By Amanda Mills, CPA, Tax Senior Manager | Real Estate & Construction Industry Team
Overview of the Requirements for Historic Preservation Certification and the Historic Rehabilitation Tax Credit
Historic Rehabilitation Tax Credits are available for any qualified project that is designated as a certified rehabilitation of a certified historic structure. Learn more about the application process and the available tax credits below.
Historic Preservation Certification Application Information
The Historic Preservation Certification Application is a three-part application used to apply for certifications required for federal and/or state historic preservation tax incentives. To qualify for any of these tax incentives, property owners must complete the appropriate part or parts of the application. Completed applications are submitted to the State Historic Preservation Office where it is reviewed for completeness and accuracy and then sent to the NPS with its recommendation. NPS then decides if the development meets the rehabilitation standards and is eligible for historic tax credits.
Beginning March 1, 2021, all certification applications received in State Historic Preservation Offices must use the new forms (header of each form dated “Rev. 2019”). Previous versions of the forms will not be accepted. The NPS provides application instructions which can be found here and application forms can be found on the National Park Service website.
Applicants requesting historic preservation certifications by the NPS and those interested in the use of the credits are strongly advised to consult an accountant, tax attorney, legal counsel, or the IRS as there are numerous property and tax considerations. Part 3 of the Application also requires submission of a CPA cost certification which is used to document and certify eligible project expenses.
Federal and Virginia Historic Rehabilitation Tax Credits Available
The Historic Rehabilitation Tax Credit (HRTC) program provides federal and state tax credit components, overseen in partnership with the National Park Service (NPS), Virginia’s Department of Historic Resources (DHR), and the Internal Revenue Service (IRS).
The Federal Historic Preservation Tax Incentives program encourages private sector investment in the rehabilitation and re-use of historic buildings. It creates jobs and is one of the nation’s most successful and cost-effective community revitalization programs. Under IRC Section 47, a 20% income tax credit is available for the substantial rehabilitation of historic, income-producing buildings that are determined by the Secretary of the Interior, through the NPS, to be “certified historic structures.” A building shall be treated as substantially rehabilitated only if the qualified rehabilitation expenses incurred during the measurement period exceed the greater of $5,000 or the adjusted basis of the property at the beginning of the measurement period. If the credit, or a portion of tax credit, cannot be used, the excess can be carried back one year and forward 20 years. Under the federal program, recapture of the credit applies if the property is disposed of or loses is income-producing status within five years after the rehabilitation is completed. Taxpayers qualifying for a federal credit may also qualify for a Virginia tax credit.
Virginia’s Historic Rehabilitation Tax Credit program has played an essential role in the preservation of thousands of historic properties and economic sustainability of communities throughout the Commonwealth since its inception in 1997. A Virginia income tax credit equal to 25% of eligible expenses is available for the rehabilitation of a certified historic structure that is either owner-occupied or income-producing property. The threshold requirements for the State program are different from the Federal requirements. To qualify for the Virginia credit, the qualifying rehabilitation expenses must be “material” meaning that the expenses must be at least 50% of the assessed value of income-producing property prior to rehabilitation, or 25% of the assessed value of a taxpayer’s home. Unused credits may be carried forward for up to 10 years. Unlike the federal program, the State program has no recapture of the credit or continuing ownership requirement following completion of the rehabilitation.
Questions on historic rehabilitation tax credits for your property or business?
Contact us. We can help. Our Real Estate and Construction Industry team has worked on many historic rehabilitation related projects, including compliance and research, accounting for and classification of expenditures, consulting related to structuring of transactions including admittance of federal and/or state tax credit investors, and audits of the schedule of qualified rehabilitation expenditures as required by VA DHR.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.