July 03, 2005

Preservation Tax Incentives

The Federal government encourages the preservation of historic buildings through variety of incentive programs. One of these is the Federal Historic Preservation Tax Incentives Program. Established in 1976 by the National Park Service in partnership with the Internal Revenue Service and with State Historic Preservation Officers, the program is one of the Federal government’s most successful and cost-effective community revitalization initiatives. Historic Preservation Tax Incentives reward private investment in the rehabilitation of historic properties such as offices, rental housing, and retail stores.

Current tax incentives for historic preservation, established by the Tax Reform Act of 1986 (PL 99-514; Internal Revenue Code Section 47 [formerly Section 48(g)]) include:

  • A 20% tax credit for the certified rehabilitation of certified historic structures; or
  • A 10% tax credit for the rehabilitation of non-historic, non-residential buildings built before 1936.

To qualify for these credits, an applicant must conduct a "substantial" rehabilitation involving a "depreciable" building. A substantial rehabilitation is a project for which the expenditures exceed the greater of $5,000 or the adjusted basis of the building and its structural components during a 24-month period selected by the taxpayer. The adjusted basis is generally the purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken.

Similarly, a depreciable building can be any certified historic property that is used in a trade or business or held for the production of income. A property may be used for offices, for commercial, industrial or agricultural enterprises, or for rental housing. Unfortunately, buildings used as private residences do not qualify for the program at this time.

The 20% tax credit, which is the most sought after by the owners of historic buildings, also requires that the rehabilitation meet the Secretary of the Interior's Standards for Rehabilitation and the historic property be listed on the National Register of Historic Places.

An application for the 20% tax credit has has three parts:

  • Part 1 determines whether the subject building is eligible for the tax credit program as a certified historic property;
  • Part 2 identifies the proposed project's scope of work and determines whether it conforms with the Secretary of the Interior's Standards for Rehabilitation; and
  • Part 3 determines whether a completed project complies with the Secretary's Standards. The subject property must be listed on the National Register before Part 3 is approved.

The tax credit application process requires careful consideration of the plans for a historic property, and involves regular communication with the California Office of Historic Preservation and the National Park Service. Applicants often hire professional historic preservation consultants to advise on projects, and to prepare a tax credit application and foster it through what is sometimes a highly bureacratic process.

The benefits of these programs are many. Not only can the awarded tax credits directly be used towards payment of income tax owed, but the investment in a historic property provides a number of other corrollary benefits. Throughout the history of the program, Historic Preservation Tax Incentives are known to have:

  • Spurred the rehabilitation of historic structures of every period, size, style and type throughout the country;
  • Been instrumental in preserving the historic places that give cities, towns and rural areas their special character.
  • Attracted new private investment to the historic cores of cities and towns;
  • Generated jobs, enhance property values, and augment revenues for State and local governments through increased property, business and income taxes; and
  • Facilitated the creation of much needed moderate and low-income housing in historic buildings.

Through the Federal Historic Preservation Tax Incentives program, abandoned or under used schools, warehouses, factories, churches, retail stores, apartments, hotels, houses, and offices throughout the country have been restored to life in a manner that maintains their historic character.

These benefits are evident in the National Park Service's Annual Report for Fiscal Year 2004 on the Federal Tax Incentives for Rehabilitating Historic Buildings. The report found that historic rehabilitation programs have provided widespread economic benefits including job creation and investments of private funds into communities. Over 1200 projects were approved in 2004.

To find out more about Federal Historic Preservation Tax Incentives, visit the program's webpage at: http://www.cr.nps.gov/hps/tps/tax/brochure1.htm

Looking for a historic preservation consultant, contact Chris at editor@preservela.com for recommendations.



If you have a comment, or would like to post a link or article, please use the online form at:  http://www.preservela.com/contact.html