Federal Historic Rehabilitation Tax Credits
UPDATE: Third Annual Report on the Economic Impact of the Federal Historic Tax Credit for 2012 sponsored by the National Trust Community Investment Corporation, a subsidiary of the National Trust for Historic Preservation.
20 percent credit for historic buildings
The National Park Service (NPS), in partnership with the State Historic Preservation Office(SHPO) and the Internal Revenue Service (IRS), offers a federal income tax credit equal to 20 percent of a property owner's investment in the rehabilitation of a historic building. Additional information can be found on the NPS website.
- The Federal Tax Credit is equal to 20 percent of qualifying expenses incurred during a qualified project on a qualified building
- Buildings must be qualified historic structures. Qualified buildings are those that are listed on the National Register of Historic Places, have been deemed contributors to a National Register Historic District, or have been certified as a historic structure by the National Park Service through Part 1 of the application process. Buildings that are not yet listed on the National Register, but have been certified as historic for purposes of the tax credit program, must be added to the National Register within 30 months of the project's completion.
- Proposed work must follow a qualified rehabilitation plan. Qualified rehabilitation projects are those that meet the Secretary of the Interior's Standards for Rehabilitation and have been reviewed and approved by the National Park Service (NPS) through the application process.
- Buildings must be income-producing. Uses include hotels, rental residences, bed & breakfasts, office space, retail space, industrial or agricultural use.
- The Internal Revenue Service requires that rehabilitation projects be "substantial". This means that the cost of the rehabilitation must exceed the adjusted basis of the building. You must exceed that adjusted basis within a 24-month period (or you may phase a project out for 60 months if needed.) Please see the IRS Info page or contact your financial adviser or the SHPO for more information.
- Work may begin before the rehabilitation plan is approved by the NPS, but it is not recommended. Please contact the SHPO as soon as possible to avoid risking denial of your project.
- The 20 percent Federal Tax Credit may be carried forward for 20 years if you are unable to use all of your credits in one year.
- Contact the SHPO as soon as possible to verify that your property and project will likely qualify for this program.
- Contact your financial adviser to verify that you can take advantage of these tax incentives.
- All applications are sent first to the SHPO for preliminary review.
- Two copies of the application and all accompanying materials are required. One will be retained by the SHPO and the other sent to the NPS for final review.
- The SHPO will forward applications to the NPS, generally with a recommendation. State recommendations are generally followed, but by law, all certification decisions are made by the NPS on behalf of the Secretary of the Interior. The NPS decision may differ from the recommendation of the SHPO.
- Applications may be sent at any time during the year and may be sent separately or together.
- Read the application instructions before filling out the forms.
Part 1—Evaluation of Significance
This form is used to certify that your building is a historic structure for purposes of the tax credit program. If your building is individually listed on the National Register of Historic Places, you will not need to file this portion of the application. Photographic documentation of the building before work is required. The building's eligibility must be evaluated before work is started and photographs are usually the only way to do this.
If your building is located in a National Register Historic District, you will need to file this form and provide photographic documentation. Information should be sufficient to allow the NPS to evaluate how the building relates to the district. This information will be used to verify that your building is a contributing element in the district.
If your building is not yet listed on the National Register, either individually or as part of a district, you will need to file this form and submit photographic documentation of the building. Information should be sufficient for the NPS to make a preliminary determination as to whether or not the building would be eligible for the National Register if it were nominated. Usually, this means submission of a draft National Register nomination. The SHPO can provide guidance and examples to aid applicants.
Part 2—Description of Rehabilitation
This portion of the application must be submitted by all applicants for the 20 percent Federal Tax Credit. The form is used to certify that the proposed project will meet the Secretary of the Interior's Standards for Rehabilitation. It is recommended that Part 2 be submitted prior to initiation of the rehabilitation project. Owners who undertake rehabilitation projects without prior approval do so at their own risk. Parts 1 and 2 may be submitted together, but Part 1 must be evaluated prior to review of Part 2
The applicant should outline the building's existing condition and all proposed work on this form. Photographs showing all areas of proposed changes are required. If you are proposing major changes or you are using an architect, additional materials, such as drawings, may be required. The SHPO staff will review the application and materials to aid the applicant in the application process. The SHPO will advise applicants and provide technical assistance when needed. Applications will then be forwarded to the NPS for final review and approval.
