Topic 03 · 6 min read
The Historic Rehabilitation Credit
Twenty percent of the cost of restoring a certified historic building.
Spend money bringing a certified historic structure back into income-producing use and the law returns 20 percent of the qualifying rehabilitation costs as a credit, spread over five years. The building must be listed or contribute to a registered district, the work has to satisfy preservation standards, and the spending has to be substantial relative to what the building is already worth.
What to know
- Certified structure, certified work
- Two separate approvals are involved: the building's historic status and the rehabilitation plan itself, reviewed against the Secretary of the Interior's standards.
- The substantial rehabilitation test
- Qualifying spending generally must exceed the building's adjusted basis over a 24-month measuring period, which is a high bar on an expensive building.
- Five-year claim, five-year recapture
- The credit is taken 4 percent a year for five years, and selling or misusing the property during that window claws part of it back.
- Income-producing only
- Your own house does not qualify. The building has to be rental, commercial, or otherwise used in a trade or business.
The tax benefit
A fifth of the restoration budget comes back as tax, often the difference between a viable adaptive-reuse project and an empty building.
Worked example
A main-street building
A $2 million rehabilitation of a certified structure yields a $400,000 credit, claimed at $80,000 a year for five years. Basis is reduced by the full credit, trimming future depreciation.
Watch out for
- Preservation review can rule out cheaper construction choices; budget for it early.
- Work started before approval may not count.
- Many states layer their own historic credit on top, with separate applications and deadlines.
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