Federal Rehabilitation Investment Tax Credit (RITC)
Rehabilitation Investment Tax Credits (RITC) are the most widely used historic preservation incentive program. Certain expenses incurred in connection with rehabilitating an old building are eligible for a tax credit. RITCs are available to owners and certain long term leases of income-producing properties.
Public Law No: 115-97 (December 22, 2017) amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. Section 13402:
modifies the 20% Historic Rehabilitation Tax Credit,
repeals the 10% tax credit for the rehabilitation of non-historic buildings, and
provides transition rules for both credits.
These and other changes to the Internal Revenue Code may affect a taxpayer's ability to use the 20% tax credit.
Applicants requesting historic preservation certifications by the National Park Service and those interested in the use of the credits are strongly advised to consult an accountant, tax attorney, legal counsel, or the Internal Revenue Service regarding the changes to the Internal Revenue Code related to Public Law No: 115-97.
Eligibility for the 20% Tax Credit
- The building must be listed on the National Register, either individually or as a contributing building within a National Register Historic District, or be a contributing building to a Certified Local District (a locally designated historic district that has been certified by the National Park Service).
- Building must be used for income producing purposes, for example office, retail, residential rental, bed and breakfast, and light manufacturing uses. The building must be a depreciable building and not used as a private residence.
- Rehabilitation work itself must be undertaken according to the Secretary of the Interior's Standards for Rehabilitation.
- The project must meet the "substantial rehabilitation test." This test is where the amount of money to be spent on the rehabilitation must exceed the adjusted basis of the building or $5,000, whichever is greater. Generally, projects must be finished within a 24-month period.
- After rehabilitation, the building must be owned by the same owner and operated as an income producing property for five years.
How to Apply
Two government agencies, the PHMC serving as the State Historic Preservation Office (SHPO) and the National Park Service (NPS), must review the project. The owner submits the application form to the SHPO. The project is reviewed and passed on to the NPS for their review and comment and final certification decision. Application forms are available from the NPS website.
The application is a three part process:
Part 1 - Evaluation of Significance
Part 1 documents the building as a certified historic structure and one that is eligible to receive the tax credit. Buildings that are individually listed in the National Register of Historic Places are automatically designated as "certified historic structures." If a building is located within a National Register Historic District, a Part 1 must be submitted.
Part 2 - Description of Rehabilitation
Part 2 explains the scope of the rehabilitation work and should be filed before work begins. The Part 2 must provide drawings to show the existing conditions and the proposed rehabilitation work and any new additions or new construction. All projects are reviewed and evaluated in accordance with the Secretary of the Interior's Standards for Rehabilitation.
Part 3 - Request for Certification of Completed Work
Part 3 documents the completed work and is proof (for the IRS) that the rehabilitation is "certified."
The application is substantiated by "before" and "after" photographs and plans. The SHPO provides ongoing technical assistance throughout the application process and encourages early communication with our office.
Additional information, tax application forms, and instructions are available from the Bureau for Historic Preservation upon request. As with any tax law, there are restrictions which may affect your ability to make use of these tax benefits, particularly Passive Activity rules and Alternative Minimum Tax rules, so you should seek the advice of a tax accountant.
The National Park Service website is the best resource for information on the federal historic preservation tax credit program. Below are a number of useful links to both the NPS website and some instructional documents prepared by PA SHPO staff.
NPS Tax Credit Links
PA SHPO Guidance
Other Federal Tax Incentives For Buildings
Eligiblity for the 10% Tax Credit
- The building must be built before 1936 and be non-historic - that is, not listed on the National Register, either individually or as a contributing building within a district, or it has been determined eligible for listing in the National Register of Historic Places.
- Building cannot be used for rental residential purposes.
- A building must meet the Wall Retention Requirement:
- 50% or more of the building's external walls remaining as exterior walls
- 75% or more of the building's external walls retained as exterior or interior walls
- 75% or more of the building's internal structural framework remaining in place
- The project must meet the "substantial rehabilitation test," where the amount of money to be spent on the rehabilitation is greater that the adjusted basis of the building and is at least $5,000. Generally, projects must be finished within a 24 month period.
- After rehabilitation, the building must be owned by the same owner and operated as an income producing property for 5 years.
There is no application for the 10% credit, and rehabilitation work is not subject to review by any state or federal agency. If the building is located within a National Register Historic District, then an owner cannot apply for the 10% credit. He/she must apply for the 20% credit. If the above criteria are met, the 10% rehabilitation credit can be claimed as an investment credit on an owner's federal income tax return.
Charitable Contribution Deduction
The charitable contribution deduction is taken in the form of a conservation easement and enables the owner of a "certified historic structure" to receive a one-time tax deduction. A conservation easement usually involves the preservation of a building's facade by restricting the right to alter its appearance. If you would like to see your building preserved for future generations and/or you could benefit from a significant tax deduction, a conservation easement is something to consider. Qualified professionals should be consulted on the matter of easement valuations and the tax consequences of their decision.
To be eligible for the charitable contribution deduction the property must be listed in the National Register of Historic Places, either individually or as contributing building within an historic district. Buildings that are individually listed are automatically designated as certified historic structures. Buildings within National Register historic districts must have a Part 1 application reviewed by the SHPO and certified by the NPS.