Historic renovation in the Washington area and elsewhere has plummeted because federal tax code changes have diminished the financial incentives for investors to restore many older buildings.

Ward Jandl, who oversees the National Park Service's historic preservation program, said the average number of applications his office has received each month to certify buildings as historic structures so that they can qualify for special rehabilitation tax credits dropped 46 percent in the 13-month May 1986-to-May 1987 period compared with the previous 10 months.

Nationwide, an average of 135 applications a month were filed during the 13-month period in 1986 and 1987, down from 252 per month submitted during the July 1985-to-April 1986 period. Some developers, even last year, said they were pulling back on historic renovations in anticipation of the tax code changes.

That drop has held true in the District of Columbia as well. Stephen Raiche, chief of the city's historic preservation office, which screens requests to certify city buildings as historic structures for the Park Service, said "47 percent is about right" for the decline in the number of applications his office has processed recently.

Bill Pencek, chief of preservation services for the Maryland Historical Trust, the state agency that approves historic renovations, said the number of Maryland projects has dropped by nearly 50 percent since the beginning of the year compared with the first six months in 1986.

In the first three months of 1987, his office approved only 21 projects, down from 40 a quarter last year. "And we've seen not only a 50 percent drop, but a 75 percent drop in the amount of dollars spent to rehabilitate properties. The average project cost in 1985 was $730,000. In 1986, it dropped to $224,000. Now it's down to $124,000," Pencek said.

That doesn't surprise Ellen Saigel, an owner of Saigel Construction Co., which once renovated at least one historic building a year, but doesn't "have any planned." now. "It should be expected because of the tax act," Saigel said.

Jandl said that numerous restorations are syndicated projects that have relied on large investors for funds. Until the new tax law took effect Jan. 1, historic renovation qualified for a 25 percent tax credit that enabled developers and investors to write off one-fourth of all construction costs on their federal income taxes in the same year they were incurred to offset salaries and other income.

In addition, such investors could depreciate up to 75 percent of the remaining costs over 19 years. After Congress passed the rehabilitation tax credit provisions in 1981, the number of historic renovations increased five-fold.

Congress preserved the rehabilitation credits when it revised the tax code last fall, but capped them at 20 percent and approved other provisions that severely limited their usefulness to investors and developers.

Under new passive-activity rules that limited the amount of losses and credits investors could use to offset other income, investors could only apply up to $7,500 of the credits in any year as a tax shelter. Moreover, those earning more than $250,000 a year could no longer use the rehab credits at all, according to a House Ways and Means staff member.

Consequently, many historic renovations have lost their appeal to investors who, as required by many states, must earn more than $200,000 to participate in limited partnerships. "So if a project isn't profitable for a developer, they don't get done," said Ian Spatz, legislative counsel for the National Trust for Historic Preservation. In addition, a longer 27-year depreciation period has undercut the popularity of historic renovations. "If you have to put the cash up front, you want to get it back immediately," Spatz said. "But the new tax law prevents this."

Donald Flaks, vice chairman of Sybedon Corp., a real estate investment banker, said that his firm, which finances projects throughout the country and financed the restoration of the First National Bank Building and the Jefferson Sheraton Hotel in Richmond, dropped a half dozen planned projects because of the tax law change.

As a result, he said "historic structures are not going to be rehabilitated at anywhere near the rate they have been and the communities around them that tend to be rundown won't get the boost that renovations provide."

But Fred Copeman, executive vice president for Boston Bay Capital, an investment banker for historic renovations, said his firm is trying to find a way around the tax limitations by putting together public partnerships that allow "middle investors" or those earning under $200,000 to invest in restorations. But he said that has complicated the process of raising money for projects.

Instead of turning to 30 to 40 investors for the funds to restore a building -- which took up to three months -- Boston Bay must now arrange for 900 to 1,200 investors and file a public offering with the Securities and Exchange Commission.

"And that can take as long as six to nine months and cost as much as $1 million," Copeman said.

But the tax laws haven't affected all renovation work. Raiche said his office has received more calls from people interested in renovating homes to live in. Shalom Baranes, a D.C. architect who specializes in historic renovations, said most people do it because they want to improve their homes, but not to gain the tax credits, which don't apply to owner-occupied buildings.

Larger developers also have not been affected that much by the tax changes. Tom Bourke, vice president of D.C. development for the Oliver Carr Co., which renovated the Willard Hotel, said his company has not reconsidered any of its restoration plans because his company always examines the pretax profitability of projects before approving them.

His company also supplies a significant part of the money and typically relies on insurance companies and other institutional investors who don't worry about the tax credits for the remainder of the investment money.

Said Bourke: "The tax credits are only the icing on the cake for sound projects. The tax code merely eliminated a lot of {renovation projects at} buildings that didn't make sense."