Since 1976, federal law has
provided tax incentives for historic preservation. Availability
of the federal tax credits is a major plus for encouraging
investment in historic resources- in urban cores, residential neighborhoods
and small towns throughout the United States. In Florida, the Bureau of
Historic Preservation makes its inintial recommendations to the National
Park Service staff who provide the final review of applications for tax
certification and make recommendations for approval.
The credits are dollar-for-dollar reductions of taxes owed.
The 20% rehabilitation investment tax credit equals 20% of
the amount spent in a certified rehabilitation of a certified
historic structure. The 10% rehabilitation investment tax
credit equals 10% of the amount spent to rehabilitate a non-historic
building built before 1936.
Since 1976, over 25,000 U.S.buildings have been preserved
using the historic preservation tax credit. This represents
an investment of over $16 billion in our nation's historic
resources.
Since 1982, Sharon Wells' Historic Preservation Consulting
has worked actively with property owners, developers and
architects to promote the incentives and provide advice on
appropriate rehabilitation.
Over $3.1 million in tax benefits have accrued to the property owners.
Every one of 38 rehabilitations projects submitted by Wells Consulting have
been successfully approved by the National Park Service.
Sharon Wells is available to consult on certification of
eligible historic properties throughout the U.S.
QUESTIONS YOU MIGHT ASK
* Tax credits for historic rehabilitation
* What buildings qualify for the credits?
* Minimum investment requirements
* What rehabilitation work qualifies for the credits?
* Rehabilitation standards
* What if a building is not currently listed on the National Register?
* Who reviews the proposed work to ensure that the Secretary of the Interior's
Standards are followed?
* Recapture provisions
* Can the credits be carried over?
* What is the process for obtaining the credits?
* When is the tax credit claimed?
* Timeframe for review
* Can a project have multiple investors?
* Is there an application fee for projects seeking the credits?
* Are there other things to keep in mind when undertaking a tax credit rehabilitation?
TAX CREDITS FOR HISTORIC REHABILITATION
Federal law provides an investment tax credit equal to 20 percent of approved
costs for qualified rehabilitation of certain historic buildings for income-producing
use. In Florida, federal credits are administered by the Division of Historical
Resources in Tallahassee, Florida. All states have such review agencies.
A tax credit lowers the tax owed. A tax credit differs from
a tax deduction in that income tax deduction lowers the amount
of income subject to taxation while a dollar of tax credits
reduces the income tax owed by one dollar.
WHAT BUILDINGS QUALIFY FOR THE CREDITS?
To be eligible for the state or federal credits, a building must be "historic." To
qualify as "historic" a building must either:
* Be listed individually in the National Register of Historic
Places, or
* Be a contributing element of a historic district that is listed in the National
Register of Historic Places, or
* Be a contributing element of a Local Historic District that has been certified
by U.S. Department of the Interior as substantially meeting National Register
criteria.
The federal credits are limited to income-producing, depreciable
property only. The property may be either commercial or residential
rental property. A taxpayer's personal residence would not
qualify for the federal credit.
MINIMUM INVESTMENT REQUIREMENTS:
The rehabilitation must be "substantial," meaning that a minimum
amount must be invested during the rehab. The threshold requirement for the
federal program is $5,000.00 or the adjusted basis of the property, whichever
is larger, within a 24-month period. "Basis" is the cost, or fair
market value, of the property at the time of acquisition, or as otherwise defined
in the U.S. Internal Revenue Code. The "adjusted basis" of a building
is essentially the current book value of the building. It is determined by
taking the purchase price of the building and subtracting the value of the
land (which does not depreciate). Any previously claimed depreciation is subtracted
from this figure and the value of any previous improvements is added to the
figure.
A taxpayer's accountant can provide information on determining the basis of
a property.
WHAT REHABILITATION WORK QUALIFIES FOR THE CREDITS?
Qualified work for the federal credits includes costs associated with work
undertaken on the historic building, as well as architectural and engineering
fees, legal expenses, development fees, and other construction-related costs,
if such costs are added to the basis of the property and are determined to
be reasonable and related to the services performed.
Acquisition costs, furnishing costs, new additions that expand the building,
new building construction, parking lots, sidewalks and landscaping are not
allowed under the federal programs.
