Preserve History and Save Money with Historic Preservation Tax Credits
Historic Preservation Tax Credits: A Guide for Urban Explorers
As an urban explorer, you’re likely interested in the history and character of the buildings and neighborhoods you explore. But did you know that there are financial incentives available for property owners who preserve historic buildings? Historic preservation tax credits can help offset the costs of rehabilitating a historic building and make it more economically viable to preserve these important landmarks.
In this guide, we’ll explain what historic preservation tax credits are, how they work, and how they can benefit both property owners and communities.
What are historic preservation tax credits?
Historic preservation tax credits are federal or state incentives designed to encourage the rehabilitation of historic buildings. These tax credits provide a dollar-for-dollar reduction in taxes owed by property owners who complete eligible rehabilitation projects. The amount of the credit varies depending on the type of project, location of the building, and other factors.
Federal Historic Preservation Tax Credits
The Federal Historic Preservation Tax Incentives program was established in 1976 to encourage private investment in preserving historic buildings. This program offers two types of tax credits:
1) 20% Rehabilitation Tax Credit: Property owners who rehabilitate income-producing certified historic structures (those listed on the National Register of Historic Places or located in a registered historic district) can receive a federal income tax credit equal to 20% of their qualified rehabilitation expenses.
2) 10% Non-Residential Pre-1936 Building Tax Credit: Property owners who rehabilitate non-residential pre-1936 buildings that aren’t certified as historic structures but meet certain criteria can receive a federal income tax credit equal to 10% of their qualified rehabilitation expenses.
To be eligible for either federal credit, properties must be “substantially rehabilitated,” meaning that at least $5,000 or more has been spent on qualifying improvements within a 24-month period.
State Historic Preservation Tax Credits
Many states also offer their own historic preservation tax credits in addition to the federal incentive. These credits vary widely depending on the state and may include income tax credits, property tax reductions, or grants.
For example, in Maryland, property owners who rehabilitate certified historic structures can receive a state income tax credit equal to 20% of their qualified rehabilitation expenses (on top of the federal credit). In Louisiana, property owners can receive up to a 25% refundable state income tax credit for rehabilitating commercial and owner-occupied residential properties located in certain designated districts.
How do historic preservation tax credits work?
To qualify for historic preservation tax credits, property owners must follow certain guidelines related to the rehabilitation project. These guidelines are intended to ensure that the building’s character-defining features are preserved while also allowing for necessary updates and improvements.
The Secretary of the Interior’s Standards for Rehabilitation provide guidance for preserving historic buildings and achieving compatibility between old and new elements. The standards cover topics such as retaining original materials, repairing rather than replacing damaged elements when possible, avoiding damage to character-defining features during construction, and ensuring that any additions or modifications are compatible with the existing building design.
To apply for either federal or state historic preservation tax credits, property owners must submit an application detailing their plans and demonstrating how they meet relevant guidelines. After completion of the rehabilitation project, an independent review is conducted by a qualified professional to determine if it meets these standards before issuing certification that makes them eligible for claiming these incentives on their taxes.
What are some benefits of using historic preservation tax credits?
Preserving historic buildings has many benefits beyond just maintaining community character. Using these incentives can help make projects feasible from an economic standpoint while also supporting local economies through job creation:
1) Financial Incentives: Historic preservation tax credits can offset some of the costs associated with rehabilitating older buildings which may have been difficult without this assistance.
2) Increased Property Value: Rehabilitating a building increases its value and can lead to higher rents, making it easier for property owners to recover their rehabilitation costs.
3) Job Creation: Rehabilitation projects create jobs in the construction industry and other related fields. This not only helps boost local economies but also supports skilled trades that are important for maintaining historic buildings.
4) Sustainability: By reusing existing structures instead of tearing them down, historic preservation encourages environmental sustainability by reducing waste and promoting energy efficiency.
5) Community Character: Preserving historic buildings helps maintain community character, which is often a key reason why people choose to live or work in certain neighborhoods. It can also be an attraction for tourists who are interested in history and architecture.
Conclusion
Historic preservation tax credits provide a valuable incentive for property owners looking to preserve older buildings with significant historical or architectural value. These incentives help make rehabilitation projects more economically feasible while also supporting local economies through job creation. As urban explorers, we can appreciate the unique character that historic structures bring to our cities and towns. By using these incentives, we can help ensure that these landmarks continue to enrich our communities for years to come.