Historic Tax Credits

First, some disclaimers:

  • This isn’t tax advice. Consult your tax advisor. If you get audited, don’t blame me.
  • If you use your house as your residence only, there is no federal assistance available to you. (Some states, like Colorado, offer state tax credits for private residences.) This is only for buildings used primarily for business or non-profit work (like a museum). You have to be in business for five years after you claim tax credits.
  • You have to spend more on the restoration than your basis in the house. That is, you just bought a fixer-upper for $100,000 and spent $99,000 restoring it – too bad, you lose.
  • The process is generally controlled by the state, and I only know about Pennsylvania. Your mileage may vary.

If you’re still with me, and your house was built before 1936, and it is not eligible for the National Register, then you are automatically eligible for a 10% tax credit on the restoration costs without doing anything else. (See IRS form 3468.) Now, for the brass ring: the 20% tax credit. First, you have to submit a three-part application to the SHPO. The first part is just a copy of the National Register nomination, announcing your intent as a tax credit project. The second part is a detailed description of all proposed changes, including blueprints, drawings, and whatever else might be needed. The SHPO can reject this, make changes, do a site visit, and basically do whatever they want to your project at this point. If you don’t agree, you don’t get the tax credit. Once part 2 is approved, then you can start work. When you are finished, you submit part 3, showing that everything was completed according to plan. Once the SHPO signs off and submits it to the National Park Service, you have to pay their fee and you’re done. Of course there’s one final catch: You actually have to be listed on the National Register within a year of claiming the tax credits. So if you bought a place already listed on the Register, forget it. Final note: A tax credit is not a tax deduction. That is, if you spend $100,000 on restoration costs, you get a $20,000 tax credit. If you owe $25,000 in taxes, you just subtract $20,000 and pay $5,000. And you can carry any excess back one year or forward up to five years. Nice, huh?

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