The Rehabilitation Tax Credit provides financial incentives for preserving and rehabilitating older and historic buildings. It offers a 10% tax credit for the costs associated with rehabilitating non-historic buildings constructed before 1936 and a 20% credit for certified historic structures.
Types of Rehabilitation Tax Credits
Non-Historic Structures
For buildings that are not officially designated as historic but were built before 1936, a 10% tax credit is available. These structures typically must be used for income-producing purposes.
Certified Historic Structures
For certified historic structures, which are buildings listed in the National Register of Historic Places or located in a registered historic district, a 20% tax credit can be claimed. The rehabilitation must be substantial, meeting certain criteria set by the Secretary of the Interior’s Standards for Rehabilitation.
Eligibility Criteria
General Requirements
- The building must be depreciable and used for income-producing purposes.
- The rehabilitation expenditures must exceed the greater of $5,000 or the adjusted basis of the property.
Certified Historic Structures
- Must be listed in the National Register of Historic Places or located in a historic district and certified as contributing to the historical significance of the district.
- The rehabilitation work must comply with the Secretary of the Interior’s Standards for Rehabilitation.
Non-Historic Structures
- Buildings must be constructed before 1936.
- Qualified rehabilitation expenses must relate to the use of the building for business or other income-producing purposes.
Calculating the Tax Credit
For example, if $500,000 is spent on rehabilitating a certified historic structure, the tax credit would be 20%, equating to a $100,000 credit. For non-historic structures, if $200,000 is spent, a 10% credit amounts to $20,000.
Historical Context and Impact
The Rehabilitation Tax Credit program was initiated in 1976 as part of a broader policy effort to encourage private investment in the preservation of historic and older buildings. This has had a profound impact on urban renewal, historic preservation, and economic development, revitalizing neglected areas and conserving cultural heritage.
Preservation Efforts
The tax credit has been instrumental in preserving thousands of historic buildings nationwide, promoting sustainable development by reusing existing structures, and reducing the environmental impact of new construction.
Examples and Case Studies
Case Study: The Renovation of Union Station
The renovation of Union Station in Washington, D.C., utilized the Rehabilitation Tax Credit. The immense restoration project, costing over $160 million, received substantial support through federal tax incentives, demonstrating the substantial financial and cultural benefits of the tax credit program.
Related Terms
- Historic Structure: A building that is listed in the National Register of Historic Places or located in a registered historic district and certified as contributing to the historical significance of the district.
- Adjusted Basis: The net cost of an asset after adjusting for various tax-positive factors such as depreciation.
Frequently Asked Questions (FAQs)
What qualifies as a “certified historic structure”?
A certified historic structure is one listed in the National Register of Historic Places or located within a historic district and certified as contributing to the historical significance of the district.
Can homeowners claim this credit?
No, the Rehabilitation Tax Credit applies only to income-producing properties.
Are there caps on the credit amount?
There are no caps on the credit amount; however, the expenditures must meet the required thresholds.
References
- National Park Service. (n.d.). Federal Tax Incentives for Rehabilitating Historic Buildings: Annual Report.
- Internal Revenue Service. (n.d.). Rehabilitation Tax Credit.
Summary
The Rehabilitation Tax Credit is a pivotal financial incentive aimed at encouraging the preservation of historic and older buildings. Offering a significant 10% to 20% tax credit, this program not only fosters historical preservation but also supports sustainable development and urban revitalization. For more information, prospective claimants should consult relevant government resources and consider professional advice to maximize benefits.
