
A building doesn’t have to be an elaborate landmark to matter. Traditional storefronts and commercial buildings can collectively create the historic character that makes a downtown unique.
For property owners, that distinction can also be important financially. Qualifying historic properties may have access to state and federal incentives specifically designed to encourage their rehabilitation and productive reuse.
One of the most exciting takeaways from the Lunch & Learn was just how significant Arkansas’s Historic Rehabilitation Tax Credit can be for smaller communities.
Under the current Arkansas program, qualifying projects in cities with populations under 10,000 can receive a state income tax credit equal to 40% of eligible rehabilitation expenses.
For qualifying income-producing properties, such as commercial buildings and certain rental properties, the minimum rehabilitation investment is $25,000. The program allows up to $1.6 million in qualifying expenses, meaning an eligible project in a community under 10,000 could potentially generate as much as $640,000 in Arkansas historic rehabilitation tax credits.
For qualifying non-income-producing properties, the minimum investment is $5,000, with up to $100,000 in qualifying expenses. At the 40% rate, that could represent a maximum state credit of $40,000.
Learn more about the Arkansas Rehabilitation Tax Credit
Consider a qualifying historic commercial property with $500,000 in eligible rehabilitation expenses.
At a 40% Arkansas credit, that project could potentially generate $200,000 in state historic rehabilitation tax credits.
Depending on the property and project, federal historic rehabilitation credits may also be available.
The actual value and usability of tax credits will depend on the project, ownership structure, qualifying expenses, tax circumstances, and program approval. But the example illustrates why these programs should be investigated before a property owner decides that rehabilitating an older building simply costs too much.
Tax credits can become one piece of a larger capital stack, alongside conventional financing, owner equity, grants, and other eligible economic-development incentives.
Qualifying income-producing historic properties may also be eligible for the Federal Historic Rehabilitation Tax Credit, which provides a credit equal to 20% of qualified rehabilitation expenditures.
Federal eligibility requirements differ from the Arkansas program. Generally, the building must be a certified historic structure, undergo a substantial rehabilitation, and be used for an income-producing purpose.
Importantly, Arkansas Heritage notes that the federal credit may be earned independently or in addition to an Arkansas rehabilitation tax credit program, provided the project meets the requirements of the applicable programs.
That can make historic redevelopment an especially interesting option for entrepreneurs and developers considering investment in downtown Mena.
Learn about the Federal Historic Rehabilitation Tax Credit from the IRS
Historic rehabilitation doesn’t mean turning a building into a museum.
The goal is to preserve the features that give a building its historic character while allowing it to continue serving the community.
A former storefront can become a new restaurant or retailer. An underused commercial building can become an office, lodging property, or another business. Upper floors that have sat vacant for decades may have the potential to become apartments or other productive space.
This concept of adaptive reuse allows communities to meet today’s needs while preserving the architecture that makes their downtown distinctive.
Projects receiving historic rehabilitation incentives generally must follow the Secretary of the Interior’s Standards for Rehabilitation, which emphasize retaining important historic materials and features and making alterations that are compatible with the character of the historic property.
This is also why property owners should explore incentives before construction begins. Early conversations with preservation professionals can help determine whether a property and proposed project may qualify and whether planned renovations meet program requirements.
For particularly large redevelopment projects, Arkansas also offers the Major Historic Rehabilitation Tax Credit.
The program is designed for qualifying projects involving at least $1.5 million in rehabilitation expenses and provides a 25% credit on eligible expenses, subject to program requirements and limits.
While projects of this size may be less common, the program provides another tool when communities are working to attract larger private investment into significant historic properties.
Explore Arkansas’s Major Historic Rehabilitation Tax Credit
Arkansas Heritage also administers historic preservation grant programs.
Eligibility varies by program, ownership, property designation, and proposed work. Some programs can assist municipalities and nonprofit organizations, while others may provide opportunities involving properties within historic districts.
For a property owner considering a rehabilitation project, the lesson is simple: ask what is available before assuming there isn’t assistance.
A project that doesn’t fit one program may qualify for another.
Explore Arkansas Historic Preservation grants
Another tool discussed during the presentation was the preservation easement.
A preservation easement is a voluntary legal agreement that can protect important historic characteristics of a property over time. These agreements generally transfer with ownership, helping ensure that significant historic features remain protected even if the property changes hands.
Depending on the program and circumstances, easements can also be connected to preservation grants or potential tax considerations.
Because an easement can create long-term legal obligations, property owners should work directly with Arkansas Heritage and qualified legal and tax professionals before pursuing one.
Historic preservation can sometimes be viewed as something separate from economic development.
In reality, the two can work hand in hand.
When a vacant building becomes a restaurant, that’s economic development. When an entrepreneur restores a storefront and opens a business, that’s economic development. When unused upper floors become housing, that’s economic development. When private investment brings an aging property back into productive use, that investment strengthens the surrounding commercial district.
Historic rehabilitation can support new business creation, expansion of existing businesses, housing, tourism, neighborhood revitalization, and stronger commercial districts.
It also allows Mena to grow without sacrificing the character that makes our community different from everywhere else.
Our Lunch & Learn with Revis Edmonds and Amanda Hamilton served as an important reminder that economic development doesn’t always mean starting from scratch.
Sometimes our greatest opportunities are already here—in our historic buildings, our downtown, our outdoor recreation assets, and the people willing to invest in them.
For someone looking at an aging storefront or vacant downtown building, the first question doesn’t always have to be:
“How much is this going to cost to fix?”
It should also be:
“What resources are available to help make this investment possible?”
The Mena/Polk County Chamber of Commerce will continue working to connect businesses, property owners, entrepreneurs, and prospective investors with programs and resources that can help turn ideas into investment.
Our historic buildings helped build Mena once. With thoughtful investment, they can help build its next chapter, too.
Property owners should contact Arkansas Heritage and appropriate tax, legal, and financial professionals before beginning a rehabilitation project. Eligibility, qualifying expenses, credit amounts, and program requirements vary by property and project. This article is intended for general informational purposes and does not constitute tax, legal, or financial advice.
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