Historic Rehabilitation Tax Credits
What is a tax credit?
A tax credit differs from a tax deduction in that a tax deduction lowers the amount of income subject to taxation, while a tax credit is a dollar-for-dollar reduction in income tax liability.
What buildings qualify for the credit?
Eligible properties must either be listed in the National Register of Historic Places or a contributing resource within a National Register historic district.
KY Heritage Council should be consulted both prior to the start of a project, and then regularly during the project, to ensure that the proper standards are followed. See heritage.ky.gov for more info.
What work qualifies for the credit?
The applicant must spend at least $20,000 for owner-occupied buildings. Commercial, or other buildings, require spending at least $20,000 or the adjusted basis. All spending must occur within a consecutive 24-month period.
A building must be rehabilitated according to a set of technical standards established by the U.S. Secretary of the Interior. Compliance with the Secretary of the Interior’s Standards for Rehabilitation must be certified by the Kentucky Heritage Council (KHC) prior to a project start date.
What amount can I receive for my project?
Up to 30% credit for qualified rehabilitation expenses (QREs) for owner-occupied residential properties. A minimum investment of $20,000, with the total potential credit capped $120,000 (on a project of $400K or more).
Up to 20% credit for qualified rehabilitation expenses for commercial projects and all other properties, requiring a minimum investment of $20,000 or the adjusted basis, whichever is greater. Adjusted basis is the cost of purchase price minus the cost of the land, minus any depreciation, plus any improvement prior to applying. The total potential credit is capped at $10 million (on a project of $50M or more).
The total amount of funding for the state program is now $100 million per year. 70% of the pool is available for commercial/other, and 30% is set aside for owner-occupied residential projects. The state credits for commercial can be combined with the similar federal program (also a 20% credit) for up to a total credit of 40%. The federal credit applies only to commercial projects, not owner-occupied residential projects.
What is the process for applying for the state preservation tax credit?
KHC reviews all tax credit projects for eligibility. There are 4 parts to the application:
PART 1 is the preliminary application, Evaluation of National Register Status and building condition;
PART 2 is the Description of Rehabilitation, details of the proposed rehabilitation work;
PART 3 is the Request for Certification of Completed Work form, submitted once rehabilitation work is complete; and
PART 4 is the Summary of Investment and Election of Credit, the final accounting form submitted with Part 3.
Contact Vital Sites with questions on historic buildings, tax credits, and consulting services.