The Oregon SHPO currently has two tax incentive programs to encourage the appropriate rehabilitation and maintenance of historic properties. Both are limited to properties that are listed in the National Register of Historic Places.
- Federal Tax Incentive
- State Tax Incentive
Federal Tax Incentive
Implemented in 1976, the federal government has offered an income tax credit as an incentive for rehabilitating income-producing, historic buildings listed in the National Register of Historic Places. This tax credit program is administered in Oregon by the State Historic Preservation Office (SHPO) in conjunction with the National Park Service (NPS) in Washington, D.C., which makes the final decisions on project eligibility, and the Internal Revenue Service (IRS) who handles the actual tax credit component.
Before applying, consult your accountant or tax advisor to make sure that this federal tax credit is beneficial to you. Certain income and other restrictions may have a bearing on whether an owner is able to use the credit. IRS administers the Department of the Treasury's involvement with the Federal Historic Preservation Tax Incentives Program. The IRS has provided written guidance on these complex federal regulations, which is available as easy-to-read guidance here.
What is the Rehabilitation Tax Credit?
There is a 20% Investment Tax Credit (ITC) available for rehabilitating, National Register listed historic buildings. The ITC is a percentage of the rehabilitation costs and does not include the purchase price. This is a tax credit, not a deduction.
Example: 20% of a $100,000 rehabilitation = $20,000 tax credit
This ITC is available for buildings listed in the National Register of Historic Places, which, after rehabilitation, must be used for commercial or residential rental use. It is not available for the rehabilitation of a private, owner-occupied residence.
What Rehabilitation Work Qualifies?
Any work on the interior or exterior of the building that structurally stays with the building qualifies for the tax credit.
Examples of work that qualifies: walls, partitions, floors, ceilings, permanent coverings such as paneling or tiling, windows and doors, components of central air conditioning or heating systems, plumbing and plumbing fixtures, electrical wiring and lighting fixtures, chimneys, stairs, escalators, elevators, sprinkling systems, fire escapes, and other components related to the operation or maintenance of the building.
Examples of work that does not qualify:
- Acquisition costs
- Appliances
- Cabinets
- Carpeting (if tacked in place and not glued)
- Decks (not part of original building)
- Demolition costs (removal of a building on property site)
- Enlargement costs (increase in total volume)
- Fencing
- Feasibility studies
- Financing fees
- Furniture
- Landscaping
- Leasing Expenses
- Moving (building) costs (if part of acquisition)
- Outdoor lighting remote from building
- Parking lot
- Paving
- Planters
- Porches and Porticos (not part of original building)
- Retaining walls
- Sidewalks
- Signage
- Storm sewer construction costs
- Window treatments
All work must meet the Secretary of the Interior's Standards for Rehabilitation to be approved. The work must be reviewed by the SHPO and certified by the National Park Service in order to qualify. This is done by completing an application and submitting it to the SHPO along with photographs showing all work areas (interior and exterior) for the entire project even if no work is being undertaken in that space. Owners take a risk if they do work before official written approval from NPS of their plans occurs.
How Much Money Must be Spent in Order to Qualify for the ITC?
The rehabilitation expenditures must be “substantial" and exceed the greater of either the "adjusted basis" of the building or $5,000.
"Adjusted basis" is the purchase price minus the cost of the land at time of purchase minus any depreciation already taken by the current owner plus cost of any capital improvements made since purchase.
Example (recent purchase): $500,000 (purchase price) - $170,000 (land) = $330,000 (adjusted basis). Rehabilitation expenses must exceed the minimum $330,000 in order to qualify.
Example (long-time ownership): $150,000 (purchase price) - $41,000 (depreciation) - $70,000 (land) + $1,500 (capital improvement) = $ 40,500 (adjusted basis); Rehabilitation expenses must exceed minimum of $ 40,500 to qualify for the credit.
When Can a Rehabilitated Building be Sold?
An owner must keep a building at least five years in order to avoid any recapture of the tax credit by the IRS. The recapture amount ranges from 100% of the tax credit if the building was sold within the first year, to 20% of the tax credit if it is sold within the fifth year.
Here are some resources to assist you in this process:
State Tax Incentive
Oregon´s Special Assessment of Historic Properties program offers a specially assessed value, calculated by the county assessor, to formally listed National Register properties for a 10-year benefit term.
Broadly, the intent of the benefit is to encourage state wide preservation by providing an owner with an avenue to make appropriate preservation improvements to the property without being fully assessed on those improvements during the 10-year benefit period. At the end of the 10-year term the assessed value of the property will return to the fully assessed value which now includes the improvements completed during the 10-year benefit period.
The state tax incentive benefit is not automatically applied to National Register listed properties. National Register listed properties are eligible to apply and may be approved for the program if the building(s) will be significantly and appropriately rehabilitated/maintained.
The application process may take a few months and there are owner obligations-program requirements such as creating a preservation plan, a minimum spending requirement by the 5th year and submitting progress reports to the Oregon State Historic Preservation Office during the 10-year benefit term. There is an opportunity to apply for a 2nd 10-year benefit term but this is not an extension of the 1st term. The application process starts over again and properties eligible to apply may be approved for the program if the building(s) will be significantly and appropriately rehabilitated/maintained.
Consult an accountant, tax attorney, other tax advisor, or the local county assessor to determine whether this preservation state incentive applies to your own tax and financial situation.
If the State Tax Incentive is of interest the first, and most important, step in the process is to contact us to discuss the program and to find if the work you have planned is appropriate to meet the program requirements.
A preservation plan outlines all the individual projects expected to be successfully completed during the 10-year benefit period. The creation of a successful preservation plan can take several months. It is best to start developing the plan several months before the formal application is made and work with the SHPO to obtain feedback as the plan is developed.
