Originally post by Old-House Online on October 31, 2019, and updated on April 30, 2020
Are you thinking of purchasing an old house that’s in an historic district, or eligible for National Register status? Did you know that your investment could qualify for substantial tax credits at both federal and state levels?
Although it’s a somewhat time-consuming and detailed process, applying for historic tax credits is definitely worthwhile for those willing to use a historic building as an income-producing property for a minimum of five years. After that, the owner can move right in. According to the National Park Service website (the NPS runs the program): “… if a portion of a personal residence is used for business, such as an office or a rental apartment, in some instances the amount of rehabilitation costs spent on that portion of the residence may be eligible for the credit.”
What exactly is the Historic Tax Credit (HTC) program?
Basically, at the federal level, an old house that is located in a certified historic district (or is individually listed) can qualify for up to 20 percent in tax credits on qualifying rehabilitation expenditures (QREs) during the restoration/renovation process. If you happen to live in a state that also has its own rehabilitation tax incentive program (most do, except for many Western states), then you can qualify for additional credits. Remember, though: the historic property has to be income producing for at least five years.
The federal HTC program was almost scrapped in 2017 due to the Congressional tax overhaul. Although it is diminished, it remains safe for now, with changes still being studied by experts. The most significant amendment to the program, which is administered by the NPS and the Internal Revenue Service (IRS), is that the payout of the tax credits is now being done over five years instead of the former lump sum at completion of the restoration.
How many states have their own HTC program? As of 2019, according to the National Trust for Historic Preservation, 35 states have their own tax credit programs. In Virginia, for example, homeowners can qualify for up to 25 percent of eligible rehabilitation costs. In Minnesota, it’s 20 percent; Mississippi, 25 percent; and Texas just upped its tax credit potential to 25 percent. Combined with the federal tax program, therefore, homeowners can potentially secure between 40 and 45% in tax credits depending on the state.
Part 1 covers the significance and appearance of the old building.
Part 2 describes the condition of the building and the planned rehabilitation expenditures.
Part 3 involves certifications of completed work, granted as each part of the project is completed and documented. In addition, there is an Amendment Application available for rehabilitation projects that need it.
The process: DIY or Consultant?
- Filling out the application is a very detailed and time-consuming process.
- Pro help might lead to securing more of the available tax credits.
- The consultant has experience with other projects and details of the process.
- The consultant has established relationships with local and state historical commissions.
- The HTC program is highly competitive at both the federal and state levels.
Read the full article here.