Some of Houston’s wealthiest property owners have taken advantage of tax exemptions that save them money on improvements to their homes and businesses.
City leaders want to help the less fortunate get richer as well.
The Houston City Council, which in 2015 lowered the threshold for tax exemptions related to investments in historic sites, made another amendment to the longstanding program last month. A greater benefit is now offered to owners of single-family homes in qualifying census tracts in which the poverty rate is at least 20% or the median family income for such tracts does not exceed 80% of the metropolitan-area median.
For those owners of sites designated as landmarks, protected landmarks or contributing structures within a Houston Historic District, qualifying investments of at least 100 percent of the building’s value will equate to more than a dollar-for-dollar exemption.
“The council has long complained that people who live in very high-income neighborhoods, a la River Oaks, are designating their property as landmarks, investing in their property and getting this super exemption,” said Margaret Wallace Brown, interim director of the city’s Planning & Development Department. “The council really wants to make sure that this program is a benefit to the city as a whole and not just wealthy property owners.”
The lower-income census tracts include Acres Homes, Independence Heights and the western part of Oak Forest as well as the far northeastern part of the Heights, where there are many other designated landmarks. For the aforementioned single-family homeowners, along with owners of multi-family and commercial structures, their exemption equals the Harris County Appraisal District value on Jan. 1 of the year following the completion of construction.
Eligible expenses include repair or reconstruction of structural components such as walls, windows, floors, doors and cooling and heating systems, along with lighting and plumbing fixtures, electrical wiring, stairs and interior sprinkler systems. Construction, labor, materials and professional services also qualify.
If an owner spends $100,000 on a structure valued at $100,000, for example, its initial improved value will be the basis for annual exemption over a period of 15 years. The improved value would be deducted from the annual appraised value, with the remainder serving as the structure value to be taxed.
For qualifying expenses between 25 and 99 percent of a structure’s value – that is a landmark, protected landmark or contributing structure in a historic district not located within a lower-income census tract – owners can receive a dollar-for-dollar exemption. For example, an investment of $30,000 in a $100,000 structure would reduce its taxable value by $30,000 annually for a period of 15 years.
“It can be a big deal,” Wallace Brown said.
While benefiting homeowners and fostering increased use of city land as well as improved aesthetics and functionality of historic districts, the program also comes with an eventual financial benefit to the city and other taxing authorities. By investing in structures and thereby increasing the value of them and the land on which they are located, tax revenues could drastically increase after the exemption period lapses.
Houston developer Bill Franks, who has taken advantage of the tax exemptions while redeveloping four downtown hotels during the last 12 years, said promoting such improvements also helps the economy by creating construction jobs and service jobs as well as a need for new materials.
“It’s in the city’s best interest, because most of these properties are valued at hardly nothing on tax rolls when they were purchased. They’re now valued at a lot,” Franks said. “The incremental difference, the city benefits from that and the (public school districts) benefit from that.”
Wallace Brown said city officials do not think enough property owners are utilizing the exemptions, so they’re encouraged to reach out to the planning and development department to learn more. Property owners can apply to have their structures designated as landmarks if they are not already, so long as the buildings are at least 50 years old or have architectural or cultural significance.
Once a structure is designated as a landmark and investments have been made, property owners can receive the tax exemptions by submitting related documentation to the city’s Economic Development Department. There are similar exemptions available on the federal and state levels.
“Traditionally in Houston, historic preservation has probably been looked at primarily as a regulatory thing, which makes it negative in a lot of people’s minds,” Wallace Brown said. “I admit, we have not done the best job in promoting there are financial benefits. … There’s a lot of different ways that preservation of historic structures is a benefit to the property owner and the city at large.”