Renovating? What You Should Know About the Historic Structures Credit

Are you thinking of renovating a building you own in an historic part of town? Before you start knocking down walls, find out if the building qualifies as an historic structure. It could result in a tax credit reducing your bill by thousands of dollars.

However, be aware that beginning in 2018 recent tax law changes affect the credits for building renovations.

Rehabilitation Tax Credit

“Taxpayers may use the old 10% rehabilitation credit if the taxpayer owns or leases the building by January 1, 2018 and the rehabilitation begins by June 19, 2018. A rehabilitation test must be passed to still qualify for the old credit, so it’s important to speak with your CPA to determine if you qualify.” – Ren Cicalese III, CPA, MST

While the 10 percent credit for rehabilitating buildings placed in service before 1936 is no longer available for expenses incurred after 2017, you may continue to claim a separate credit that’s equal to 20 percent of qualified expenses for renovating historic structures.

For instance, if you spend $100,000 to update a brownstone with historic character, you may be able to cut $20,000 off the cost. Under the latest tax laws, this credit must be taken ratably over five years. That means a $4,000 credit is claimed each year for five years. So it’ll take a little longer to recoup your costs.

Historic Structure Tax Credit

Unlike the rehab credit, it may be easier to qualify for the historic structure credit than you think. For example, there are no age restrictions or wall retention rules. And it doesn’t have to be a place where George Washington slept or an antebellum mansion.

“Trying to get your building to qualify as a historic structure can be a lengthy process. It usually involves applying for historic status with your State’s historic preservation office and usually requires documentation proving that your building is historic.” – Ren Cicalese III, CPA, MST

However, there are two key requirements:

• The building must be listed on the National Register of Historic Places or located in a registered historic district and certified by the Secretary of the Interior. Currently, more than 90,000 buildings are listed.

• The rehabilitation must be certified as retaining the original historic character (but not necessarily the original use) of the building.

Finally, certain complex transitional rules may apply to projects that were underway before 2018.

“If you’re considering selling the building after taking a tax credit, be aware that you may have to pay tax on the credit because of recapture rules.” – Ren Cicalese III, CPA, MST

Call us if you have questions about your renovation projects and whether or not you’re qualified to claim this credit.