REHABILITATION STANDARDS
In order to qualify for the federal tax credits, the rehabilitation project
must follow the Secretary of the Interior's Standards for Rehabilitation.
A rehabilitation project approved by the National Park Service as meeting
the Secretary's Standards will be approved at the state level. Additional
Information on the standards can be obtained by contacting the Historic Preservation
Program or the National Park Service.
WHAT IF A BUILDING IS NOT CURRENTLY LISTED ON THE NATIONAL
REGISTER?
Under the federal tax credit program, owners of buildings that are not yet
listed in the National Register may use the Historic Preservation Certification
Application, Part 1, to request a preliminary determination of significance
from the National Park Service. Such a determination allows the owner to proceed
with the rehabilitation while the process of nominating a building or district
continues. Preliminary determinations, however, are not binding and become
final only when the building or district is listed in the National Register.
An owner may begin rehabilitation work prior to a property being listed, but
they do so at their own risk.
WHO REVIEWS THE PROPOSED WORK TO ENSURE THAT THE
SECRETARY
OF THE INTERIOR'S STANDARDS ARE FOLLOWED?
For the federal credits, the taxpayer submits a Part II application outlining
proposed rehabilitation work. This is reviewed initially by the Bureau of Historic
Preservation in the Department of Historical Resources. The application is
then submitted to the National Park Service for final certification. The Historic
Preservation Program and the National Park Service are permitted to inspect
a property within the five-year recapture period and the certificate can be
revoked if it is found that work was not carried out as certified.
RECAPTURE PROVISIONS
For federal projects, a property owner must maintain ownership for a period
of five years after the credit is issued. If the owner sells the property
within that five-year period, 20 percent of the credit will be recaptured
for each year remaining.
CAN THE CREDITS BE CARRIED OVER?
The federal tax credits can be carried back one year and forward 20 years or
until the credit is exhausted.
WHAT IS THE PROCESS FOR OBTAINING THE CREDITS?
To obtain the federal credit, a taxpayer must submit a Preservation Certification
Application to the Bureau of Historic Preservation. The application is a
three-part form. Part 1 is used to determine if a property is historic. Part
2 outlines in detail the proposed rehabilitation work. Part 3 is submitted
once the rehabilitation work is completed.
After the Historic Preservation Program reviews Part 3, it is forwarded to
the National Park Service. The National Park Service issues the final certification,
which is filed with the taxpayer's federal income tax return.
WHEN IS THE TAX CREDIT CLAIMED?
Generally, the federal tax credit is claimed on IRS form 3468 for the tax year
in which the rehabilitated building is placed in service.
TIME FRAME FOR REVIEW
Federal tax act projects are allowed 30 days for review at the state level
and 45 days for review at the federal level
CAN A PROJECT HAVE MULTIPLE INVESTORS?
Federal projects can have multiple investors; however passive loss restrictions
for federal projects would apply. Note that federal credits cannot be sold.
Nonrefundable credits, such as the rehabilitation tax credit, may not be
used to reduce the alternative minimum tax. If a taxpayer cannot use the
tax credit because of the alternative minimum tax, the credit can be carried
back or forward.
It is recommended that the advice of a qualified tax professional
be sought before proceeding with any project involving multiple
investors.
IS THERE AN APPLICATION FEE FOR PROJECTS SEEKING THE CREDITS?
The National Park Service (NPS) charges a fee for review of federal tax projects.
The fee is based on the anticipated cost of the project. The fee must be
paid before the NPS will review the application. Fees range from $500 for
projects costing between $20,000 to $99,000 to $2,500 for projects costing
$1,000,000 or more. The NPS handles billing for the federal project review.
IMPORTANT CONSIDERATIONS S TO KEEP IN MIND WHEN UNDERTAKING
A
TAX CREDIT REHABILITATION
*Apply as soon as possible--preferably BEFORE beginning work.
*Photograph your building inside and out BEFORE beginning work. Before photographs
are especially important. Without them, it may be impossible to review a project.
*Follow the "Secretary of the Interior's Standards for Rehabilitation."
*Seek the advice of a qualified tax professional before proceeding with any
tax credit rehabilitation project. |
