What is the Rehabilitation Tax Credit?
The rehabilitation tax credit is a federal tax credit that encourages real estate developers to renovate or restore older buildings. Buildings built before 1936 are the target of the rehabilitation tax credit.
Any renovations made on buildings from 1936 or earlier are eligible for a 10% tax credit. Any buildings that have historical status are eligible for a 20% rehabilitation credit. The tax credit only applies to buildings being restored for business purposes. Buildings with historical status must work with the National Parks Service and meet their requirements.
Contractors cannot claim the tax credit. In order to claim the rehabilitation tax credit you must be the title holder of the property.
The purchase of a building is not eligible for the rehabilitation tax credit. It also cannot be used for landscaping, or repairs to sidewalks or parking lots. You must make improvements to the structure in order to qualify for the credit.
If you want to qualify for the rehabilitation tax credit you must meet certain requirements. You must also meet project deadlines and hit the completion date on time in order to qualify.
Rehabilitation Tax Credit Scenario
Jonathan recently purchased a building in the historic downtown portion of his town. The building is registered as a historical site through the National Parks Service. Because of it’s age, the building needs a lot of updates and repairs.
Jonathan is planning to make those repairs and wants to take advantage of the rehabilitation tax credit. However, since his building is already a historical site, the National Parks Service has to review all of his plans.
The first step Jonathan takes is to contact his local State Historic Preservation Office. He’ll start the process with them. They’ll provide all the forms he needs. Next, the National Parks Service will review his application and see if the repairs Jonathan intends to make conform to the standards set by the Secretary of the Interior.
Once the National Parks Service approves the project, Jonathan can begin construction. Throughout the project the State Historic Preservation Office will make site visits.
Jonathan will claim the rehabilitation tax credit on his taxes for the year in which the project is completed. On the return, Jonathan must put the project number the National Parks Service issued to him. The Rehabilitation tax credit will cover 20% of the qualifying expenses.
Frequently Asked Questions
What is the Rehabilitation Tax Credit?
The Rehabilitation Tax Credit is a federal tax credit that incentivizes real estate developers to renovate or restore older buildings. Buildings constructed before 1936 can receive a 10% tax credit, while those with historical status are eligible for a 20% credit. The credit applies to structures restored for business purposes.
Who is eligible to claim the Rehabilitation Tax Credit?
Only the title holder of the property can claim the Rehabilitation Tax Credit. Contractors are not eligible to claim this credit. The credit applies to renovations or restorations of buildings, not to the purchase of the buildings themselves.
What types of buildings qualify for the Rehabilitation Tax Credit?
Buildings built before 1936 are eligible for a 10% tax credit. Buildings with historical status, as recognized by the National Parks Service, are eligible for a 20% rehabilitation credit. The credit is applicable only to buildings restored for business purposes.
What kinds of improvements qualify for the Rehabilitation Tax Credit?
To qualify for the Rehabilitation Tax Credit, improvements must be made to the structure of the building. The credit does not apply to landscaping, sidewalk repairs, or parking lot repairs. The renovations must meet certain requirements and project deadlines to be eligible.
How does the process work for claiming the Rehabilitation Tax Credit?
To claim the Rehabilitation Tax Credit, you must first contact your local State Historic Preservation Office. They will provide the necessary forms and guide you through the application process. The National Parks Service will review your application to ensure compliance with the Secretary of the Interior’s standards. Once approved, you can begin renovations. After completion, you will claim the credit on your tax return, including the project number issued by the National Parks Service.
