Historic Tax Credits: Qualifications & Use

The Federal Historic Rehabilitation Tax Credit was first enacted in 1976 with the goal to incentivize real estate investors to invest in the preservation and rehabilitation of historic buildings and landmarks. Since its enactment, the credit has been responsible for billions of dollars being invested in the preservation and rehabilitation of numerous historic buildings across the county. These projects have not only served to preserve historic buildings, but have led to the revitalization of countless communities across America by driving economic development, creating jobs, and improving property values.

Qualifying For Historic Tax Credits

In order to qualify for the tax credits, the building must be listed in, or eligible for, the National Register of Historic Places and is an income-producing property. The renovation work must meet the Secretary of the Interior’s Standards for Rehabilitation. These standards spell out guidelines for rehabilitation projects. In General, the standards require that alterations remain consistent with the buildings historic character and should not significantly alter the historic character. Because of these strict guidelines, astute developers should submit a proposed work program for approval before beginning any rehabilitation projects.

Historic Tax Credits Usage

Developers may use the tax credits themselves or sell them. Developers commonly sell the tax credits in order to fund the rehabilitation project. The tax credit is worth 20% of all qualified rehabilitation expenditures incurred during the historic preservation and rehabilitation project. Examples of qualified rehabilitation expenditures are costs of the work on the building, architectural and engineering fees, site survey fees, legal expenses, development fees, and any other construction-related costs that can be added to the basis of the building and are reasonable and related to the services performed.

The owner may use the tax credit to offset federal income tax liability beginning in the year that the building is placed into service. Recent changes to the tax code now require the tax credit to be spread out over 5 years.

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