Rehabilitation Credit (Historic Preservation)

This federal tax credit means to preserve historic properties

What Is the Rehabilitation Credit (Historic Preservation)?

The rehabilitation credit (historic preservation) is a federal tax credit meant to incentivize the private-sector preservation of historic structures in the country. It offers a credit for 20% of the expenses for substantially rehabilitating buildings for business or income-generating use, according to a summary from the U.S. National Parks Service. Those who take advantage of the credit are required to preserve the “historic character” of the property. Recently, attention has focused on the racial imbalance of the sites designated as historic, though organizations are making some efforts to rectify the lopsidedness.

Key Takeaways

  • The rehabilitation credit (historic preservation) is a tax credit offered by the U.S. government to encourage the preservation of historical properties in the country.
  • Properties identified as historically significant may be eligible for a 20% credit on rehabilitation expenses.
  • The credit is intended in part as a recovery tool for the American economy.
  • Preservationism has a disparity with regard to which properties linked to the history of minority populations have been considered significant enough to preserve.

Understanding the Rehabilitation Credit (Historic Preservation)

The rehabilitation credit (historic preservation) is run through the Federal Historic Preservation Tax Incentives Program. Created in 1976, the program attempts to preserve historic properties while economically revitalizing rural areas and stagnating Main Streets across the country. It has incentivized the rehabilitation of an estimated 46,000 properties, worth about $181 billion, since the creation of the program, while creating 2.9 million jobs, according to the 2020 annual report from the National Parks Service (the latest available). A majority of the projects green-lit under the program were relatively small, with 46% under $1 million and 19% under $250,000.

Qualified Expenses

Not all expenses can be covered by the credit. Typically, construction costs related to structural features, such as walls, floors, and stairs, are eligible—while costs for other features, such as cabinets, sidewalks, and pavement, are not, according to the National Park Service. “Soft costs,” such as engineering or architect fees, may also qualify.

In administering the program with the Internal Revenue Service (IRS), the National Parks Service also relies upon state historic preservation offices. For instance, in California—which had $621.3 million in total rehabilitation costs between 2016 and 2020—the program is administered in cooperation with the California Office of Historic Preservation’s Architectural Review and Incentives Unit.

Other expenditures related to historic preservation can possibly be written off as well. For example, tax benefits are available for historic preservation easements, according to the IRS.

10% Credit Removed by Congress

A 10% tax credit was also available for properties that weren’t designated as “historic” but were established before 1936. However, that program was ended by the Tax Cuts and Jobs Act at the end of 2017. The act also made changes to the 20% credit.

Legislative changes

The rehabilitation credit (historic preservation) underwent a significant legislative restriction during the Trump presidency, but several other legislative proposals in recent years have sought to expand it. In 2017 the U.S. Congress amended it and eliminated a 10% credit that was available for properties that were in service before 1936 but weren’t designated as historic. The changes, made through the Tax Cuts and Jobs Act, spread the 20% credit over five tax years.

Two newer proposals have looked at both expanding access to and increasing the credit, which proponents argue is an effective job-creation tool. In 2021, the House of Representatives and the Senate introduced two different versions of the Historic Tax Credit Growth and Opportunity Act that—if they became law—would raise the tax credit to 30% (for expenses less than $2.5 million in the House version and for less than $3.75 million, capped at $750,000, in the Senate version) and make accessing the credit easier.

“Historic Tax Credits have been incredibly effective in Western New York at promoting economic opportunity through the rehabilitation of historic buildings and revitalization of communities,” said Representative Brian Higgins, D-N.Y., who is listed as a co-introducer of the House bill. He went on to add, “The use of these credits during the ongoing pandemic is more important than ever as they create a pathway to building back our economy, growing local jobs, and re-energizing our community.”

The National Conference of State Historic Preservation Officers, a professional organization for state preservation officials, has called the credit “one of the most powerful historic preservation tools we have.” The association has also said that even if the legislative attempts to expand it and make it easier to access don’t pass, they will probably become templates for future legislation.

Before fiscal year 2014, only 8% of the historic sites on the National Register of Historic Places were connected to Black, Latinx, Native American, or Asian American history, according to a 2020 Congressional Research Service report.

