Historic Living… Tax Incentives for Buying and Renovating Historic Property Part 1

There are some great incentives at both the National and State (Georgia) level for renovating historic properties. There are credits to both income and property taxes depending on the type of property. In today’s post we will look at the National incentives

 

photo courtesy Pexels

 

On the National Level:

There are two main incentives. The first is the Rehabilitation Investment Tax Credit. (RITC).

RITC is for income producing property, not a primary residence. The property must be a certified historic structure and the rehabilitation must also be certified. The tax credit is up to 20% of the qualified rehabilitation expenses and taken against Federal Income Taxes. This is not a deduction, but an actual credit against taxes.

To be eligible for the 20% tax credit according to the Department of Natural Resources:

  • The building must be listed or eligible for listing in the National Register of Historic Places, either individually or as a contributing building within a historic district.
  • The project must meet the “substantial rehabilitation test.” This test means that the cost of the rehabilitation must be greater than the adjusted basis of the property and must be at least $5,000. Generally, projects must be completed within 2 years.
  • After the rehabilitation, the building must be used for an income-producing purpose for at least 5 years.
  • The rehabilitation work itself must be done according to the Secretary of the Interiors Standards for Rehabilitation; these are common-sense guidelines for appropriate and sensitive rehabilitation.

All rehabilitation tax credit projects must be reviewed by the Georgia Historic Preservation Division (HPD) and certified by the National Park Service. Even though this is a Federal program, it must be reviewed at the state level. There is a three part application process. I will not go into the application process here, but please know we are a huge resource for you if you would like to explore this.

photo courtesy Pexels

The second Federal incentive is the Charitable Contribution Deduction.

According to the Department of Natural Resources, the Charitable Contribution Deduction is taken in the form of a conservation easement and enables the owner of a “certified historic structure” to receive a one time tax deduction. Things to note here are this is a tax deduction, not a credit against Federal Income taxes. Also it is one time. If the property is sold at a later date, no additional deduction may be taken.

To be eligible for the Charitable Contribution Deduction:

  • The property must be listed in the National Register of Historic Places, either individually or as a contributing building within a historic district. If a property is located in a National Register Historic District, A Part 1 must be submitted to HPD for review and certification by the NPS.

A conservation easement does just that; it conserves the exterior of a property. Meaning, it ensures the preservation of a buildings facade by restricting the right to alter its appearance.

Upon request, the Historic Preservation Division (HPD) will offer technical assistance to rehabilitation  tax projects either by meeting with individuals at HPD or on-site to discuss  specific rehab issues. Early communication with this office is highly recommended.

A great example of this is the building that has now been my home since 2004. The Historic Kirkwood School Lofts was originally purchased from the City of Atlanta as a former elementary school in 1997. It was renovated into apartments in 1998. After being used as income producing property for 5 years, I assisted the owners in converting the school to lofts that were sold in 2004. The school is on the National Register of Historic Places and they were able to take the Federal Tax credit. They also donated the facade to Easements Atlanta in 2004 and were able to take a one time Federal tax deduction. The Kirkwood School Lofts will continue to look like a school in to the future.

 

photo courtesy Michelle Mechem

Next month we will look at the great State tax incentives for historic restorations in Georgia.

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