An owner should include ALL work projected even if a particular project does not qualify to be used in the calculation towards the minimum spending requirement. The reason ALL work should be included in the plan is this. Projects not included in the plan, that increase the assessed value of the property, may be assessed by the county without the assessor applying the specially assessed value to that portion of improvements. Therefore, it is important to include ALL work, even if it does not qualify to be included in the calculation of meeting the minimum spending requirement.
See minimum spending requirement for more information on examples of qualifying and non-qualifying projects included in a preservation plan.
Minimum Spending Requirement
A minimum spending requirement of 10% of the property's Real Market Value provided in the 1st benefit year is required by the end of the 5th benefit year. During the application process the preservation plan is reviewed and each project listed in the plan will be identified as qualifying, or not, to be used in the calculation of the likelihood of meeting the minimum spending requirement at time of application. During the 10-year benefit term progress reports provided by the owner will be reviewed for progress on all projects. Those projects, previously identified as qualifying, which have had progress and expenditures, will have those expenditures used in the calculation to confirm that the minimum spending requirement has been met by the end the 5th benefit year. Meeting the minimum spending requirement is a condition of continued eligibility to remain enrolled in the program and failure to do so activates review process for benefit removal.
Below are examples of qualifying and non-qualifying preservation plan projects to be used in the calculation of meeting the minimum spending requirement. These are examples only and not inclusive of all projects.
- Qualifying 1st Term Projects
Qualifying projects include those involved with exterior projects, roof to foundation, especially those visible to the public right of way or to correct any structural issues. Also, improvements to existing utilities such as electrical, plumbing and HVAC and any 2nd Term qualifying projects. A few examples include roofing, siding repair, porch repair, window repair, re-pointing of masonry, upgrading knob and tube electrical system and foundation repair. - Qualifying 2nd Term Projects
Qualifying projects include those involved with seismic improvements, ADA accessibility as required by law, energy conservation/sustainability. A few examples include foundation re-enforcement, shear walls, tie-downs, ramps, elevators, ADA bathrooms, HVAC and storm windows. - Non-Qualifying 1st or 2nd Term Projects
Attic and basement finishing, kitchen and bathroom remodeling, refinishing floors or interior woodwork, plaster wall repair, new appliances and fireplace work
Owner Obligations - Program Requirements
Preservation Plan
An owner created preservation plan must be submitted on the appropriate SHPO form and approved by the SHPO as part of the application process. It is best to start developing the plan several months before the formal application is made and work with the SHPO to obtain feedback as the plan is developed. This approach will increase the likelihood of a smooth application process and acceptance into the program.
Preservation Plan Amendments
Any changes to the Preservation Plan on file with the SHPO must be amended throughout the 10-year benefit period to identify projects deleted, modified or added. Work not officially amended may be assessed by the County Assessor without applying the Special Assessment for Historic Properties tax benefit ratio.
Secretary of Interior Standards for Rehabilitation
ALL projects completed during the 10-year benefit period must meet the Secretary of Interior Standards for Rehabilitation to initially qualify and to remain eligible to receive the tax incentive program.
Minimum Spending Requirement
A minimum spending requirement must be met by the end the 5th year of the benefit term. The minimum spending requirement is 10% of the RMV stated on the tax summary received from the county in the fall of the 1st year of the benefit term. Spending compliance is required to avoid removal from the program and will be reported through the required Progress Reports. Failure to meet the minimum spending requirement will result in disqualification and back taxes with penalties and interest may, at the discretion of the county assessor's office, be calculated and billed to you.
Progress Reporting
Progress Reports are requested by the SHPO in the 3rd, 6th and 9th Year of the benefit period. Completion and submittal of the Progress Reports to the SHPO is a requirement to avoid removal from the program. Progress Reporting is a requirement until the Preservation Plan on file with the SHPO is 100% complete.
Application Fee
An application fee of 1/10th of 1% of the assessed value at time of application is due from the owner. Payment of this non-refundable fee is due upon notification from the SHPO. Do not pay the fee until requested by the SHPO. Fee collection occurs after the application review and approval process.
Change of Contact Information Notification
An owner must notify the SHPO if a mailing or email address changes during the benefit period.
Change of Property Ownership Notification
Notification to the SHPO is required by the owner on file if the property is sold any time during the 10-year benefit period. A new owner must agree in writing to assume the Preservation Plan on file with the SHPO to continue to receive the tax benefit, even if the plan is 100% complete.
National Register Listing
IF the property is not formally listed in the National Register of Historic Places at the time of enrollment it is the responsibility of the owner to have officially listed the property in the National Register of Historic Places with the National Park Service within 2 years of said enrollment.
November 1st
– March 31st is the only time application packets are accepted. Application packets submitted outside of this
window will be unprocessed and returned. It is recommended to start the
conversation about your application and preservation plan a few months before the application
window. Contact us to discuss the program and to begin
work on a preservation plan for your property.
An
application fee of 1/10th of 1% of the assessed value at time of
application is collected by the SHPO before final enrollment notification is
sent to the county assessor office.
An enrolled property may be removed from the benefit program by the owner for any reason with formal written correspondence to the State Historic Preservation Office and the County Assessor Office.
An enrolled property may be removed from the benefit program administratively by the State Historic Preservation Office due to non-compliance with any of the owner obligations-program requirements.
As a result of either owner or administrative removal, back taxes with penalties and interest may, at the discretion of the county assessor's office, be calculated and billed to you.
Forms, Publications, and Guidance
Forms
- To receive the appropriate SHPO forms for application, amendments or progress reporting contact us and we will provide the most current forms to you.
Publications
Guidance