Federal Tax Credits
Tax Credit Quick Links
The Federal Historic Rehabilitation Tax Credit is one of the most useful incentives for encouraging the preservation of the state’s resources. With over 40,380 completed projects since its inception in 1976, the program has generated over $73 billion in the rehabilitation of income-producing historic properties. The largest federal program specifically supporting historic preservation, the historic tax credit also generates much needed jobs, 77,762 in 2014 along, enhances property values in older communities, creates affordable housing, and augments revenue for Federal, state, and local Governments. The Widely recognized program has been instrumental in preserving historic places that give cities, towns, and communities their special character.
The Federal Historic Rehabilitation Tax Credit program gives:
- A 20% tax credit to owners who rehabilitate certified historic buildings in accordance with the Secretary of the Interior's Standards for Rehabilitation.
- A 10% tax credit to owners who renovate non-historic buildings constructed before 1936.
The tax credit applies to the building owner's federal income tax for the year in which the project is completed and approved. If it is not all needed in that year, the tax credit may be carried back one year or forward up to 20 years. (Example: 20% of a $75,000 rehabilitation = $15,000 federal tax credit.)
How do I qualify?
There are four threshold requirements for a project to become certified:
1. Building 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
The rehabilitation work must be done according to the Secretary of the Interior’s Standards for Rehabilitation (Standards). 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.
How do I apply for the credit?
The National Park Service requires that you work through us, the State Historic Preservation Office (SHPO), on your application. You should submit the first two sections of the NPS's three-part application to us as early as possible. Final review and approval is made by the National Park Service in its Washington, D.C. office.
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.
What rehabilitation work qualifies?
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.
Depending on the historic conditions and the specifics of the proposed rehab work, some examples of eligible work items include:
- repairing/upgrading windows
- plumbing repairs and fixtures
- refinishing floors, handrails, etc.
- repairing or replacing roofs
- compatible new kitchens & baths
- reversing incompatible remodels
- painting walls, trim, etc.
- repointing masonry
- reconstructing historic porches
- new furnace, A/C, boiler, etc.
- new floor and wall coverings
- electrical upgrades
- necessary architectural, engineering, and permit fees
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. It is recommended to contact a tax professional regarding the use of this tax credit.
When can I sell my rehabilitated building?
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.
10% Federal Rehabilitation Tax Credit
A 10% Federal Rehabilitation Tax Credit is available for any pre-1936 building that is not listed in the National Register of Historic Places and is being used for commercial, but not residential rental purposes. The rehabilitation must be substantial, exceeding either $5,000 or the adjusted basis of the property, whichever is greater. In order to qualify for the tax credit, the rehabilitation must meet three criteria: at least 50% of the existing external walls must remain in place as external walls, at least 75% of the existing walls must remain in place as either external or internal walls, at least 75% of the building’s internal structural framework must remain in place. There is not formal review process for this credit.