Rehabilitation Tax Credit

What is the Rehabilitation Tax Credit?

The Rehabilitation Tax Credit is a federal tax incentive designed to promote the preservation and restoration of historic buildings. This program provides financial incentives to real estate developers and property owners who undertake the rehabilitation of older, non-residential buildings and certified historic structures. The credit helps to cover a portion of the rehabilitation costs, thereby encouraging investment in the revitalization of historic properties and contributing to broader community and economic development goals.

Key Features of the Rehabilitation Tax Credit

1. 10% Tax Credit: Available for the rehabilitation of buildings placed in service before 1936 that are not certified historic structures.
2. 20% Tax Credit: Available for certified historic structures listed in the National Register of Historic Places or located in a registered historic district.
3. Eligible Costs: Covers rehabilitation expenses such as labor, materials, and certain soft costs associated with preservation.

Application of the Credits

1. Certification Process:

   • The 20% credit involves a rigorous certification process where the National Park Service (NPS) and State Historic Preservation Offices (SHPOs) verify that the rehabilitation work complies with the Secretary of the Interior’s Standards for Rehabilitation.

2. Qualified Rehabilitation Expenses (QREs):

   • These include costs related to the physical construction, including structural repairs, resolving code compliance issues, and maintaining historic qualities.

3. Non-Qualified Expenses:

   • Acquisition costs, enlargements, or new construction are not eligible.

Benefits of the Rehabilitation Tax Credit

1. Encourages Historic Preservation: Incentivizes the restoration and conservation of historic properties, preserving cultural and architectural heritage.
2. Economic Revitalization: Stimulates economic development and revitalization of older neighborhoods and commercial districts.
3. Investment Attraction: Makes investment in older buildings more attractive by offsetting rehabilitation costs.
4. Environmental Impact: Supports environmental sustainability by promoting the reuse and upgrading of existing structures rather than demolition and new construction.

Examples

1. Restoring a Historic Hotel: A developer undertakes the restoration of a historic hotel listed on the National Register of Historic Places. By complying with the prescribed standards and getting certified, they receive a 20% credit on their rehabilitation expenses.

2. Adaptive Reuse of an Industrial Building: A company redevelops an old factory (built before 1936) into office space. As the building is non-residential and not listed as a certified historic structure, a 10% rehabilitation tax credit is applied to the eligible expenses.

Frequently Asked Questions (FAQs)

Q: Who is eligible to claim the Rehabilitation Tax Credit? A: Property owners, including individuals, partnerships, corporations, and LLCs, undertaking the rehabilitation of eligible buildings can claim the credit.

Q: Are there specific requirements for the 20% credit certified historic structures? A: Yes, for certified historic structures, the rehabilitation work must meet the Secretary of the Interior’s Standards for Rehabilitation, and the project must be reviewed and approved by the NPS and SHPO.

Q: Can the Rehabilitation Tax Credit be combined with other financial incentives? A: Yes, the Rehabilitation Tax Credit can often be combined with other incentives like state historic tax credits, New Markets Tax Credits, and low-income housing tax credits to enhance project feasibility.

Q: Is the credit available for residential buildings? A: The 10% credit is not applicable to residential properties. However, the 20% credit can apply to residential units within certified historic structures used for income-producing purposes.

Q: How is the credit claimed? A: The taxpayer claims the credit on their federal income tax return using IRS Form 3468, Credit for Investment in Certain Depreciable Property.

Related Terms

• Historic Preservation: The act of maintaining and conserving buildings of historical significance.

• Certified Historic Structure: A building listed in the National Register of Historic Places or located in a registered historic district certified by the NPS.

• Adaptive Reuse: The process of repurposing buildings for uses other than those initially intended.

• Qualified Rehabilitation Expenses (QREs): Costs incurred for the physical rehabilitation of historic properties that qualify for the tax credit.

Online Resources

• National Park Service - Technical Preservation Services
• IRS - Rehabilitation Tax Credit
• National Trust for Historic Preservation

Suggested Books for Further Studies

• Historic Preservation: An Introduction to Its History, Principles, and Practice by Norman Tyler, Ilene R. Tyler, Ted J. Ligibel
• The Economic Benefits of Historic Preservation by Donovan D. Rypkema
• Preservation is Overtaking Us by Rem Koolhaas
• Saving America’s Great Historic Places by Dwight Young and Bernhard Michaelis
• Keeping Time: The History and Theory of Preservation in America by William J. Murtagh

Fundamentals of Rehabilitation Tax Credit: Real Estate Basics Quiz

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