Investment Tax Credit Programs
Saint Vincent Villa
Fort Wayne, IN
Income tax credits are the principal governmental subsidy available for privately owned and funded historic preservation activities. The federal government offers a Rehabilitation Investment Tax Credit (RITC) equaling 20% of rehabilitation costs for qualified work at income-producing properties that are certified historic buildings. Eligible properties include commercial buildings, factories or even old houses, but they must be income-producing, such as rental properties. Owner-occupied private residences are eligible for the Indiana Residential Historic Rehabilitation Credit (RHRC). These programs may be proportionally co-mingled when both commercial occupancy and personal residence are located in the same building.
Certified Historic Buildings
For participation in the federal RITC program, a building must have been determined to be eligible for listing in the National Register of Historic Places. The building may be individually significant or a contributing resource within a historic district. Indiana State program for owner-occupied private residences, Residential Historic Rehabilitation Credit (RHRC), requires that a building be listed in the Indiana Register of Historic Sites and Structures. Buildings listed in the National Register are automatically listed in the State Register. If the federal RITC is claimed, the building must be listed in the National Register within 30 months after claiming of the credit.
In order to qualify for the RITC, all work must meet the Secretary of the Interior's Standards for the Treatment of Historic Properties.This distinguishes bona-fide historic preservation from more general remodeling projects. Although a project may include additions and site work, only costs related to the rehabilitation of the historic building may be used in calculating the tax credits. The federal RITC requires that the rehabilitation costs equal or exceed the value of the building (excluding the land) before rehabilitation work (known as the adjusted basis rule). The Indiana State RHRC requires that the rehabilitation investment be $10,000 or greater. Single-phased projects must meet these requirements in a 24-month period. Projects filed for multi-phased development may stretch the qualifying period up to 60 months.
THE SECRETARY OF THE INTERIOR’S STANDARDS FOR REHABILITATION
The intent of the Standards is to assist the long-term preservation of a property’s significance through the preservation of historic materials and features. The Standards pertain to historic buildings of all materials, construction types, sizes, and occupancy, and cover the exterior and interior of buildings. They also encompass related landscape features and the building’s site and environment, as well as attached, adjacent, or related new construction.
To be certified for federal tax purposes, a rehabilitation project must be determined by the Secretary of the Interior to be consistent with the historic character of the structure(s), and, where applicable, the district in which it is located.
Rehabilitation is understood to include some necessary repair or alteration of the historic building in order to provide for an efficient contemporary use. However, these repairs and alterations must not damage or destroy materials, features, or finishes that are important in defining the building’s historic character. The Standards are to be applied to specific rehabilitation projects in a reasonable manner, taking into consideration economic and technical feasibility.
In brief, the Standards cover new uses for historic buildings, repair and cleaning methods, retention of historic fabric and features, protection of archaeological resources, and sympathetic new additions.
To supplement the 10 points of the Secretary of the Interior’s Standards for Rehabilitation, the National Park Service has prepared a number of technical documents that apply these criteria to specific rehabilitation methods. These publications, titled Preservation Briefs, cover a variety of topics, including: repairing and repointing historic masonry, repairing wooden and steel windows, repairing historic flat and ornamental plaster, conserving energy in historic buildings, and providing accessibility in historic buildings. Each Brief covers recommended repair methods in great detail and includes a number of helpful illustrations. These documents may be obtained by contacting the DHPA.
THE APPLICATION PROCESS
To assure all work meets the Secretary of the Interior’s Standards for the Treatment of Historic Properties, it is highly recommended that the proposed work program be submitted for approval before the execution of the work. Project plans and specifications will be reviewed to assure that all anticipated facets of the project meet these standards.
The federal RITC requires a three-part application. Part 1 verifies that the project is eligible for the program (this step may be omitted if a building has been individually listed in the National Register). Part 2 describes the construction activities for which the credit is to be claimed. Part 3 is filed upon the project’s completion. The RHRC for owner-occupied residences employs a simplified form of the three-part application.
Applications for these programs may be obtained from the DHPA.
CLAIMING THE CREDIT
A taxpayer should claim the federal tax credit in the tax year during which the building (or phase of project) is placed in service. Because the Indiana state program limits the amount of credits that may be granted in a single year, the taxpayer is notified by the state when he or she may claim the Indiana credit. Both state and federal programs permit carryover of unused credit to subsequent tax years. The taxpayer has up to 30 months after the claim of a federal tax credit to complete the certification that the project meets the Secretary of the Interior’s Standards. However, the Part 1 application, Determination of Eligibility, must have been submitted before filing the credit claim. Both Indiana state programs require that the completed project be certified as complete before a tax claim may be submitted. Indiana tax credits are assigned to specific Indiana fiscal years for purposes of tax filing.
OTHER TAX PROGRAMS
Please note that the two programs below are not administered by the DHPA, and consultation with a tax expert is strongly advised to explore various tax incentives.
Rehabilitation Tax Deduction
Indiana taxpayers who rehabilitate historic structures, commercial properties and private homes, can qualify for a tax deduction if the work increases the assessed value of the building. Deductions are limited to the historic portion of existing buildings that are at least 50 years old and cost at least $10,000.
Low Income Housing Tax Credit
The federal Low Income Housing Tax Credit can be combined with the RITC to rehabilitate historic structures that will provide affordable housing. The federal government also provides certain tax incentives for the creation of rural housing.