Federal Historic Tax Credit

The Federal Historic Tax Credit (HTC) program is a financial incentive offered by the U.S. government to encourage the preservation and rehabilitation of historic buildings. The program is administered by the National Park Service (NPS) and the Internal Revenue Service (IRS). It offers a tax credit for the rehabilitation of income-producing historic properties, typically commercial, residential rental properties, or mixed-use buildings.

In order to be eligible for Federal Historic Tax Credit program the building must be listed on the National Register of Historic Places or be a contributing building within a designated historic district.  The property must be used for income-generating purposes, such as a rental property or a commercial building.

The incentive is a 20% federal income tax credit for the qualified rehabilitation expenditures (QREs) related to the rehabilitation of the historic building. The credit is nonrefundable, meaning it reduces your tax liability dollar-for-dollar.  It is claimed on your income tax return over a minimum of five years, but any unused portion can be carried forward for up to 20 years.  The project must be a substantial rehabilitation, defined as qualified rehabilitation expenses that are a minimum of the assessed value of the building.

Rehabilitation work is required to meet the Secretary of the Interior’s Standards for Rehabilitation, which ensures the building’s historic character is maintained.  Qualified rehabilitation expenses (QREs) include work related to any permanent improvements to the building, such as walls, windows, roofs, foundations, structural repairs, interior finishes, and systems.  Soft costs, such as architectural fees or consultant fees, also count towards QREs.  Non-qualified work includes items such as site work, new additions, and furnishings.

There is a three part application process for the Federal Historic Tax Credit program:

• Part 1: Evaluation of Significance: Before beginning the project, the property must be reviewed to determine if it’s eligible for the program.  Information is submitted on Part 1 application to verify that it is listed on the National Register of Historic Places or listed as a contributing building in a historic district.  If the building is not already listed, then information is submitted to demonstrate that it is eligible for listing, with follow up intended to formally list the building on the National Register of Historic Places.
• Part 2: Description of Rehabilitation: This application outlines the specific work planned for the rehabilitation of the property and demonstrates how the plans align with the Standards for Rehabilitation required for the tax credit. The goal is to ensure that your rehabilitation maintains the historical integrity of the building while making it functional for modern use.  The Part 2 application consists of a narrative description of the rehabilitation work, photographs of the “before” conditions of the building, existing and proposed drawings, and an estimate of the total project costs and qualified rehabilitation expenses.  The Part 2 application may be approved as submitted or approved with conditions that require some modifications to the scope of work to ensure that it meets the Standards for Rehabilitation.
• Part 3: Certification of Completed Work: After completing the project, documentation of the work done is submitted for final approval and certification, including an extensive set of photographs and total project expenses.  Upon approval, the first part of the income tax credit is then available for the year of the completion of the project.  The non-refundable tax credit is spread over a minimum of five years, with up to 20% of the credit available per year and unused portions carried forward for up to 20 years.