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Federal Rehabilitation Tax Credits
(Revised September 1995)
What are the federal rehabilitation tax credits?
There is a 20% Federal Investment Tax Credit (ITC) available for rehabilitating historic buildings and a 10% ITC for
renovating non-historic buildings constructed before 1936. In both instances the ITC is based on a percentage of the rehabilitation costs and does not include the purchase price. The tax credit applies to the building owner's federal income
tax for the year in which the project is completed and approved. If it is not all needed in that year the tax credit may be carried back one year or forward up to 20 years. Note: this is a tax credit, not just a deduction.
Example: 20% of a $75,000 rehabilitation = $15,000 federal tax credit.
Which buildings qualify?
The federal rehabilitation tax credit is available for buildings listed in the National Register of Historic Places which, after renovation, are used for commercial or residential rental use. The non-historic tax credit (10% ITC) is available for any
pre-1936 building that is not listed in the National Register and is being used for commercial but not residential rental purposes. The work does not have to be reviewed for the 10% credit. Neither federal ITC is available for the rehabilitation
of a private residence. (The Utah Tax Credit is available for the certified rehabilitation of historic residential buildings.)
What rehabilitation work qualifies?
Any work on the interior or the exterior of the building that meets the Secretary of the Interior's Standards for Rehabilitation (also here) qualifies for the tax credit. Landscaping or new additions to the building do not qualify. The
work
on an historic building must be certified by the National Park Service. This is done by completing a three part
application and submitting it to the National Park Service along with "before" and "after" photographs showing all work
areas (both interior and exterior).
How much money must I spend to qualify for the federal tax credit?
The rehabilitation expenditures must exceed the greater of either the "adjusted basis" of the building or $5,000.
"Adjusted basis" is the purchase price minus the value of the land minus any depreciation already taken by the current
owner of the building plus any capital improvements.
Example 1 (a recent purchase):
$130,000 (purchase price)
- $33,000 (land)
$97,000 (adjusted basis)
Rehabilitation expenses must exceed the adjusted basis ($97,000).
Example 2 (long-time ownership):
$130,000 (purchase price)
- $70,000 (depreciation)
- $33,000 (land)
+ $15,000 (capital improvements)
$42,000 (adjusted basis)
Rehabilitation expenses must exceed the adjusted basis ($42,000).
When Can a Rehabilitated Building Be Sold?
A building must be kept at least five years in order to avoid any recapture of the tax credit by the federal government.
The recapture amount ranges from 100% of the tax credit it the building is sold within the first year to 20% of the credit
if it is sold within the fifth year.
For More Information Contact:
Nelson Knight at (801) 533-3562
State Historic Preservation Office
Utah Division of State History
300 S. Rio Grande Street
Salt Lake City, Utah 84101
fax: (801) 533-3503
Or Vist the National Park Service's Web Site:
Tax Incentives
IRS Connection