FAQs about Historic Tax Credits
Editor’s note: This information comes from the website of the Virginia Department of Historic Resources at http://www.dhr.virginia.gov
- March 29, 2011
Q: What are Rehabilitation Tax Credits?
A. Rehabilitation Tax Credits are dollar-for-dollar reductions in income tax liability for taxpayers who rehabilitate historic buildings. Credits are available from the federal government and the commonwealth of Virginia. The amount of the credit is based on total rehabilitation costs. The federal credit is 20 percent of eligible rehabilitation expenses. The state credit is 25 percent of eligible rehabilitation expenses. In some cases, taxpayers can qualify under both programs, allowing them to claim credits of 45 percent of their eligible rehabilitation expenses.
Q. How much money do I have to spend?
A. Under the federal program, the project must be a “substantial rehabilitation” to qualify the investor for the credit. The Internal Revenue Service defines “substantial” as exceeding the owner’s adjusted basis in the building, or $5,000, whichever is greater.
The threshold requirements for the state program are different from the federal requirements. In order to qualify for the state credit, the rehabilitation expenses must be:
For owner-occupied structures, at least 25 percent of the assessed value of the buildings for local real estate tax purposes for the year before the rehabilitation work began.
For all other eligible structures, at least 50 percent of the assessed value of the buildings for local real estate tax purposes for the year before the rehabilitation work began.
Q. How do I apply for the credit?
A. Applying for the credit is a three-part process. A property must be listed on the Virginia Landmarks Register or the National Register of Historic Places, or must be considered a contributing structure to a certified historic district. For more information, visit the agency’s website.
Q. Can I sell the tax credits?
A. Technically speaking, no. Credits may be syndicated through the use of limited partnerships, but they may not be directly sold … Federal credits must be allocated according to percentage of ownership. The state credit, however, may be allocated by agreement among partners.
Q. How long do I have to complete the rehabilitation?
A. The rehabilitation does not have to be completed within any particular period of time. However, the “substantial rehabilitation” test (for the federal program) and the “material rehabilitation” test (for the state program) must be met within a consecutive 24-month period that ends some time during the year in which the credits are claimed. Essentially, this means that for most projects the greatest expenditures must be made within a two-year period. For phased projects, the time limit is extended to 60 months.