The great thing about the first time home buyer’s tax credit from last year is that it gave folks incentive to buy homes, especially older homes. I was one of those folks. However, due to all sorts of unanticipated delays, I backed out of the sale, thus losing the potential credit.
Why do I bring this up this week in November when most people wait until April? This year, I filed an extension because of the pending sale. And because all the dates for the house and tax credit were by the 30th of the month, somehow I got it in my head that the extension gave me until October 30 to file my taxes. I bet you can guess how upset I was on October 28 when I sat down at the not-quite 11th hour to finish them.
I learned something today. Well, it’s more like remembering what I’ve learned every year for the past five years: single people without children or student loan debt or a mortgage get the short shrift at tax time. So, before the 2010 tax season rolls around, I’m looking at not-recovered housing market and examining my options: old house or newer house?
One of the pieces I didn’t investigate before I entered into a purchase agreement for my grandmother’s house that was built in 1905 was the potential tax benefits of owning an old or historic home. So, this, old house newbies, is a crash introductory course on what I’ve learned that might benefit you and help you make your own decision when it comes to purchasing and renovating an historic or old house.
First, there are federal tax incentives and state tax incentives for historic properties. Having an old house, if it isn’t historic, doesn’t count for much. This post will focus on federal tax incentives and next week’s post will look at state tax stuff.
What defines historic? For the purposes of the federal rehabilitation tax credit, a building has to be a “certified historic structure.” That means it has to be located in an official historic district and certified by the Secretary of the Interior as being historically significant to that district or listed in the National Register of Historic Places. The good news is that there are 13,594 historic districts, so you might find one near you to help narrow down your choices of homes to buy (see this article about how homes in historic districts are a good value). If the house you’re looking at isn’t currently on the register and you think it could qualify, that’s a whole different ball of wax that I’ll have to explore in another post.
This federal tax credit of 20 percent is for rehabilitation work, though, it’s typically used for commercial properties that generate income. The work also must be “certified rehabilitation,” which means it needs to be approved by the Secretary of the Interior and meet criteria that preserve the historic character of the building. **change: There is also a non-historic federal tax credit of 10 percent. **
There’s also a preservation easement tax break from the federal government that can equal up to 30 percent of your adjusted gross income, depending on the property’s value. However, a historic trust or nonprofit gets to control your home and holds the easement. That means any improvements you want to make have to be approved by that group.
Thanks for all your feedback and info! Megan is definitely right about the rehabilitation tax credit. You can get a 10 percent non-historic credit if the building was built before 1936.
Here’s a list of handy IRS resources to help:
- Rehabilitation tax credit super document; this 186-page pdf includes the historic certification process and requirements, the skinny on the non-historic credits, the “test” for “substantial rehabilitation,” and so, so much more
- Real estate tip about the rehabilitation tax credit
- Tax aspects of historic preservation (note this was prepared in 2000, so do some research or follow up with a tax professional on any potential changes)
- Conservation easements article about abusive transactions