TAX INCENTIVES FOR HISTORIC BUILDINGS

Restoring an historic building is an exciting and sometimes complex process.  It can also be an expensive undertaking, but the outcome is usually very rewarding.  If you own historic properties, you will want to know sources of funding for preserving these buildings.  Although there is not typically money in the form of grants available for an individual’s project, there are TAX INCENTIVES available to taxpaying owners of income-producing historic buildings.

Currently, there are NO TAX INCENTIVES FOR OWNER-OCCUPIED HISTORIC HOMES.  

State and Federal tax incentives are available to taxpayers who own historic buildings and use them for income-producing purposes.

In Alabama, commercial historic buildings and sites can be assessed for ad valorem purposes at 10% instead of the usual 20%.  Complete an application for your historic building, submit the application to the Alabama Historical Commission, and take the certified application to your tax assessor for the property tax reduction.

A federal rehabilitation tax incentive allows a federal income tax credit for 20% of the amount spent to rehabilitate income-producing historic buildings.  Buildings must be listed in the National Register of Historic Places and must be income-producing to the owner.  The rehabilitation costs must be substantial, which means that rehab expenses exceed the adjusted basis of the property.  The rehabilitation must follow Rehabilitation Standards that protect the historic character and historic materials that make up the building.  Plans for the project must be approved ahead of time by the National Park Service.  The Alabama Historical Commission helps owners through a three-part application process with the National Park Service. 

It is important for owners interested in this program to read all of the National Park Service and Internal Revenue Service requirements.  Involving your accountant, architect and contractor, and the AHC early in the planning process is highly recommended.  To read more about the program requirements, visit http://www.cr.nps.gov/hps/tps/tax/index.htm and go to About the Tax Incentives.  Then see The IRS Connection at this website for more in-depth discussion of the tax implications of this program.  Also review the Standards for Rehabilitation to understand the overall approach to work on historic buildings.  The Illustrated Rehabilitation Guidelines go into more detail about what you can and cannot do to the building.  And Interpreting the Standards Bulletins describe case studies on recurring rehab issues in historic buildings like removing interior plaster to expose brick (not recommended!).  The Application, Instructions, and Fee Forms may also be downloaded.

There is also a 10% federal income tax credit available for rehabilitating income-producing buildings built before 1936 but NOT listed in the National Register.  Details about this program is also available at the National Park Service website http://www.cr.nps.gov/hps/tps/tax/index.htm.  

The following information sheets may be downloaded:

Historic Preservation Tax Incentives Fact Sheet – basic run-down of the Alabama property tax reduction and the federal rehabilitation tax credit program
Tips for a Successful Project – things to know before beginning your project
Courier Delivery Payment form – required for applications going to the National Park Service
Checklist for a Complete Application – list of requirements for each part of the application