The Historic Tax Credit (HTC) program, also known as the Rehabilitation Tax Credit, encourages individuals and business to invest in the rehabilitation of historic buildings. The tax reform legislation passed in December of 2017 allows these building owners to claim 20 percent of eligible improvement expenses against their federal tax liability. It is an incentive offered by the government to renovate and restore old or historic buildings. A building must be examined by National Register Criteria for Evaluation to be considered historic.
In order to qualify for the credit, there are four criteria1 a rehabilitation project should meet:
- The building itself needs to be registered under the National Register of Historic Places and located in the district pertaining to the National Register.
- The project must meet the “substantial rehabilitation test” which should be done within 24 or 60 month period for a project completed in multiple phases.
- Rehabilitation work must be done according to the Secretary of the Interior’s Standards for Rehabilitation.
- After rehabilitation, the building must be used in income producing activity for at least five years.
Here are additional things that building owners should understand about this credit2:
- The credit is 20 percent of the taxpayer’s qualifying costs for rehabilitating a building.
- The credit does not apply to the money spent on purchasing the structure.
- The legislation now requires taxpayers take the 20 percent credit spread out over five years beginning in the year they placed the rehabilitated building into service.
- The law eliminates the 10 percent rehabilitation credit for pre-1936 buildings.
- A transition rule provides relief to owners of either a certified historic structure or a pre-1936 building by allowing owners to use the prior law if the project meets these conditions: 1) The taxpayer owned or leased the building on January 1, 2018, and the taxpayer continues to own or lease the building after that date, 2) The 24 or 60-month period selected by the taxpayer for the substantial rehabilitation test begins by June 20, 2018.
- Taxpayers use Form 3468, Investment Credit, to claim the rehabilitation tax credit and a variety of other investment credits. Form 3468 instructions have detailed requirements for completing the form.
- Any unused credit can be carried back or forward under the same rule of General Business Credit. Refer to Form 3800 instructions for details.
We at KROST have helped real estate owners and developers reach their financial and operational goals for over 80 years. Please feel free to contact us if you have any questions regarding historical buildings to capture the 20% tax credit.
Sources:
1: Eligibility Requirements – U.S. Department of the Interior
2: Here’s what historic building owners should know about the rehabilitation tax credit – Internal Revenue Service
More information:
National Park Service: National Preservation Month
Rehabilitation Tax Credit – Real Estate Tax Tips
Internal Revenue Code Section 47
About the Author
So Sum Lee, CPA, Principal
Tax, Real Estate, Technology, Hospitality
So Sum Lee, CPA is a Tax Principal at KROST. So Sum has over 18 years of experience in public accounting and has a wide range of experience in Taxation, as well as servicing high-net-worth clients. So Sum’s area of expertise includes industries such as wholesale, Real Estate investments, and Restaurants. » Full Bio