Federal 20 and 10 Percent Historic Tax Credits
How to Use HistoricTax Credits
To qualify for either the 20 percent or the 10 percent historic tax
credit, the rehabilitation must be “substantial”. A substantial
rehabilitation means that a taxpayer’s QREs during a 24-month or
60-month measuring period (for a phased project) must exceed the
“adjusted basis” of the building or $5,000, whichever is greater. The
adjusted basis is generally defined as the purchase price, minus the
cost of the land, plus the value of any capital improvements made since
the building acquisition, minus any depreciation already taken. Eligible
properties must be income-producing to qualify for historic tax
credits; therefore, owner-occupied residences are not eligible.
To qualify for the 20 percent credit, the rehabilitation must also be
certified as conforming to the Secretary’s Standards for Historic
Rehabilitation. This certification is achieved by completing a
three-part application process which is reviewed first by the state
historic preservation office (SHPO) and then by the National Park
Service (NPS).
- Part 1 makes the case for National Register property listing or
verifies that a property is a contributing structure in a National
Register District;
- Part 2 summarizes the scope of the rehabilitation; and
- Part 3 documents that the work has been done as proposed in the approved Part 2.
Virtually all of the rules that apply to the 20 percent historic
credit apply to the 10 percent credit with a few notable exceptions. The
10 percent credit requires no design review at the state or federal
level, but there is a “wall test” requiring that three of the original
four exterior walls remain intact. If this property is located within a
historic district, the Part 1 application must be filed and approved by
the National Park Service to confirm its non-contributing status. To
redeem the 10 percent credit, the developer simply needs to attach
Form 3468 to his/her tax return.
The compliance and recapture period for the federal historic credits
is five years from the date the property is placed in service. Twenty
percent of the recapture risk burns off every year.
How Nonprofit Groups Can Use Tax Credits
Nonprofit organizations and public agencies do not pay federal or
state income taxes and therefore have no tax liability against which to
apply historic tax credits. Also, many for-profit entities are not in a
tax position to make full use of the value of the credit. Fortunately,
in these instances, it is still possible to tap into the value of the
historic tax credit by transferring (or ‘syndicating’) the tax credit to
a corporate investor, or in certain instances, individuals, who then
use the tax credit to offset some of their own tax liability.
quoted from
http://ntcic.webfactional.com/tax-credit-basics/federal-tax-credit-basics/utilization/