The Federal Historic Rehabilitation Tax Credit is a useful incentive for encouraging the preservation of the state’s historic buildings. Nationwide, over 43,000 projects have been completed since its inception in 1976, and the program has generated over $89.97 billion in the rehabilitation of income-producing historic projects. The largest federal program specifically supporting historic preservation, the historic tax credit also generates much needed jobs, 106,846 in 2017 alone, enhances property values in older communities, creates affordable housing, and augments revenue for Federal, state, and local Governments. The program has been instrumental in preserving historic places that give cities, towns, and communities their special character.
On December 22, 2017, Public Law No: 115-97 (Pub. L. 115-97) was signed and enacted, amending the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. Pub. L. 115-97 (Sec. 13402) modifies the 20% Historic Rehabilitation Tax Credit as well as provides certain transition rules. These and other changes to the Internal Revenue Code may affect a taxpayer's ability to use of the 20% Historic Tax Credit. Pub. L. 115-97 also repeals the 10% Rehabilitation Tax Credit for non-historic buildings. The text of Pub. L. 115-97 is available at www.congress.gov.
Applicants requesting historic preservation certifications by the National Park Service as well as others interested in the use of these tax credits are strongly advised to consult an accountant, tax attorney, or other professional tax adviser, legal counsel, or the Internal Revenue Service regarding the changes to the Internal Revenue Code related to Pub. L. 115-97.
The Federal Historic Rehabilitation Tax Credit program gives:
There are four requirements for a project to become certified:
1. The property must be listed in the National Register of Historic Places, either individually or as a contributing property to a district.
2. Property must be income producing for at least five years following rehabilitation. This may include but not be limited to proposed uses such as hotel or bed and breakfast, restaurant or bar, retail, office, rental residential, industrial, or agricultural. Owner-occupied residential properties do not qualify.
3. The project must be substantial. This means the amount spent on “Qualified Rehabilitation Expenditures”* (QREs) must equal or be greater than the “Adjusted Basis” value** of the property.
*Qualified Rehabilitation Expenditures (QREs)can be soft or hard project development costs, and not necessarily reserved for historic character defining features of a property.
**Adjusted Basis value is an IRS term to determine the “value” of a historic property using this basic formula:
A – B – C + D = adjusted basis, whereas:
A = purchase price of the property (building and land)
B = cost of land at time of purchase
C = depreciation taken for an income-producing property
D = cost of any capital improvements made since purchase
4. The rehabilitation work must be done according to the Secretary of the Interior’s Standards for Rehabilitation. For further information on how to interpret these Standards, please contact our office, visit the NPS website, or hire a qualified architect or historic preservation consultant.
The National Park Service requires that you work with the State Historic Preservation Office (SHPO). We strongly recommend that you submit an application before starting work. Any work you begin without prior NPS approval is done at your own risk. Once you have begun work, changes to bring the project into conformance with the Secretary of the Interior's Standards for Rehabilitation can be difficult, expensive, or occasionally impossible to make.
The application is broken into three parts:
Part 1 (Evaluation of Significance)
Part 2 (Description of Rehabilitation) | Amendment Form
Part 3 (Request for Certification of Completed Work)
Instructions for completing Historic Preservation Certification Application
Feel free to contact us during any part of the process.
All work must meet the Secretary of the Interior's Standards for Rehabilitation or the tax credit cannot be taken on any portion of the work. We suggest also referencing the National Park Service Preservation Briefs which provide guidance on preserving, rehabilitating, and restoring historic buildings. The briefs are especially useful for tax credit applicants because they recommend methods and approaches for rehabilitation buildings that are consistent with their historic character.
Some examples of eligible work items include:
The purchase price of the building, site work (landscaping, sidewalks, fences, driveways, etc.), new additions, work on outbuildings, and the purchase and installation of moveable furnishings or equipment (window coverings, refrigerators, etc.) do not qualify for the credit.
In order to avoid any recapture of the tax credit by the federal government, you must keep the building for least five years from the date you complete the project. The recapture amount ranges from 100% of the tax credit if the building is sold within the first year, to 20% of the credit if it is sold within the fifth year.