Federal Tax Incentives - Frequently Asked Questions
What are the federal historic preservation tax incentives?
The 20% rehabilitation tax credit provides 20% of the amount spent in a certified rehabilitation of a certified historic structure as a tax credit on the owner’s Federal Income Tax. The 10% rehabilitation tax credit provides 10% of the amount spent to rehabilitate a non-historic building built before 1936 as a tax credit on the owner’s Federal Income Tax.
What is a tax credit?
A tax credit differs from an income tax deduction. An income tax deduction lowers the amount of income subject to taxation. A tax credit, however, lowers the amount of tax owed. In essence, a dollar of tax credit reduces the amount of income tax owed by one dollar.
Which buildings are eligible for tax incentives?
All depreciable (income-producing) buildings listed on the National Register of Historic Places individually or as contributing buildings in a Historic District listed on the National Register of Historic Places are eligible for the 20% investment tax credit. Buildings that are eligible to be listed on the National Register may apply for the tax incentives. An eligible building must be listed on the National Register within 30 months of claiming the credit.
What standards apply to the rehabilitation?
The rehabilitation must conform with the Secretary of the Interior’s Standards for Rehabilitation. They can be found online at http://www.nps.gov/history/hps/TPS/tax/rhb/stand.htm or requested from the SHSND.
How do I take advantage of the tax incentives?
Federal tax incentives must be applied for by filing an application form with the Historic Preservation Division of the State Historical Society of North Dakota (SHSND), Bismarck. Application forms are available from the SHSND. The owner or his/her agent must provide TWO copies of the application form and TWO copies of all supporting documents including plans, specifications and original photographs.
When should the application be submitted to the State Historical Society of North Dakota?
The application should be submitted to the Historic Preservation Division of the SHSND as early in the planning of the project as is practical so that questionable proposals may be discussed. The SHSND will be pleased to review draft applications and suggest revisions to assist the owner. The application should be submitted to the SHSND prior to bidding, but it must be submitted prior to the start of construction. Work begun or completed prior to SHSND and NPS conditional approval may not qualify for tax credits.
Can projects be phased and qualify for the tax incentives?
The project may be phased over a 60-month period. All phases must be outlined in the initial Part II application.
Is the application easy to fill out?
The application consists of three parts. The first part is an evaluation of the significance of the building and requires a description of the physical appearance, statement of significance and current photographs of the building. Part 2 of the application requires a project description and details of the work that will be completed on the building. Photographs of the building before any work has started are required. Part 3 is completed once the project is finished and requires photographs of the completed project.
Are the interiors as important as the exterior?
Original interior and exterior features are historically and architecturally significant and are equally important. All interior and exterior work is reviewed utilizing the Secretary of the Interior’s Standards and reviewers are ALWAYS concerned with interiors. All interior work will be reviewed and must be documented both photographically and in writing.
What is the Adjusted Basis?
Adjusted basis is the initial cost of the building for the present owner, minus depreciation, plus capital investment at the time the proposed project commences. The adjusted basis does not include the cost or the value of the land.
Are the benefits available to private residences?
The federal tax incentives are not available to private residences because they are not income-producing.
What other areas of concern should owners be aware of?
Window treatments, masonry cleaning, storefronts, interior renovations, additions, and exterior material treatment proposals will cause the project to be closely reviewed. The Internal Revenue Service has a system of recapturing the federal rehabilitation credits if the applicant fails to follow the rules. The applicant must retain ownership of the property for at least five years. Recapture takes place at 20% per year for every year the building is not owned. The federal tax incentives require a processing fee.
What assistance is available from the SHSND?
The Historic Preservation staff will not provide design work for buildings. The staff will answer technical questions, review draft applications, make on site visits, and provide preliminary opinions and advice. The staff will also offer direct assistance to the design professional in charge of the project, if the owner prefers.