The Federal Historic Preservation Tax Incentives program encourages private sector investment in the rehabilitation and re-use of historic buildings. The National Park Service administers the program with the Internal Revenue Service in partnership with State Historic Preservation Offices.
A 20% income tax credit is available for the rehabilitation of historic, income-producing buildings that are determined by the Secretary of the Interior, through the National Park Service, to be “certified historic structures.” A certified historic structure is a building that is listed individually in the National Register of Historic Places or one that is a contributing structure within a registered historic district. The State Historic Preservation Offices and the National Park Service review the rehabilitation work to ensure that it complies with the Secretary’s Standards for Rehabilitation. The Internal Revenue Service defines qualified rehabilitation expenses on which the credit may be taken. Owner-occupied residential properties do not qualify for the federal rehabilitation tax credit.
A 10% tax credit is available for the rehabilitation of non-historic buildings placed in service before 1936. The building must be rehabilitated for non-residential use. 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 external walls must remain in place as either external or internal walls, and at least 75% of the internal structural framework must remain in place.
Generally, the tax credit is claimed for the tax year in which the rehabilitated building is placed in service. The owner must hold the building for five full years after completing the rehabilitation, or pay back the credit. During a 24-month period selected by the taxpayer, rehabilitation expenditures must exceed the greater of $5,000 or the adjusted basis of the building and its structural components.
For example, Downtown Lima, Inc. renovated the former Pennsylvania Railroad depot in Lima, Ohio. Built in 1887, the building was closed in 1990 and fell into disrepair following a fire. The adaptive reuse project, completed in 2004, resulted in a full rehabilitation of the building’s Victorian detailing, which includes interior woodwork and elaborate corbelling. Following the Secretary’s Standards, a rear addition was added to house accessible restrooms. Today the structure is occupied by the Lima Utilities Department. Due to the listing of the depot on the National Register of Historic Places, Downtown Lima, Inc. could take advantage of a 20% federal historic preservation tax credit, totaling $842,250, for expenses related to the rehabilitation.
Each year, the Department of the Interior approves approximately 1000 projects, leveraging nearly $4 billion annually in private investment in the rehabilitation of historic buildings across the country.
Many states also administer historic preservation tax credit programs that can be combined with federal tax credits. Consult your State Historic Preservation Office for more information.