Benefits of Owning a Historic Property: 10 Tax Breaks

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Real Estate Image Gallery Interested in owning a historic property? You might be surprised to learn about the tax benefits available! See more real estate pictures.
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As Benjamin Franklin famously said, “Nothing can be said to be certain, except death and taxes.” However, if you own property from his era, you may be able to avoid the latter. While owning a historic property can be a challenge, these buildings hold significant cultural value. The government is often willing to assist with the costs of upkeep by offering various tax incentives at the local, state, and federal levels. In this article, we’ll explore some of the most noteworthy tax breaks, including federal incentives and the most common state and local benefits. You may also want to consult with your state historic preservation office or a tax attorney who has experience with local property tax incentives to learn about additional grants, breaks, or endowments that can aid in local historic preservation efforts [source: National Trust for Historic Preservation].

10: National Park Service

Did you know that the National Park Service (NPS) is your primary resource for historic property tax breaks? The NPS collaborates with the IRS to administer the Federal Historic Preservation Tax Incentives Program, which offers tax breaks to properties listed on the National Register of Historic Places (NRHP) [source: National Park Service]. Obtaining this certification is a crucial step toward designating your property as a historic site and accessing tax benefits. Keep in mind that to receive federal tax breaks, you must not only register your property on the NRHP but also submit specific renovation plans for the site. These renovations are the expenses that will be eligible for tax breaks.

If you’re considering purchasing an existing historic property with plans to renovate it further, check the NRHP to confirm that the property is already registered (or make successful registration a contingency of sale) [source: National Park Service].

9: Federal Historic Preservation Tax Incentive


Planning to use your historic home as a bed-and-breakfast? You may qualify for additional tax breaks.
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Once your site has been designated as a historic property, receiving 20% of the money you spend on renovations is as simple as submitting an application (pending approval). Both the designation and proposed renovation applications are available through the National Park Service [source: National Park Service].

However, there are two caveats. First and foremost, the property must generate income. You cannot receive this tax break for renovating your residence, unless you have a home office or rent out space in your home. In these cases, you can apply for the 20% credit for renovations made to the income-generating space. (This is a common tax break for bed-and-breakfasts.)

Second, your proposed renovations must be “consistent with the historic character of the property” [source: National Park Service]. In order to qualify for the 20% credit, your renovation project must adhere to a list of 10 guidelines provided by the Secretary of the Interior.

8: State Tax Credit

If you reside in one of the 31 states that have adopted tax credits for the renovation of historic buildings, you could potentially double your savings. The prevailing thought in most states is that older, historic buildings are commonly situated in traditional economic centers such as downtowns, and the increased value due to renovation does not stop at your property boundary. Renovating a property can assist to renovate a neighborhood, and your state may be willing to assist you in doing so.

One significant advantage: Numerous state tax incentives are not restricted to income-generating buildings. While federal tax incentives are limited to businesses, you might be eligible for a state tax incentive for renovating your own residence. Additionally, you may not need to be individually listed in the NRHP to be eligible. Instead, consider researching this credit if your property contributes to the character of a designated historic district or if it has been locally designated as a landmark.

7: Other State Incentives


Read up on your state’s property tax requirements! You might find a deal you didn’t know about.
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In California, it’s known as the Mills Act. In Oregon, it’s the Special Assessment of Historic Property Program. In Wisconsin, it’s the Supplemental Historic Preservation Credit. In Arizona, it’s the Historic Property Tax program.

Whatever it’s called, many states have programs in place to reduce the state property taxes of historic buildings. Of course, with programs administered at the state level, requirements and benefits differ depending on where your property is located. A quick online search that includes the terms “tax, historic and state” should lead you to the right place quickly.

Note that these programs offer different kinds of breaks. While the preceding pages explained ways to receive breaks on renovations, many individual state credits offer breaks on the property taxes you pay every year. Instead of having to spend money to save money, these state programs can help you save money outright.

6: Easements

An easement is essentially an agreement between a property owner and a representative of a historical preservation society. In exchange for your commitment to maintain the property’s historic character, you can receive fantastic benefits in the form of reduced income tax, estate tax, or property tax. A couple of the state programs you will come across fit into this category.

