Federal and state tax credit programs offer a terrific incentive to taxpayers who rehabilitate historic buildings for their own homes or for income-producing properties.
A tax credit differs from a tax deduction. A tax deduction simply lowers the amount of your income that is subject to taxation. A tax credit provides a dollar-for-dollar reduction in the amount of taxes you owe. For example, if your tax bill is $10,000, a $4,000 credit will reduce your tax bill to $6,000.
North Carolina Preservation Tax Credits
In 1997, the North Carolina General Assembly approved the most comprehensive state historic preservation tax credit program in the nation. Two tax credit packages were approved:
A 30% state income tax credit for certified rehabilitations of non-income-producing certified historic structures, including personal residences. Qualified rehabilitation expenses must exceed $25,000 within a two-year period.
A 20% state income tax credit for certified rehabilitations of income-producing certified historic structures, such as commercial and retail buildings. This credit is available for rehabilitations that qualify for the 20% federal tax credit (see below). The combination of the two credits can reduce the cost of certified rehabilitations by 40%.
An additional incentives is available for the rehabilitation of large vacant industrial, agricultural, and utilities buildings, with the state mills tax credit (read more).
Federal Preservation Tax Credits
There are two federal tax credits available for rehabilitation of buildings:
A 20% federal income tax credit for certified rehabilitations of income-producing certified historic structures. Rehabilitation projects, which receive this credit, are eligible for the 20% state credit as well.
A 10% federal income tax credit for rehabilitations of income-producing non-historic structures built before 1936 and used for non-residential purposes.
Qualified rehabilitation expenses must exceed adjusted basis of building within a
two-year period or five-year period for phased projects.
There is no federal tax credit for rehabilitation of non-income-producing properties, such as private homes.
Using the Tax Credits
State and federal tax credits may be used to reduce state or federal income taxes. Please consult with your tax advisor as to how you can utilize the credit.
INCOME-PRODUCING PROPERTIES:
THREE STEPS FOR RECEIVING TAX CREDITS
Step 1: Evaluation of Significance. Determines if a property is a certified historic structure.
Step 2: Description of Rehabilitation. Determines if the rehabilitation work conforms to the Secretary of the Interior's Standards for Rehabilitation.
Note: In order to be assured of receiving tax credits, owners are urged to get approval of Steps 1 and 2 prior to starting work.
Step 3: Request for Certification of Completed Work. Determines if the completed work meets the Secretary of the Interior's Standards for Rehabilitation and is therefore designated a certified rehabilitation.
NON-INCOME-PRODUCING PROPERTIES:
TWO STEPS FOR RECEIVING TAX CREDITS
Step 1: Description of Rehabilitation. Determines if the rehabilitation work conforms to the Secretary of the Interior's Standards for Rehabilitation. Note: Only certified historic structures qualify for tax credits. Owners are urged to secure a National Register listing and plan approvals prior to starting work.
Step 2: Request for Final Certification. Determines if the completed work meets the Secretary of the Interior's Standards for Rehabilitation and is therefore designated a certified rehabilitation.
Tax Credit Glossary
Certified Historic Structures: Buildings which are either: a) listed individually on the National Register of Historic Places; b) located within a National Register Historic District and are certified as contributing to the district; or c) located in, and contributing to, a local historic district that has been certified by the National Park Service. The State Historic Preservation Office and the National Park Service make these designations.
Certified Rehabilitation: A rehabilitation, which has been approved by the State Historic Preservation Office or the National Park Service. All work must adhere to the Secretary of the Interior's Standards for Rehabilitation in order to qualify for the credit.
Income-Producing Structures: Structures put into service as places of business, such as commercial, retail or rental use.
Non-Income-Producing Structures: Structures, such as private homes, which do not generate income.
Secretary of The Interior's Standards for Rehabilitation: National Park Service standards that govern tax credit rehabilitation projects.
For More Information...
Information and applications are available from the State Historic Preservation Office. Applications are subject to review by the SHPO and, for federal tax credits, the National Park Service.
Restoration Branch, State Historic Preservation Office
Department of Cultural Resources
4613 Mail Service Center
Raleigh, NC 27699-4613
919-733-6547 www.hpo.dcr.state.nc.us