Historical Preservation and Minorities

Historic preservation has not always aimed to preserve properties connected to the history of minorities in the country. Cornell University professor Sara Bronin, an authority on historic preservation law, wrote in an editorial published in 2020 that the National Register of Historic Places, the designation that qualifies a property for a historic tax credit, reflects mostly White history. Indeed, the first Latinx commemoration, Bronin says, was the César E. Chávez National Monument, which was included only eight years before her article was published.

Bronin argues that an “overly technical, legalistic approach to determining what merits designation” has limited inclusion of minority sites. The law requires that sites get listed for historical significance and integrity, but the interpretations of historical significance have tended to center on association with rich, White historical figures and architectural styles that are connected to White forebears, according to Bronin.

Activists say that the architectural significance requirement prevented historically significant buildings, such as slave quarters, from being preserved. In the absence of protections, those properties were intentionally destroyed for a variety of reasons, including racial terrorism in the years after Reconstruction, as well as more modern efforts to build highways, gentrify, and ensure urban renewal.

Other writers, such as Michael deHaven Newsom, have written that historical preservationism actually displaced Black residents by driving up housing prices and causing Black homeowners to sell their land in Georgetown, a rich neighborhood in Washington, D.C., in the 20th century. Newsom intimated that this had also happened in Philadelphia and Charleston, S.C. Similar stories exist for other minority groups. Andrew Dolkart, for example, has written that the U.S. has been slow to preserve LGBTQ+ spaces, only picking up steam in the past few years.

However, some efforts are being made to correct the imbalance in American preservationism. The National Trust for Historic Preservation, for instance, started the African American Cultural Heritage Action Fund in 2017 to preserve Black history. The fund has pulled in $70 million and assisted in the preservation of 200 projects to date.

How Does the Rehabilitation Credit (Historic Preservation) Work?

Those who meet the IRS’s rules for “certified rehabilitations” on a historically designated property can apply for the tax credit. They must preserve the historic character of the property, along with other requirements. They can claim it on Form 3468, Investment Credit when filing taxes.

Who Is Eligible for the Credit?

The IRS says that individuals; corporations; partners, shareholders, and beneficiaries of a pass-through entity; and estates and trusts can apply for the credit as long as they own an interest in the building in question or, in some cases, are leasing the building.

Is the Credit Worth It?

Tax credits are a popular way to reduce taxes while incentivizing behavior, and the rehabilitation credit (historic preservation) has been described as one of the best available tools for encouraging private sector preservationism, allowing both businesses and individuals to recoup costs related to preservationism, which revitalizes communities. It also boosts the economy, having created 2.9 million jobs in 2020. However, there are many eligibility requirements.

Article Sources
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  1. Internal Revenue Service. "Rehabilitation Credit (Historic Preservation) FAQs."

  2. National Park Service. "20% Historic Rehabilitation Tax Credit."

  3. National Park Service. "Annual Report on the Economic Impact of the Federal Historic Tax Credits for Fiscal Year 2020," Page 2.

  4. EisnerAmper. "A Guide to Claiming the Historic Tax Credit."

  5. National Park Service. "Annual Report on the Economic Impact of the Federal Historic Tax Credits for Fiscal Year 2020," Page 9.

  6. California State Parks Office of Historic Preservation. "Federal Historic Preservation Tax Incentives Program."

  7. National Park Service. "Tax Incentives for Preserving Historic Properties."

  8. U.S. Congress. "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018."

  9. U.S. Congress. "S.2266 - Historic Tax Credit Growth and Opportunity Act of 2021."

  10. U.S. Congress. "H.R.2294 - Historic Tax Credit Growth and Opportunity Act of 2021."

  11. Congressman Brian Higgins. "Legislation Increases Historic Tax Credits to Aid Post-Pandemic Recovery."

  12. National Conference of State Historic Preservation Offices. "Federal Rehabilitation Tax Credit (Historic Tax Credit)."

  13. Congressional Research Service. "The Federal Role in Historic Preservation: An Overview," Page 31.

  14. Los Angeles Times. "Op-Ed: How to Fix a National Register of Historic Places That Reflects Mostly White History."

  15. Equal Justice Initiative. "The Widespread Failure to Preserve African American History."

  16. Duke University School of Law. "Blacks and Historic Preservation."

  17. Columbia University Graduate School of Architecture, Planning, and Preservation. "Preserving LGBT Places: The NYC LGBT Historic Sites Project."

  18. National Trust for Historic Preservation. "African American Cultural Heritage Action Fund."

  19. Internal Revenue Service. "About Form 3468, Investment Credit."

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