Remember that an easement can be permanent. Once signed, sealed, and delivered, it is yours, and it is filed as a deed with the title of your property, passed down to any future owners. This may be advantageous—what potential buyer does not appreciate reduced fees and the idea of living in a verified historic building? However, it might also deter future buyers who had their hearts set on converting your Victorian into a Gregorian (or worse!).

Preservation societies financing easements exist at the city, county, and state levels, and they can be easily found through a quick internet search.

5: 10 Percent Rehabilitation Credit


If your property was built before 1936, you could be entitled to extra tax credits. Even if you’re struggling to get your building designated as “historic,” you may still be eligible for this tax break. If your building was put into service before 1936, you can receive 10 percent back on the cost of renovations that maintain the building’s original character. For instance, if you spent $100,000 to renovate the 1935 building that houses your business, you could earn $10,000 in tax credits. This 10 percent rehabilitation credit is managed jointly by the National Park Service and the IRS, much like the 20 percent renovation tax credit for buildings listed on the NRHP [source: Internal Revenue Service].

4: Grants

There are plenty of private groups dedicated to saving historic buildings. As the owner of one of these properties, you could benefit from their financial aid. Usually, these grants are for renovations or preservation, amounting to a percentage of the sum you spend or, in some rare instances, funding preservation directly. For instance, the Johanna Favrot Fund for Historic Preservation provides grants of between $2,500 and $10,000 for nonprofit or government agencies renovating historic properties. Similarly, many businesses’ philanthropic activities include preservation; for example, the American Express Partners in Preservation program offers grants for the renovation of historic buildings and landmarks. A host of other grant opportunities are available for private, public and nonprofit applicants. Your state preservation office or the nearest office of the National Trust for Historic Preservation is the best place to begin looking for these grants.

3: FHA Loans


If your planned historic home renovation will help rejuvenate the neighborhood, you may be approved for additional loans. Buying a historic fixer-upper could be a smart move, especially if you’re eligible for the Federal Housing Administration (FHA)’s program to write $35,000 at favorable terms into pending mortgages for the purpose of historic property renovation. Inspections can reveal significant damage in historic buildings, but the federal government may have an incentive to see the sale go through. A decrepit, unsellable house or business can drag down an entire neighborhood, while a renovated historic property can revitalize it.

2: Tax Freeze

As your house gains market value every year, your property taxes also increase. However, you can put a freeze on this by working with your local historical preservation office, main street revitalization group or historical society. This freeze is typically in the range of 10 to 15 years and is based on your plans to renovate your historical property or a promise to maintain the property’s character without significantly altering it. This ensures that your property taxes won’t go up due to a rise in the appraised value of your house.

1: Donating for Preservation


It is possible to donate your home’s facade to a historic preservation organization and receive tax benefits.
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Imagine donating a portion of your land to a nonprofit conservation trust. This charitable donation can provide a significant tax break while decreasing your property’s value for tax purposes. Similarly, if you own a historic property, you may be able to donate its facade, interior, or landscaping to a preservation organization. By deeding the front of your property, for example, you can make a charitable donation of its value, which will be deducted from your home value for tax purposes. However, in exchange for these tax benefits, you may face renovation restrictions.

More information on this topic is available on the next page.

FAQ on Owning Historic Property

What is the process for a property to be listed on the National Register of Historic Places?

Properties that are 50 years or older and meet certain criteria can be considered for listing. To nominate a property, one must fill out a form with the National Register of Historic Places and wait for at least 90 days for the application to be processed. The decision to list the property as historic will be made by the National Park Service.

Are historic homes a good investment?

According to BobVila.com, owning a historic property can increase its value by up to 26% compared to other homes in the area. Additionally, it tends to be less affected by market downturns. However, owning a historic home can also come with downfalls such as strict regulations on renovations and alterations due to the home’s age.

Can historic homes be remodeled?

Yes, but there are limitations on what can and cannot be done. Special permits must also be obtained to make any changes.

Do historic homes receive tax breaks?

Historic properties may qualify for tax breaks such as a tax freeze, tax abatement, or tax credits from federal, state, county, or local government. These tax breaks can be applied outright or against approved renovations.

How does the historic home tax credit work?

The Federal Rehabilitation Tax Credit, also known as the Historic Tax Credit, grants a 20% income tax credit to developers who rehabilitate historic buildings into income-producing properties.

