Rehabilitation Tax Credits

A state law passed in 2009 allows Arkansans to claim a portion of their investment in historic properties as a credit on their state income taxes. This program, administered by the Arkansas Historic Preservation Program (AHPP), will encourage the rehabilitation of historic properties and will foster revitalization efforts in Arkansas’s historic downtowns and neighborhoods. The AHPP serves as the state liaison between the property owners and the National Park Service, the federal agency that administers the federal Rehabilitation Tax Credit program.

The main goal of the AHPP and NPS will be to:
1. Determine if the structure in question is a "qualified historic property" 
2. Provide a technical review based on the Secretary of the Interior's Standards for Rehabilitation on the proposed work planned for the historic structure and 
3. Approve the final work by the owner to the historic property.

Anyone interested in pursuing the credit should consult an accountant, tax attorney other professional tax advisor, legal counsel, or the Internal Revenue Service for help in determining the tax and other financial implications.

Pictured is the before (right) and after of the ca. 1902 Queen Anne-style Judson Millard House at 1410 South Gaines Street in Little Rock was rehabilitated using historic preservation tax credits. Finished in March 2014, the structure now houses five apartments.

Eligibility

Properties that are listed on the National Register of Historic Places or are listed as “contributing” within a historic district on the National Register. Properties that will be eligible for listing following rehabilitation will also be considered. Any individual or firm who pays personal or corporate income tax in Arkansas. Persons or firms without sufficient tax liability to take advantage of the credits they earn are allowed to sell their credits to another taxpayer.

The AHPP uses the US Secretary of the Interior’s Standards for Rehabilitation to determine what kinds of work are appropriate for historic buildings and eligible for the tax credits. These ten broad, common-sense principles of preservation guide property owners around the country in projects that accommodate new uses and revitalization while retaining the overall historic character of their buildings. For more information on the Standards, contact us or visit the NPS website

Credits Awarded

tax credit Value

Twenty-five percent (25%) of the approved rehabilitation expenses on a historic building may be claimed as a tax credit. Owners of income-producing properties (commercial, office, rental residential, etc.) may claim up to $125,000 per project. For new tax credit projects starting after July 1, 2017, the credit has been raised to $400,000 for income producing projects. Property owners may claim up to $25,000 per project for work on their private residences. In either case, an owner must invest a minimum of $25,000 to claim any credits. For private residential project that are starting after January 1, 2019, the minimum investment has been lowered from $25,000 to $5,000 of eligible expenses.

Types of Projects Receive Tax Credits             

State law allows the AHPP to award up to $4 million in tax credits per year. In addition to meeting all the requirements described above, projects should address one of the program’s community / economic development goals listed below. In order of priority, projects receiving tax credits must contribute to the:

1. Creation of a new business
2. Expansion of an existing business
3. Establishment of a tourist attraction
4. Revitalization of a business district
5. Revitalization of a neighborhood

federal historic rehabilitation tax credit

The federal government has its own tax credit program for historic rehabilitation, with its own rules. It is similar to Arkansas’s tax credit in some ways, but different in others. (For example, the federal tax credit is only available for work on income-producing properties.) However, projects that meet the requirements of both programs should be able to take advantage of both federal and state tax credits. Talk to a tax professional before pursuing any tax credits.


Related Links

For more information from the National Park Service                
Tax Incentive Application
TPS Section

For more information from the Internal Revenue Service 
IRS Investment Credit Form 3468 (PDF)

Topical Tax Briefs (PDF)
Facade Easement Brief August 2009 Late Submission of "HPC Application"
Property Leased to a Tax-Exempt Entity
Use of the Rehabilitation Tax Credit by Lessees
Rehabilitation Tax Credit Recapture
Allocations of Tax Credit

IRS Connection
Get Frequently Asked Questions (PDF) about the Tax Aspects of Historic Preservation


Downloads

Federal Rehabilitation Tax Credit Brochure Federal Rehabilitation Tax Credit Brochure (9182 KB)



FAQs

Yes! The National Park Service (NPS) maintains several websites with information about various aspects of the tax credit program. The best place to start is http://www.nps.gov/tps/tax-incentives.htm

The tax credit program only applies to income-producing properties, such as commercial, industrial, agricultural or rental residential properties. If a portion of a private residence is used to conduct business, you may be able to take the credit for that portion of the building that is dedicated to this use.

AHPP does not provide tax or financial advice to property owners. Our role in the tax credit program is to review the proposed work to assure that historically significant architectural features, spaces, and finishes are retained during the renovation. The National Park Service does provide several websites with tax-related information. You can access these sites at 

http://www.irs.gov/pub/irs-pdf/f3468.pdf

http://www.nps.gov/tps/tax-incentives/taxdocs/about-tax-incentives-2012.pdf

We urge you to consult with your tax professional before starting your project to determine how the tax credit can best work for you.

Owners of buildings that are not yet listed individually in the National Register of Historic Places or located in districts that are not yet registered historic districts may use the Historic Preservation Certification Application, Part 1, to request a preliminary determination of significance from the National Park Service. Such a determination may also be obtained for a building located in a registered historic district but that is outside the period or area of significance of the district. A preliminary determination of significance allows the owner to proceed with the rehabilitation project while the process of nominating a building or a district continues. Preliminary determinations, however, are not binding. They become final only when the building or the historic district is listed in the National Register or when the district documentation is amended to include additional periods of areas of significance.

 

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 general, a dollar of tax credit reduces the amount of income tax owed by one dollar.

The 20% rehabilitation tax credit equals 20% of the amount spent in a certified rehabilitation of a certified historic structure.

The 10% rehabilitation tax credit equals 10% of the amount spent to rehabilitate a non-historic building built before 1936.

Answers to some of the questions above courtesy of the U.S. Dept. of the Interior, National Park Service, Technical Preservation Services.