Private investment in the preservation of historic buildings has grown dramatically as a result of federal tax incentives enacted in 1976 and then strengthened in 1981.

In the first six years of the program, nearly $3 billion was committed to the rehabilitation of more than 5,600 projects, and the numbers are growing every day.

According to the Interior Department's National Park Service, which administers the federal tax incentive program, 1,802 historic rehabilitation projects, representing more than $1.1 billion in private investment, were judged qualified for the maximum allowable tax benefits during fiscal 1982, an activity level more than three times what it was during the first three years of the program.

During fiscal 1983, the National Park Service expects to approve an estimated 2,750 new projects, representing a capital commitment of about $1.5 billion in the rehabilitation of historic buildings. In the first quarter of the current fiscal year alone, 686 projects have qualified, up almost 100 percent from the same quarter a year ago and more projects than were approved in each of the first three years of the program.

Historic preservation has become a profitable business investment, and it's due in large part to the tax incentives, which now grant a 25 percent investment tax credit for the certified rehabilitation of a qualifying historic structure used for commercial, industrial or rental residential purposes.

The investment tax credit can be combined with an accelerated cost recovery period which allows investments to be recovered in 15 years.

"The tax benefits program has helped to mainstream historic preservation in the real estate marketplace," says Alexander Aldrich, Chairman of the Advisory Council on Historic Preservation, an independent federal agency that advises the President and Congress on historic preservation.

Alrich told the Young Presidents' Organization in Florida last month that a recent council survey of the program has shown that without the tax benefits, 53 percent of all projects wouldn't have taken place at all.

Besides the tax breaks, though, there are other reasons why investors and developers find rehabilitation an attractive option to new construction, he noted. They include the lower costs that can result from rehabilitation; the often faster construction time, the highly marketable "amenities" of older buildings today and the good location of many older buildings in downtown or "in-town" areas, where access to public transportation and to utilities already in place can keep costs down.

The full preservation tax incentives are available for any structures listed in the National Register of Historic Places or buildings located in a registered historic district and certified by the Secretary of Interior as being of historic significance to the district. With more than 26,000 separate listings in the National Register, including districts, up to 250,000 buildings are potential candidates for the 25 percent ITC. And more are being identified by the states every year.

The rehabilitation to be done to the structure must also be certified by the Secretary of Interior to make sure that the work meets certain standards of quality and is consistent with the historic character of the property or the district in which the property is located.

The two major threshold qualifications are met by 92 percent of all applications filed, according to H. Ward Jandl, chief of technical preservation services of Interior's National Park Service. About 57 percent of the rehabilitation projects come from the NPS's mid-Atlantic region, which covers 17 states from Virginia to Maine and extends as far west as Indiana.

Statistics kept by Jandl's office show that, as of the end of 1982, more than 46 percent of the rehabilitated projects were for housing purposes--with more than 21,800 new housing units created; 25 percent were for office or commercial space; 22 percent went for mixed-use purposes, and 3 percent were for the restoration of hotels.

To qualify for the 25 percent investment tax credit, a building must be substantially rehabilitated, with costs exceeding the greater of $5,000 or the adjusted basis of the building, which is generally the cost of the building plus the cost of the capital improvements, less depreciation already taken. In addition, there is a requirement that at least 75 percent of the existing exterior walls be retained in the rehabilitation process.

While the owner of an historic building is an obvious beneficiary of the tax benefits, they can also accrue to a lessee with a 15-year lease term and, according to the Advisory Council's Aldrich, to an individual who has invested in a share of the profit through equity syndication of an ITC-certified rehab project.

Rehabilitation of an older building that doesn't meet the Interior Department's criteria for the maximum tax benefits can qualify for lesser benefits for the rehabilitation of old--but not historic--commercial structures. The law allows an investment tax credit of 20 percent to be used for substantially rehabilitated buildings 40 years or older and a 15 percent tax credit can be taken for buildings between 30 and 39 years old. These credits may be used in conjunction with an accelerated cost recovery period.

Besides the federal tax incentives, many states and cities have enacted incentives to encourage capital investment in their historic commercial structures. Except for a small break on tax assessments, such incentives don't exist in Washington--something that should be remedied, in the opinion of J. Ernest E. Harper, Chairman of the Joint Committee on Landmarks of the National Capital, which helps administer one of the toughest local landmark laws in the nation.

"The District is long overdue in providing tax benefits for District landmarks," Harper said, referring to local landmarks that do not receive the national recognition that makes them eligible for the full federal tax breaks. Local tax benefits would provide a cushion for a building owner who feels landmark status imposes an economic hardship, he noted.

Besides the tax incentives, the recent poor economy and high interest rates have helped contribute to a significant increase in the overall rehabilitation construction market. Commercial rehab projects, which include the remodeling and reuse of all existing buildings, totaled about $51.6 billion last year, compared with a $28 billion total for all new commercial building, according to statistics cited in the Advisory Council's 1982 report.