10% Federal Tax Credit
The 10% federal tax credit is available for the rehabilitation of non-historic buildings constructed before 1936 and used for income-producing purposes other than residential rental. The tax credit equals 10% of qualified expenses in a rehabilitation. Under ideal circumstances, if an owner spent $100,000 restoring a historic building he would get $10,000 worth of tax credit.
Requirements for Eligibility
The property must be depreciable. The 10% credit applies only to buildings rehabilitated for non-residential uses. Rental housing does not qualify; however, hotels and bed-and-breakfast inns do.
The rehabilitation must be substantial, meaning that the cost of the rehabilitation must exceed the greater of either $5,000 or the adjusted basis of the property, which is generally the purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken.
At least half of the building’s walls existing at the time the rehabilitation began must remain in place as external walls at the work’s conclusion, and at least three quarters of the building’s existing external walls must remain in place as either external or internal walls, and at least three quarters of the building’s internal structural framework must remain in place.
Buildings listed in the National Register of Historic Places are not eligible. Buildings located in National Register historic districts are presumed to be historic and are, therefore, not eligible for the 10% credit unless the owner files Part 1 of the Historic Preservation Certification Application and receives a determination from the National Park Service that the building does not contribute to the district and is not a certified historic structure.
Application (Part 1)
To determine if their property is listed on the National Register, owners may view the collected National Register of Historic Places or contact the Historic Preservation Division by email or at 601-576-6940.
Owners of historic buildings whose rehabilitation is denied certification for the 20% credit may not claim the 10% credit. A building that was moved after 1936 is ineligible.
Claiming the 10% Rehabilitation Tax Credit
There is no formal review process for rehabilitations of non-historic buildings. The credit must be claimed on IRS form 3468 for the tax year in which the rehabilitated building is placed in service.
Other Tax Provisions Affecting Use of Preservation Tax Incentives
Due to IRS provisions regarding real estate investments, some taxpayers may not be able to use all of the tax credits earned in a certified rehabilitation project. MDAH recommends consulting a professional tax advisor or the IRS directly to determine the particulars of your situation.
The Internal Revenue Service coordinates the tax aspect of this program. Specific tax questions should be directed to Colleen Gallagher, national coordinator for the historic preservation tax incentives program, at Colleen.K.Gallagher@irs.gov or 651-726-1480.
For more information contact Todd Sanders by email or call 601-576-6950.