The venerable Mayflower Hotel on Connecticut Avenue now gleams from a $60 million face lift. Across town on Capitol Hill, a wire service reporter and some friends have renovated three older town houses into rental properties.
These properties and an estimated 300 other old buildings around the city have received a lot of tender loving care in the past three years because every restored window, cleaned facade and replaced iron grillwork represents a large tax savings to the buildings' owners.
The savings come in the form of tax credits ranging from 15 to 25 percent. This means that, once the owners figure out how much they owe in federal income taxes, they can subtract from that amount 15 to 25 percent of the cost of fixing up an old property.
"The District is one of the leading cities in the nation in historic restoration, as a result of the tax incentives," said George Burklacey, spokesman for the National Park Service, which must approve all renovation plans before owners can qualify for the tax credit.
Robert A. Peck, president of the D.C. Preservation League, which was formerly known as Don't Tear It Down, explained, "The framework of our preservation discussions has shifted from 'please save it' to talking about how to do the work as a quality job" so that buildings can qualify for the tax credit.
Jeffrey Domber, general counsel of the Jonathan Woodner Co., which has two historic projects in the works, added: "There has to be some incentive for a developer to preserve a building when preservation will cost more than demolition and new construction. The tax credit is a valuable financing tool."
Two kinds of tax credits are available for renovation work:
* A 25 percent credit is available for any commercially used building that has been designated as historic or is located in one of the city's 17 historic districts. This means that the credit can be applied to everything from a row house that will be rented, to large downtown hotels and office buildings.
* A 15 to 20 percent credit is available for nonhistoric commercial buildings, those with no historic significance and not located in a historic district. To qualify, the buildings must be more than 30 years old. Because this credit cannot be used for residential properties, row houses and apartment buildings do not qualify.
There is no way of knowing how many nonhistoric buildings have used the 15 to 20 percent credit because no design review or application process is required for historic buildings. Owners usually obtain legal and accounting advice before including the credit on their federal income tax returns.
Across the country, 3,214 properties have undergone renovatons totaling $2.1 billion using the 25 percent tax credit, according to the National Park Service. There are no individual figures to show the total costs of the projects in Washington, according to city and park service officials.
Congress made the tax credit a part of the 1981 tax act to encourage property owners to save and revitalize old buildings.
In Washington, the list of historic buildings whose face lifts have qualified for the 25 percent credit includes such well-known properties as the Willard Hotel, the Pavilion at the Old Post Office, Envoy Towers at 2400 16th St. NW, the Evening Star building at 1101 Pennsylvania Ave. NW and the former Gartenhaus furs building, on the northeast corner of 18th Street and Columbia Road NW, which is becoming the new home for a fast food restaurant.
But the credit also has spurred renovations of small apartment and commercial buildings, especially in historic districts such as Dupont Circle, Capitol Hill and Logan Circle.
In order for an owner to qualify for the 25 percent tax credit, the city's historic preservation office and the National Park Service must approve the renovation plan. The Internal Revenue Service makes the final determination on what costs can qualify for the credit.
The renovation must retain as much of the original building fabric as possible. The rules emphasize restoration and repairs using original materials, rather than replacement using new materials.
At the 724-room Mayflower, where the renovation included restoring or replacing marble columns with gold leaf capitals in the lobby, some elements of historic importance had to be retained despite being functionally obsolete.
"We had to use double-hung windows, even though they're not good for energy efficiency," said Kingdon Gould III, who is overseeing the restoration.
"The primary aggravation was the time it took to work out differences between the D.C. Historic Preservation Review Board and the National Park Service," Gould said. "The local board approves the building permit for the work, while the park service approves it for federal tax purposes. It's a difficult position for an owner, but the process is getting better as more projects are done."
On Capitol Hill, wire service reporter Greg Gordon and his partners are using the tax credit to improve three buildings in the 300 block of Eighth street NE.
Gordon and his partners found the rehabilitation certification process for the already gutted building at 340 Eighth St. much simpler than for the town house at 333 Eighth St., where the interior was intact.
"It's more complex when the building is in better shape, because you have to salvage and repair as much as possible rather than replace things," Gordon said. For instance, he and his partners have had to match the front stoop and replace fence pickets.
Gary Squire, an attorney, wanted to be sure that the repairs he and his partners intended to make at 1723 and 1725 P St. NW would qualify for the tax credit.
"Without the tax credit, I wouldn't be interested in doing this type of project," Squire said. The approval has allowed the partnership to sell a large interest in the project to investors.
To qualify for either tax credit, the rehabilitation expenses generally must exceed the value of the building before renovation. For example, if the renovation costs are $400,000 but the prior value of the building was $500,000, the owner cannot qualify for either tax credit.
The project also must retain at least 75 percent of the outside walls of a building. As a result, tax credit has been unavailable for some historic projects with partial preservation, such as the Metropolitan Square project at 15th and G Streets NW, which retains the front office portion of the Keith-Albee Building, the Army-Navy Club at 1625 I St. NW, and Almas Temple at 1315 K St. NW.
"The credit generates construction dollars, so the feds get the credit back," said Greg Gordon. "And D.C. gets housing plus property and income taxes." CAPTION: Picture 1, Old Gartenhaus building in Northwest will be home of a fast food restaurant; Picture 2, Credit encourages work such as Eight St. NE row house renovation; Picture 3, Federal tax credit recently helped finance $60 million face lift of Washington's veneral Mayflower Hotel. Photos by Vanessa Barnes Hillian -- The Washington Post