How The Historical Tax Credit Can Benefit You

This image depicts a historic building in York, Pennsylvania that was converted into office suites.

Recently we listed a beautiful historic building in a vibrant downtown area. This property is the classic vacant office building, which has begun to proliferate in the wake of COVID. However, the excellent location and classic historic architecture are begging for a new life. View The Property Here

The challenges to renovate a historic building can mount up as the investor puts together a proforma- things like sprinkler systems, emergency access points and modern HVAC are all items that would be a requirement to renovate this building from office to apartments.

However, Good Ole Uncle Sam is here to help. The Historical Tax Credit is a way to help offset the cost of turning this type of property into a money generating property. The National Park Service, as an arm of the federal government, facilitates this program, but PA also has a similar type of Historical property tax credit.

So what is the Historical Tax Credit Program?

Investors who are renovating or repurposing historic buildings may qualify for the Historical Tax Credit, or HTC. This is a program that the federal government provides tax credits to investors, that is 20% of the approved cost of renovating historic buildings.

How does the Historical Tax Credit Program work?

Through the program, investors in qualified historic buildings are granted a 20% tax credit against rehabilitation expenses, though not all expenses qualify under the program guidelines. Only designated qualified rehabilitation expenses (QREs) count towards the 20%. QREs generally include costs associated with all of the operational and maintenance components of a building, such as: floors, walls, partitions, and ceilings; doors, windows, stairs, and chimneys; tiles, paneling, or other permanent coverings; lighting fixtures, electrical wiring, and plumbing components; elevators, escalators, fire escapes, and sprinkler systems.

In contrast, some common expenses do not qualify for the credit. These ineligible expenses include: cabinets, appliances, furniture, and tacked carpeting; new decks, porches, fencing, and landscaping; planters, parking lots, signage, and sidewalks; financing fees, feasibility studies, and leasing costs; and structural demolition costs.

Some financing fees may still qualify as an approved cost, such as construction loan interest and engineering fees.

Which buildings qualify?

Property eligibility for the historic tax credit program includes:

  1. Buildings listed in the National Register of Historic Places as certified historic buildings.
  2. Buildings situated in a registered historic district and certified by the National Park Service as historically significant.

Types of properties eligible for the HTC program include multifamily apartment buildings, office buildings, warehouses, and industrial buildings.

What are the rehabilitation rules for the Historical Tax Credit Program?

In order to be approved for the tax credit, the project must meet the standards for rehabilitation and/or repurposing. The standards are set to encourage staying close to the original history and architect of the building. Restoring instead of replacing is the key focus.

Pennsylvania’s Historical Tax Credit Program

Pennsylvania’s Tax credits may be applied against the tax liability of a qualified taxpayer which includes an individual, corporation, business trust, limited liability company, limited liability partnership or any other form of legal business entity. The tax credits awarded to a qualified taxpayer shall not exceed 25 percent of the qualified expenditures as determined by the application in connection with the completed project. The total tax credits awarded to a qualified taxpayer may not exceed $500,000 in any fiscal year.

PA’s application program is operated on a first come first serve basis, with application windows in the fall of each year. They are distributed on a pro-ratio basis to each area.

Curious if a building you own or are interested in is located in a Federal Historic District? Click here.

If you are looking for an edge in your investments, and would like to discuss strategy to increase your return, contact us for a no obligation consultation.


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