The Historic Tax Credit

The federal Historic Tax Credit was originally enacted in the form of a credit in 1981 as part of a Reagan Administration economic stimulus package. It encourages the preservation and adaptive reuse of certified historic and older buildings. The HTC is administered jointly by the National Park Service (NPS) and the Internal Revenue Service (IRS) and is comprised of a 20 percent credit , payable ratably over five years. The 20 percent credit applies only to certified historic structures, including buildings that are listed individually on the National Register of Historic Places, or contribute to the significance of National Register Historic Districts.

How to Use Historic Tax Credits

To qualify for either the historic tax credit, the rehabilitation must be “substantial”. A substantial rehabilitation means that a taxpayer’s Qualified Rehab Expenditures during a 24-month or 60-month measuring period (for a phased project) must exceed the “adjusted tax 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 of the Interior’s Standards for the Treatment of Historic Properties. 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.

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.

According to National Park Service data, the HTC created approximately 48,000 buildings over its lifetime. Nearly 2.4 million jobs have been created over the life of the program. Furthermore, taken over the life of the program, the HTC is responsible for over $122.8 billion in new investment in our urban and rural communities. The cost of the HTC program is more than offset by the federal taxes these projects have generated. In sum, the HTC ensures the preservation of our nation’s historic places, and it does this while creating jobs and increasing federal tax revenue.