by Chip Rogers
AAHOA President & CEO
Tremendous. Marvelous. Heroic. Spectacular. Beau-tiful. The list of superlatives that one could use to describe last year’s Tax Cuts and Jobs Act (TCJA) is enormous, but I think “historic” is perhaps one of the most appropriate. The bill itself is a once in a generation overhaul of our tax system. On top of that, of the many provisions in the TCJA, two significant yet overlooked sections address areas that may spark significant growth for hotels. The Historic Tax Credit program and the creation of Opportunity Zones can help foster new growth in older areas where the economic recovery is, perhaps, not yet realized.
With seemingly no end in sight for urban revitalization projects and more cities and towns looking to recapture the bustling atmosphere that defined our urban centers before the great exodus to the suburbs of the 1950s and 1960s, there’s never been a better time for developers interested in opening hotels to snap up historic properties in downtowns across the country.
The historic building tax credit program affords developers the opportunity to recoup 20 percent of the cost of renovating historic buildings. Returning these buildings to commerce, such as with hotels, whether boutique or an established brand, revitalizes older areas of our cities and helps rejuvenate local economies such as industries associated with construction, the hiring of new employees for the hotels, and the generation of property and sales taxes. While the previous iteration of this program allowed developers to claim the credit all at once, the provision in the final version of the tax bill spreads the credit out over five years. That said, this credit can be taken in conjunction with state building tax credit programs where they exist to lower renovation costs even further. Twenty percent can make a huge difference for hoteliers looking to expand into historic areas on the cusp of revival.
In addition to incentivizing the redevelopment of historic properties, there is a new tool to encourage development in areas that have been left behind during the economic recovery. The TCJA allowed for the creation of Opportunity Zones in which Qualified Opportunity Funds can be used to support development projects. This incentivizes new investment in low-income, high-poverty urban and rural communities.
The Governors or chief executives of states and territories submitted proposed zones to the Department of the Treasury which determined which areas are eligible for investment. I encourage hoteliers and developers to examine the list, available at the Community Development Financial Institutions Fund website (www.cdfifund.gov/pages/opportunity-zones.aspx) for opportunities. As the operators of Opportunity Funds, which allow investors to defer, and in some instances, largely reduce federal taxes on capital gains by using them to create these funds, begin to explore potential projects, they could be a valuable source of funding. With more investment in distressed areas may come more guests and opportunities for growth.
Whether it’s businesses using tax savings to create new jobs and raise wages, or incentivizing boutique hoteliers to renovate historic buildings and bring new life to older communities, I believe we’re only starting to see the opportunities the TCJA creates. Each week, the American economy is growing stronger, and more Americans than ever are seizing the entrepreneurial spirit that makes our nation great.