How Do Tax Credits For The Rehabilitation Of Historic Homes Work? Detailed Guide

How Do Tax Credits For The Rehabilitation Of Historic Homes Work? Detailed Guide

Rehabilitating historic homes is essential to preserving our cultural heritage and promoting economic development. It can be expensive, but various tax incentives encourage property owners to rehabilitate these homes. These tax credits can decrease your current tax liability and preserve historic structures.

These tax credits can provide a significant financial incentive for owners to preserve these important past pieces. This blog post will explore the tax credits available for rehabilitating historic homes and how you can take advantage of them.

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Tax Credits For The Rehabilitation Of Historic Homes

Rehabilitation Tax Credits For Historic Properties In Connecticut

Historic Homes Rehabilitation Tax Credits (HHRTCs) encourage new homeowners to maintain and renovate historic homes. A tax credit program for historic home rehabilitation was founded in Connecticut in response to the ongoing problem of urban blight in the state’s cities. Abandoned and deteriorating properties were becoming a drag on the surrounding neighbourhoods, causing property values to decline and quality of life to suffer.

The tax credit program incentivizes homeowners to reinvest in their properties by offering a credit for eligible rehabilitation costs. The program has helped to encourage homeowners to undertake needed repairs and improvements and has helped to stabilize urban neighbourhoods.

What is the Historic Rehabilitation Tax Credit?

The historic rehabilitation tax credit is a credit that is available to homeowners who renovate or restore their homes. Credits can be applied to renovations or restorations of your home. The credit is available for both Federal and State taxes. The distinction is based on the project’s cost and the home’s value.

 Historic Rehabilitation Tax Credit

The Federal Government offers a 30% income tax credit for rehabilitating historic, income-producing buildings certified by the National Park Service as “certified historic structures.” The credit can be taken for qualified rehabilitation expenses as defined by the Internal Revenue Service. It is impossible to claim a Federal rehabilitation tax credit for owner-occupied residential rental property. An owner-occupied unit is required five years after completing rehabilitation work.

State Tax Credits

Each year, Technical Preservation Services approves approximately 1200 projects, resulting in roughly $6 billion in private investment in historic building rehabilitation. The program has received fifty percent of applications from New Haven residents since 2000. Over 400 New Haven residents have benefited from the economic incentives it provides for maintaining and repairing historic features and materials. The high number of applicants and recipients in New Haven is largely attributable to the active outreach efforts of the Preservation Trust.

To explain how the program works and the rehabilitation guidelines, the Preservation Trust has hosted approximately thirty local workshops across New Haven since 2004. An engaging and informative question-and-answer period is included in all Tax Credit Workshops.

How Does National Park Service Work?

The National Park Service (NPS) is a US federal agency responsible for managing all National Parks, plenty of National Monuments, and various other conservation and historical properties. Congress passed the Organic Act of the National Park Service on August 25, 1916, creating a government agency within the Department of the Interior. The NPS is responsible for protecting and preserving these natural and historical sites for the enjoyment of future generations.

A Contributing Building is in a National Register or State or Local Historic District Certified by the Secretary of the Interior

Listed buildings are listed on the National Register of Historic Places or the State Register of Historic Places, either individually or as part of a historic district. The NPS protects these sites by offering a tax credit to rehabilitate historic buildings.

As a property owner, you can receive the credit for substantial rehabilitation if your work meets the Secretary of the Interior’s Standards for Rehabilitation and has been approved by the National Park Service.

You can use this credit to reduce the cost of the rehabilitation work, making it more affordable and encouraging property owners to preserve these important pieces of our history.

A tax lawyer, an accountant, legal counsel, or the Internal Revenue code-related service is strongly recommended for applicants requesting National Park Service historic preservation certifications and those using the Historic Rehabilitation Tax Credit (HRTC).

Certified Historic Structure

A certified historic structure is a house or site the United States Government officially recognizes as having historical significance. This designation can be given to buildings, bridges, cemeteries, and other structures that are at least 50 years old and have been determined to be significant to the history of the nation, a state, or a community.

Certified historic structures are eligible for certain Federal and State tax incentives, grants, and other forms of financial assistance. This designation can also make a property suitable for inclusion on the National Register of Historic Places.

Federal Law requires Such property to be Maintained

If you are the owner of a certified historic structure, you may be required to follow certain guidelines to maintain the property’s historic integrity. These guidelines can include restrictions on alterations, additions, and demolition.

Additionally, you may need approval from a historic preservation review board before making any changes to the property.

Knowing the potential financial and regulatory obligations that come with ownership is important if you consider purchasing a certified historic structure. You should also consult a qualified real estate professional to learn more about the benefits and challenges of owning historic property.

State Historic Preservation Office

The Connecticut State Historic Preservation Office (SHPO) administers the Connecticut Historic Homes Rehabilitation Tax Credit program. The tax credit is available to homeowners who renovate their homes per the state’s rehabilitation standards.

The credit is equal to thirty percent of the qualified rehabilitation expenditures associated with the renovation project and can be used to offset the project cost. Applicants must have a home on the National or State Register of Historic Places, and the renovation project must have a minimum expenditure of $15,000. It is imperative to follow the program’s guidelines throughout the entire process.

The SHPO also provides technical assistance to homeowners and contractors interested in rehabilitating historic homes. It includes information on the tax credit program and guidance on complying with its guidelines. The SHPO also reviews and approves all renovation projects eligible for the tax credit.

