By If you own or are considering buying an older commercial or rental building, the federal historic rehabilitation tax credit could return 20 percent of your renovation costs as a dollar-for-dollar reduction in your tax. Many states offer an additional credit.
How It Works
The credit equals 20 percent of qualified rehabilitation spending on a certified historic structure. You claim it in five equal annual installments, beginning the year the building is placed in service. You must also reduce your basis in the building by the credit, which lowers future depreciation and increases your gain on sale.
What Qualifies
The building must produce income; your personal residence does not qualify.
Your rehab spending within 24 months must exceed the greater of the building’s adjusted basis or $5,000. The National Park Service, through your State Historic Preservation Office, must certify both the building and the work.
Benefiting from the Credit
On a rental, the passive loss rules can delay or even destroy your tax credit benefit. Both tax law–defined real estate professionals and owner-operated businesses have paths that can avoid the passive loss rules.
To realize the full credit, you need to have the building in service for five years. Selling within five full years of placing the building in service triggers recapture of some or all of the credit.
If you want to discuss the historic tax credit, please call me directly at 408-778-9651.