What You Need to Know About Tax Credits on an Historic Home
The Federal Historic Preservation Tax Incentives
While new home construction is often looked at as a benchmark for how the real estate market is doing, not every buyer can afford to purchase a brand new home. Because of this fact, some people look to invest in older homes in order to get better deals, despite having to put some extra elbow grease into the property in many cases.
One thing that many of these buyers might not be aware of is that they may be eligible for certain tax incentives if their homes qualify as “historic.” If you’re thinking about investing in an older home, here’s what you need to know about the Federal Historic Preservation Tax Incentives Program.
Tax Incentives for Historic Homes
There are two types of tax credits available for the purchase of a historic home. You can get either a 10% or 20% tax credit for qualifying renovation expenses. It’s important to note that these tax credits are only for investment properties; they don’t apply to owner-occupied homes. The amount awarded depends on the home and you can’t get both tax credits, just one or the other. The 10% tax credit applies to homes built before 1936, but don’t qualify as historic.
So What Qualifies a Home as Historic?
To qualify for historic preservation tax incentives, a home needs to be at least 50 years old and associated with important historic people or events, or it needs to be an example of significant changes in architectural history.
The home itself needs to retain its past appearance, so you can’t update the home using different materials, like covering over its brick exterior with vinyl siding. The materials need to be the same or like what the home originally had, and the cost of renovation needs to be at least $5,000.
There is a three-part certification process you will need to go through in order to qualify your property. First, you’ll be required to pay a $250 processing fee. A second fee, which can be as high as $2,500, is then due when the renovation project is finished. The amount of the second fee is based on the total cost of the renovation. Projects under $20,000 will have the fees waived. The home will then need to be reviewed by the National Park Service and your state’s historic preservation office.
Once you are awarded certification, and you followed all technical guidelines, then you’ll receive a 20% reimbursement of the cost of the renovations.
Owner-Occupied Historic Home Tax Credits
As stated earlier, federal tax incentives aren’t applicable to owner-occupied homes. But, in some states, owner-occupied historic homes may be eligible for a state tax break. For instance, both New York and Virginia offer state tax credits for historic residential homes. To find out if your state offers such incentives, contact your state’s historic preservation office.