Historic Tax Credits — 20% Tax Credit Program

January 18, 2012

Historic tax credits are a terrific way to help finance the rehabilitation of older, historic buildings. There are two different programs, both of which apply to many of our Downtown structures. This post provides information about the 20% credit ONLY. To find out how to use the credit, consult with your accountant. The IRS guidelines for Historic Tax Credits are summarized here: http://www.nps.gov/tps/tax-incentives/before-apply/irs.htm

For the 20% tax credit, eligible buildings must meet 4 criteria:

(1) The historic building must be listed in the National Register of Historic Places or be certified as contributing to the significance of a “registered historic district.” If you don’t know if your building qualifies, you can input the address into the City of Tucson’s PRO system and find out. http://www.tucsonaz.gov/PRO/pro/devactionsrch.jsp

(2) The project must meet the “substantial rehabilitation test.” The cost of a project must exceed the greater of $5,000 or the building’s adjusted basis. The following formula will help you determine if your project will be substantial:

A — B — C + D = adjusted basis
A = purchase price of the property (building and land)
B = the cost of the land at the time of purchase
C = depreciation taken for an income-producing property
D = cost of any capital improvements made since purchase
The work must be done within 2 years or within 5 years if it is a phased project.

 
(3) The rehabilitation work must be done according to the Secretary of the Interior’s Standards for Rehabilitation. The guidelines are available here: http://www.nps.gov/tps/standards/rehabilitation/rehab/index.htm

 
(4) After rehabilitation, the historic building must be used for an income-producing purpose for at least five years. Owner-occupied residential properties do not qualify for the federal rehabilitation tax credit. The 20% credit is available only to properties rehabilitated for income-producing purposes, including commercial, industrial, agricultural, rental residential or apartment use. The credit cannot be used to rehabilitate your private residence.

However, if a portion of a personal residence is used for business, such as an office or a rental apartment, in some instances the amount of rehabilitation costs spent on that portion of the residence may be eligible for the credit.

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