DEFINITION of 'Rehabilitation Tax Credit '
A federal tax incentive to encourage real estate developers to renovate, restore and reconstruct old buildings. Buildings placed in service before 1936 are eligible for a 10\% credit, and certified historic structures are eligible for a 20\% credit. The credit applies to the building's rehabilitation costs, but not to the cost of purchasing the building or to repairing sidewalks, parking lots and landscaping. The credit amount increases slightly if the building is also located in a specific disaster area.
BREAKING DOWN 'Rehabilitation Tax Credit '
The taxpayer must also meet requirements regarding the rehabilitation project timeframe and completion date to claim the credit. Enlargement and reconstruction projects are not eligible for the tax credit, and tax-exempt properties also do not qualify. Only the title holder of the property can claim the credit. Some states also offer rehabilitation tax credits to encourage redevelopment.