Historic Tax Credits

[Julio Gonzalez]

Understanding and taking advantage of the variety of tax credits boosts the return on your property and allows you to be part of the move to conserve our nation’s historic treasures.

When rehabilitating or investing in the rehabilitation of an eligible historic or non-historic building, you may be able to take advantage of one or both of the historic tax credits:

1) Historic Tax Incentives and

2) Historic Preservation Tax Credits

You can receive a federal income tax credit equal to 20% of the costs associated with rehabilitating the building.

What is a historic tax credit?

The historic preservation tax credits are federal tax credits that encourage property developers and owners to rehabilitate and preserve historic and non-historic buildings used in trade or business or held for the production of income. This lowers the overall cost of the project by lowering the tax owed dollar for dollar.

What are the requirements to qualify for this credit?

A taxpayer must own a “qualified rehabilitated building” for which they have incurred “qualified rehabilitation expenditures”. A “qualified rehabilitated building is any building:

• Before the beginning of rehabilitation was placed in service as a “building”
• That has been “substantially rehabilitated”
• That is a depreciable property
• Classified as a certified historic structure

What expenditures are considered to be a “qualified rehabilitation expenditure”?

• Costs that are chargeable to a capital account,
• Incurred by the taxpayer,
• Directly associated with the rehabilitation of the building, and
• Are related to depreciable property

What are examples of non-qualified rehabilitation expenditures?

• Costs to acquire the property
• Costs that do not directly relate to the rehabilitation of the building
• Costs associated with enlarging the property
• Interest incurred on the rehabilitation loan
• Sidewalks, landscaping and parking lots

What other questions do you have about historic tax credits?

[Michael Plaks]

I will add two points that make this Federal rehabilitation credit far less attractive than it may appear at first:

1. Rehab must cost more than the purchase of the building.

This was a layman's interpretation of the actual rule which is:

• The qualified rehabilitation expenditures exceed the greater of
  • The adjusted basis of the building (and its structural components), or
  • $5,000

2. The rehab must be certified by the National Park Service

• A “certified rehabilitation” means any rehabilitation of a certified historic structure which the National Park Service has certified to the Internal Revenue Service as being consistent with the historic character of such property or the district in which such property is located.

In short: no, it's not as easy as writing off 20% of any rehab that you do on some old building.