More Information

Related Articles

  • 10 Historic Green Homes
  • How Historic Districts Work
  • Historic Sites Library
  • How Real Estate Property Taxes Work
  • How Personal Property Taxes Work

Sources

  • Emery, John K. “What Makes a Property Historic?” (March 15, 2011) http://www.jkemery.com/HistoricHomes
  • Illinois Historic Preservation Agency. “Property Tax Assessment Freeze.” 2007. (March 15, 2011) http://www.illinoishistory.gov/ps/taxfreeze.htm
  • Internal Revenue Service. “Publication 526.” (March 15, 2011) http://www.irs.gov/publications/p526/ar02.html
  • Internal Revenue Service. “Rehabilitation Tax Credit — Real Estate Tax Tips.” Feb. 9, 2011. (March 15, 2011) http://www.irs.gov/businesses/small/industries/article/0,,id=97599,00.html
  • Koreto, Richard J. “Tax incentives for historic preservation.” Will Nesbitt Realty LLC. Jan. 2, 2010. (March 12, 2011) http://condo-alexandria.com/2010/01/02/tax-incentives-for-historic-preservation/
  • National Park Service. “Historic Preservation Tax Incentives.” (March 12, 2011) http://www.nps.gov/hps/tps/tax/hpcappl.htm
  • National Park Service. “National Register of Historic Places.” (March 12, 2011) http://nrhp.focus.nps.gov/natreghome.do?searchtype=natreghome
  • National Park Service. “What are the Secretary of the Interior’s Standards for Rehabilitation that are used to evaluate projects that apply for the 20% tax credit?” (March 12, 2011) http://www.nps.gov/hps/tps/tax/incentives/essentials_4.htm
  • National Trust for Historic Preservation. “Preservation Contacts.” (March 12, 2011) http://www.preservationnation.org/contacts/
  • National Trust for Historic Preservation. “State Rehabilitation Tax Credits.” (March 12, 2011) http://www.preservationnation.org/issues/rehabilitation-tax-credits/state-rehabilitation-tax.html
  • Preservation North Carolina. “Preservation Easements.” (March 12, 2011) http://www.presnc.org/Property/Preservation-Easements

FAQ

1. What is a historic property and why is it beneficial to own one?

A historic property is a building or structure that has significant cultural, architectural, or historical value. Owning a historic property can provide a number of tax benefits, including tax credits, deductions, and exemptions.

2. What are the tax credits available to owners of historic properties?

The federal government offers a 20% tax credit for the rehabilitation of historic buildings, as well as a 10% credit for non-historic buildings constructed before 1936. Some states also offer tax credits for historic preservation.

3. How do you qualify for the federal tax credits?

To qualify for the federal tax credits, the property must be listed on the National Register of Historic Places or be located in a designated historic district. The rehabilitation work must also meet certain standards for preservation and restoration.

4. What are the tax deductions available to owners of historic properties?

Owning a historic property may also qualify you for a number of tax deductions, including deductions for property taxes, mortgage interest, and maintenance and repair expenses.

5. Are there any exemptions available to owners of historic properties?

Some states offer exemptions from property taxes or reduced property tax rates for historic properties. These exemptions and rates vary by state and local jurisdiction.

6. What are the benefits of owning a historic property as a rental property?

Owning a historic property as a rental property can provide additional tax benefits, including depreciation deductions and the ability to deduct expenses related to the rental property.

7. How do you qualify for the tax benefits as a rental property?

To qualify for the tax benefits as a rental property, the property must be used primarily for rental purposes and meet certain standards for preservation and restoration.

8. What are the benefits of owning a historic property for a business?

Owners of historic properties used for business purposes may be eligible for tax deductions related to the property’s maintenance and repair expenses, as well as depreciation deductions.

9. What are the benefits of owning a historic property for a nonprofit organization?

Nonprofit organizations that own historic properties may be eligible for additional tax benefits, including exemptions from property taxes, reduced property tax rates, and other tax deductions related to the property.

10. Are there any downsides to owning a historic property?

Owning a historic property can be expensive, as preservation and restoration work can be costly. Additionally, the property may be subject to restrictions on alterations or modifications due to its historic significance.

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