Take Advantage of Tax Credits for Rehabilitating Historic Homes

The credit is available for the rehabilitation of both residential and commercial properties that are listed on the National Register of Historic Places or that are located in a National Historic Landmark district.

On eligible rehabilitation expenditures that meet the $15,000 minimum expenditure level, the HHTC program provides a 30% tax credit voucher, up to $30,000 per dwelling unit.

Federal Law Allows Such Property a 30,000 Dollar Tax Credit

For example, a one-family home can receive the maximum tax credit voucher of $30,000 if its rehabilitation expenditures exceed $100,000.

The tax credit for rehabilitating historic homes is one of our nation’s most successful preservation incentive programs. Since it was established in 1976, the credit has leveraged billions of dollars of private investment in rehabilitating historic properties. This investment has helped to revitalize communities and create jobs while preserving our nation’s architectural and cultural heritage and has been a key tool in revitalizing Connecticut’s urban neighborhoods.

Guides for Qualified Expenditures, and the Historic Rehabilitation Tax Credit Program

You need to know several rules to qualify for the historic rehabilitation tax credit.

Here are the official Guidelines manual to help ensure your project qualifies for the historic rehabilitation tax credit. It is explained in four parts:

  1. Preservation to obtain the historic rehabilitation tax credit.
  2. Rehabilitation for the tax credit program
  3. Restoration to obtain the historic rehabilitation tax credit
  4. Reconstruction for historic buildings

The tax credit requires qualified rehabilitation expenditures to restore any certified historic structure. Qualified rehabilitation expenditures can be for improvements to increase access for the disabled to use the historic district or historic structures. Rehabilitation work requires that property will be used as it was historically. Any qualified rehabilitated building must be as it was historically.

Identifiable Portion in a Historic District

Certain parts of a structure often come from the original character of the building. Although it may be tempting to update the structure or modernize it, the alteration of an identifiable portion defeats the purpose of federal historic preservation. This is the most common error when people want to tax advantage of the tax law and then alter the historic character of historic buildings. The internal revenue service is quick to deny the tax credit and certification of what otherwise could have been qualified rehabilitation expenses.

A certified historic structure should not have existing external walls torn down. Instead, the rehabilitation work must maintain the historic character of any historic district for rehabilitation projects. Site improvements may allow you to take jobs act benefits. It is strongly advised that you see a tax attorney to ensure the rules for site improvements are followed. Both income-producing and residential rental properties can benefit from a qualified rehabilitated building.

The Substantial Rehabilitation Test

These units can offer an affordable housing component and other tax benefits or tax credits. Sometimes a state historic preservation office can be worked with to obtain state tax credits. A charitable contribution deduction may be possible in combination with providing your investment credit.

But the basic rule for qualified rehabilitation expenditures is that the rehabilitation work must improve the structure and preserve the story.

There is the transition rule, the substantial rehabilitation test, qualified expenditures tests; passive activity rules, the transition rules, and the tax rates for depreciable property, which you should know. The depreciable property will provide tax cuts not just for that tax year but for future tax years to come.

Completed Work Should Allow for Changes When They Modify Policies

Rules on what a contributing building is and whether the project qualifies for certified rehabilitation must be met. Generally, rules such as your internal revenue code and the adjusted basis rule will not change. But always remember the internal revenue service is happy to deny a tax credit if rules are not followed.

Is new construction involved? If so, the internal revenue service and state historic preservation office will require any new construction to maintain identifiable portions. The new construction must be a substantial rehabilitation to maintain the historic building and any historic district qualities and character.

Frequently Asked Questions 

How Do I Know if My House is Historic?

There are a few different signs that your house may be historic. First, the property must be listed on the National Register of Historic Places. A second consideration is whether the property is listed in the Indiana Historic Sites and Structures inventory. A third sign is if the property is at least 50 years old. A property with one or more of these signs may be considered historic. But researching the national register is always a good starting point.

How Does the 50-year Rule Work?

National Park Service uses the fifty-year rule to determine if a property is eligible for listing on the National Register of Historic Places. Property that has gained significance within the past fifty years is unsuitable for listing.

According to this national register guideline, it takes time for historical significance to be recognized. You must meet certain criteria before a property can be listed if it is less than fifty years old. If there is no history, they are non-historic buildings. If the building has a story to tell and is a part of a historic district and events, the process is easier to become approved. The contributing building needs preservation.

How Does Historic Preservation Benefit Society?

Historic preservation can have many benefits for both individuals and communities. It can help to strengthen neighborhoods, encourage local economic growth, conserve natural resources, and promote infill development.

Additionally, historic preservation can bolster economic development by creating jobs and generating revenue through tourism. If your property owner offers an affordable housing component, you have an additional tax credit. If the project qualifies as a charity, you can have in the alternative a charitable contribution deduction under the tax law. Residential rental property owners property owners often qualify because a historical person lived there. But nonresidential buildings can have an equal story due to events.

How Does a Tax Incentive Program Work?

A tax incentive is a feature of a country’s tax code designed to encourage or incentivize a particular economic activity by reducing tax payments for businesses in the said country. Tax incentive programs are often used to attract foreign investment, stimulate economic growth, or encourage businesses to locate in certain areas. The rehabilitation tax credit program allows nonresidential buildings and income producing properties to benefit.

Providing historic rehabilitation tax credit allows us to work to provide funding by reducing the tax liability and increasing the taxpayer’s ability to support federal historic preservation. Without the help of individuals who live in a historic district, federal historic preservation is not possible. The government cannot possibly care for every home and building with a history. And this history is lost without the funds for qualified rehabilitation expenditures.

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