If your scope of work changes or you wish to add something to your project you are required to submit an amendment sheet for approval.
Part 3—Certification of Completed Work
A project does not become a "certified rehabilitation" until it is completed and certified by the NPS. This form, with supporting photographs of the finished work, should be submitted when all work has been completed. Upon review and approval by the NPS, projects will be certified as complete and as qualifying for the 20 percent Federal Tax Credit.
Processing Fees—An application processing fee is required for the NPS to review applications for the 20 percent Federal Tax Credit. The fee for review of a Part 2 application for a project exceeding $20,000 is $250. The fee for review of a completed rehabilitation project is based on the dollar amount spent on the project. The NPS will subtract the $250 paid for review of the Part 2 if submitted previously. The following table shows the fee schedule charge by the NPS for review of completed projects. The fee is not due until requested by the NPS in writing.
Qualified Expenditures Fee
$5,000 - $25,000 $200
$25,001 - $50,000 $350
$50,001 - $100,000 $500
$100,001 - $500,000 $900
$500,001 - $1,000,000 $1,500
over $1,000,000 $2,000
Claiming the 20 Percent Federal Tax Credit
When the approved work is complete and Part 3 of the Federal application has been approved, property owners may claim the 20 percent Federal Tax Credit on IRS Form 3468 (check the IRS website )The IRS may require an itemized list of your expenses, a copy of your Part 3—Certification of Completed Work, or other materials. If the amount of the tax credit exceeds your tax liability for the year in which the property is placed in service, the excess amount may be carried forward for up to twenty years. Please consult your financial adviser for more information.
10 Percent Credit for Non-historic Buildings
The National Park Service and the Internal Revenue Service also offer a federal income tax credit equal to 10 percent of a property owner's investment in the rehabilitation of an non-designated historic building. See the NPS website for more information.
- This Federal Tax Credit is equal to 10 percent of expenses incurred during a substantial rehabilitation of a qualified building.
- Buildings must be income-producing, however, this credit does not apply to buildings used for residential uses. Rental housing does not qualify.
- Buildings must have been built prior to 1936, but cannot be listed on the National Register or otherwise determined to be eligible for the 20 percent Federal Tax Credit.
- Rehabilitation projects must be "substantial". This means that the expense of the rehabilitation must exceed the adjusted basis of the building. Please see the IRS Info, consult your financial adviser, or contact the SHPO for more information.
- Buildings that have been moved do not qualify for this tax credit program.
- At least 50 percent of the building's walls, existing at the time the rehabilitation began, must remain in place as external walls at the conclusion of work.
- At least 75 percent of the building's existing external walls must remain in place as either external or internal walls.
- At least 75 percent of the building's internal structural framework must remain in place.
- There is no formal review process for this program.
- When the project is complete, the tax credit must be claimed on IRS Form 3468 for the tax year in which the building was placed in service. You may find forms at the IRS website or contact your financial adviser for more information.
|Fire escapes||Sprinkling systems|
|Escalators & Elevators||Engineering Fees|
|Electrical wiring & lighting fixtures||Architect fees|
|Plumbing & plumbing fixtures||Reasonable developer fees|
|Construction management costs||Roofing|
|Construction period interest & taxes||Carpeting (if glued down)|
|Permanent coverings such as paneling or tiling|
|Components of central air condition or heating systems|
|Any fees paid that would normally be charged to a capital account|
|Other components related to the operation/maintenance of the building|
Examples of Unqualified Costs
|Acquisition costs||Leasing expenses|
|Outdoor lighting remote from bldg||Financing fees|
|Carpeting (if tacked in place)||Parking lots|
|Decks (if not original to building)||Paving|
|Enlargement costs (increase in total volume)||Planters|
|Moving (bldg) costs||Retaining walls|
|Porches & porticos (if not original to bldg)||Furniture|
|Storm sewer construction costs||Sidewalks|
|Window treatments (curtains, blinds,...)||Signage|
|Demolition costs (removal of a building on property site)||Landscaping|