Just as the government offers tax credits for things like Energy Star replacement windows, doors and other upgrades that make your home more efficient, there are tax credits available for those who want to restore a historic home to its original glory. Tax incentives have been in place since 1976 and target structures that will be used for the public, such as retail stores, offices or rental housing.
Using the tax credits for restoration
The 20 percent tax credit can be used for many types of structures, from old warehouses and schools to historic homes and churches. The 10 percent tax credit can be used for buildings that are non-historic and built before 1936.
Here’s what you need to know to take advantage of these financial breaks from Uncle Sam:
- The credits are for rehabilitation and reconstruction only. Work that results in enlargement of the structure or new construction is not eligible.
- The credit cannot be used for your personal residence. However, if you have an office or business in your home, such as a storefront on the bottom floor and an apartment residence on the top floor, the restoration on the part used for the business might qualify.
- After the building is rehabilitated, it must be used as an income-producing structure for at least five years.
- The building must be eligible for the National Register or must be located in a neighborhood or historical district that is eligible.
- Though the end result must be suitable for comfortable, contemporary use, the rehabilitation project must not cover up, destroy or otherwise damage interior or exterior features that give the structure its historic character.
- The Secretary of the Interior sets the standards for the rehabilitation program. In order to be eligible, the property must meet all ten standards. The National Park Service has a list of requirements.
- Items eligible for the credit include things that are integral to the building, such as permanent coverings, walls, stairs, ceilings, wiring and the like. Ineligible items include things that don’t promote the historical integrity, such as furniture, landscaping, fencing, appliances, cabinets and the like.
- In the event of the 10 percent credit, the structure must meet certain physical requirements: at least half of the building’s external walls must remain in place as external walls after completion, at least 75 percent of the external walls must remain as either internal or external walls, and at least 75 percent of the building’s framework must remain in place.
Remember that rehabilitation tax credits are not available for work that was completed before the application was submitted. In fact, the National Park Service strongly recommends that renovation work does not begin until the application for the tax credit is approved.
Another option for tax benefit is the historic preservation easements. This consist of a voluntary legal agreement that prevents development or changes to a historic property, then transfers those restrictions to an organization for the purposes of preservation or conservation. Since this can be very complicated, consulting an attorney about the easement option is a wise move.