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Federal Tax Credit Program Basics
Tax Credit Examples and Important Links
The basics of the program are as follows:
  • The incentive is a federal income tax credit equal to 20 percent of the rehabilitation costs (Example: $500,000 rehab project = $100,000 tax credit applied to federal income taxes).
  • The building must be listed in the National Register of Historic Places, either individually or as a contributing building in a historic district.
  • Rehab work must meet the Secretary of the Interior's Standards for Rehabilitation.
  • NPS and SHPO approval are required before the project is completed, preferably even before it is started in order to avoid ineligible work and expenses.
  • The building must be used for income-producing purposes after its rehab.
  • The rehab project must be substantial, exceeding either the "adjusted basis" of the building or $5,000, whichever is greater.
  • "Adjusted basis" is the purchase price minus the value of the land minus any depreciation already taken by the current owner of the building, plus any capital improvements (see examples below).
Example 1 (a recent purchase):
$150,000 (purchase price) - $30,000 (land) = $120,000 (adjusted basis)
Rehabilitation expenses must exceed $120,000  
Example 2 (long-time ownership):
 $150,000 (purchase price) - $30,000 (land) - 70,000 (depreciation) + $15,000 (capital improvements) = $65,000 (adjusted basis)
Rehabilitation expenses must exceed $65,000