Last week’s post was about federal tax breaks for old houses and historic properties (if you already read it, be sure to check out the comments left by readers and the update of links at the end of the post to important links to the IRS’ website). This week, I’m rounding up some information on state tax breaks and other local tax incentives.
According to the National Trust for Historic Preservation, there are 31 states that offer tax incentives for the rehabilitation of historic buildings. Just this year on April 1, Minnesota became that 31st state. States that doesn’t levy income tax do not offer tax incentives for historic preservation of buildings. Additionally, these states don’t offer a break: California, Oregon, Idaho, Arizona, Nebraska, Illinois, Alabama, Pennsylvania, and New Jersey.
If you’re lucky enough to live in one of these 31 states, you’ll need to get the specifics because every state’s policy is a bit different. Be sure you get these questions answered:
- Which buildings qualify for the credit? Make sure owner-occupied residences are covered.
- Does the building have to be listed in the National Register of Historic Places, be in a historic district, or be considered a local historical landmark?
- What kinds of rehabilitation work are covered and what are the standards?
- How is the tax credit or incentive calculated? Note that many of these credits are a percentage of what the rehab work costs you. That is, you’re spending money to save money. If it’s a project that’s needed, however, extra funds don’t hurt.
- Is there a minimum amount that must be spend on a rehabilitation project?
- Is there a cap on an individual rehabilitation project?
- Is there an annual or lifetime cap on the credit?
- What is the process for participating in the program?
- Are there any other tax incentives in the state for old or historic homes that aren’t specifically for rehabilitation?
Be sure to check with your county or local agency responsible for assessing and collecting property tax, too. Though these incentives may not be enough to make you buy an old home if you weren’t already considering it, they may sweeten the deal or even make owning and renovating an old house a possibility.
It’s probably not much of a surprise that the economy is impacting historic homes. Less money to go ’round, right? But many state governments and local agencies are facing budget shortfalls and are examining tax policies. Take a recent story from Austin, Texas, for example. Five local taxing entities had been giving a property tax discount for 450 historic buildings. Two of those entities are the Austin school district and local community college. The whole program may be scrapped after this year. The Austin school district will make $1.8 million in revenue, but for some home owners, like Paisley Robertson who cleans home for a living, the increase in taxes from $3,826 to $5,727 for her restored and converted barn may not be able to maintain her home.
One thing is for sure: old houses aren’t cheap. And if you need the tax breaks to make it work, you might want to reconsider.
- State Tax Credits for Historic Preservation: Includes a summary of the incentives in all states offering tax credits and a link and phone number for more information
- State Rehabilitation Tax Credit: Includes lots of information on new laws and updates, as well as information on the history of preservation and advocacy