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Claim a Tax Credit for Renovating Historic Real Estate

By MarksNelson on March 22, 2018 in Articles, Michael Marsh CPA, Real Estate
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If you are in the process of restoring an older building, it may be worth your while to find out whether the building can be certified as a historic structure. As long as the rehabilitation of the building meets certain qualifications, you may be able to receive a federal tax credit equivalent to 20% of your renovation costs and a state tax credit equal to 25% of your renovation costs.

Background

For this purpose, qualified expenses include architectural and engineering fees, site survey and development fees, legal expenses, and other construction-related costs, as long as they are added to the property’s basis, reasonable in amount and related to services performed.

If the real estate owner is contemplating the renovation of an older building in a historic part of town or a place that otherwise has historical implications, the federal tax law provides additional incentives. Before you start tearing down walls and putting up a new façade, follow the steps for having the building certified as a historic structure.

For example, if the renovation costs, say, $1,000,000, you can effectively reduce the expenditures by $450,000 – $200,000 in federal credits and $250,000 in state credits.

Key Point

To qualify for the historic credit, you must meet the following requirements:

*The building must be listed on the National Register of Historic Places or located in a registered historic district and certified by the Secretary of the Interior as being historically significant.

*The rehabilitation work must also be certified. This means the finished product must retain the original historic character (but not necessarily the original use) of the building.

Also, the owner of a historic building must own it for at least five years after completion of the rehabilitation work or he or she will have to pay back all or part of the 20% credit. Most state credits don’t have recapture requirements.

In Summary:

More properties will qualify for the historic credit than you might think. It is not necessary for George Washington to have slept there nor does the place have to be an antebellum mansion. The list of historic structures is far more inclusive than that.

Currently, the National Register of Historic Places names more than 80,000 locations that are eligible for the credit. You can visit its website to obtain more information, including an application for certification, at www.nps.gov/nr/about.htm. For more information please contact, contact Mike Marsh in our Real Estate Department at 816-743-7700.

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