Tax Credits

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Tax Credits

The Federal Historic Tax Credit (HTC) Program

The Virginia State Historic Rehabilitation Tax Credit Program

Historic Tax Credit Programs: Federal vs. Virginia

City of Fredericksburg Tax Credit for Rehabilitated Property Program

References

What is a tax credit?

Historic tax credits are a financial incentive established to encourage the preservation, rehabilitation, and adaptive reuse of historic buildings, and to help spur community revitalization.  It is a dollar-for-dollar reduction of income taxes owed for a given year equal to a prescribed percentage of qualifying rehabilitation costs.

The Federal Historic Tax Credit (HTC) Program

The Federal Historic Preservation Tax Incentives program offers two tax credit options:

  • 20% tax credit for certified rehabilitation of historic structures

The 20% tax credit equals 20% of a qualified project’s eligible rehab expenditures.  The credit is available only for properties rehabilitated for income-producing purposes, including commercial, industrial, agricultural, rental residential or apartment use. If a portion of a personal residence is used for business, such as an office or a rental apartment, in some instances the amount of rehabilitation costs spent on that portion of the residence may be eligible for the credit.

  • 10% tax credit for rehabilitation of non-historic, non-residential buildings built before 1936

The 10% rehabilitation tax credit equals 10% of the qualified rehabilitation expenditures spent to rehab a non-historic, pre-1936 building. The 10% rehabilitation tax credit requires only a single IRS tax form submission without any other federal or state involvement. Owners of buildings located in registered historic districts may claim the 10% tax credit only if they file Part 1 of the Historic Preservation Certification Application with the National Park Service and receive a determination that the building does not contribute to the historical significance of the historic district.

The Virginia State Historic Rehabilitation Tax Credit Program

The Virginia State Rehabilitation Tax Credit was established in 1997. An individual, estate, trust, or corporation incurring eligible expenses in the rehabilitation of a certified historic structure is entitled to claim a credit against their respective Virginia taxes. The credit is equal to 25% of eligible rehabilitation expenses for projects completed in and after the year 2000.  The program is modeled on the highly successful federal rehabilitation tax credit and has already helped spur private investments of more than $315 million and the rehabilitation of more than 264 historic buildings.

The National Park Service (NPS) and the Internal Revenue Service (IRS) in partnership with State Historic Preservation Offices (SHPOs) administer the tax incentives program.  Virginia’s designated SHPO is the Department of Historic Resources (DHR) based in Richmond.

Each plays a specific role:

Historic Tax Credit Programs: Federal vs. Virginia

City of Fredericksburg Tax Credit for Rehabilitated Property Program

For additional information, please contact the Commissioner of the Revenue by mail (City Hall, 715 Princess Anne Street; Fredericksburg, Virginia 22401) or by phone (540-372-1207).

A partial exemption from real estate taxes for qualifying rehabilitated real estate administered on a sliding scale over a seven (7) year period [See Sections 70-98.1 and 70-99.1 of the City Code for specific details and provisions.]. For qualified projects, the initial increase in the amount of real estate taxes owed resulting from the property’s rehabilitation is excused for two (2) years and continues on a declining or sliding scale for five (5) additional years.

NOTE: If the property is sold, the exemption remains in effect for the new owner until the expiration date.

Requirements for Classification as a Rehabilitated Structure
(City of Fredericksburg)

Residential Structures (Single or multi-family):

    • Structure must be at least 40 years old
    • Property must be either (a) located in the Old and Historic District or (b) eligible for listing or listed on the National Register of Historic Places.
    • The proposed rehabilitation project must increase the base value of the structure by at least 20%
    • The proposed rehabilitation project must not increase the total square footage of the structure by more than 15%

NOTE: Porches, unfinished attics and basements, attached carports or garages, shall be included when computing the square footage of a structure.

    • Improvements made to vacant land are not eligible for the tax exemption.
    • Project cannot involve the total replacement of residential structures.
    • All appropriate permits must be acquired from the City before or simultaneously with submission of the tax exemption application.

Commercial or Industrial Structures:

    • Structure must be at least 40 years old
    • Property must be either (a) located in the Old and Historic District or (b) eligible for listing or listed on the National Register of Historic Places.
    • The proposed rehabilitation project must increase the base value of the structure by at least 30%
    • The proposed rehabilitation project must not increase the total square footage of the structure by more than 15%

NOTE: An existing attached carport, canopy, or similar structure shall be included in the calculation of the original square footage of a commercial or industrial structure. [Basements and attics may be finished-off without invoking the 15% limitation.]

    • Improvements made to vacant land are not eligible for the tax exemption
    • All appropriate permits must be acquired from the City before or simultaneously with submission of the tax exemption application

For more information on local, state, and federal historic tax credits, please contact HFFI for additional guides.

References

Economic Impact of Historic Rehabilitation Tax Credits Report—VCU Center for Urban and Regional Delopment
http://www.dhr.virginia.gov/pdf_files/VCU_Historic%20Tax%20Credit%20Report_FINAL_21-1-2014.pdf

Federal and State [Virginia] Rehabilitation Tax Credits—VA Dept of Historic Resources http://www.dhr.virginia.gov/tax_credits/tax_credit.htm

Frequently Asked Questions about Rehabilitation Tax Credits—VA Dept of Historic Resources
http://www.dhr.virginia.gov/tax_credits/tax_credit_faq.htm

Historic Tax Credits are at Risk—National Trust for Historic Preservation
http://www.preservationnation.org/take-action/advocacy-center/policy-resources/historic-tax-credits.html#.VLxTxid3p6k

Myth Busting Historic Tax Credits with Renee Kuhlman—Preservation Maryland
https://presmd.podbean.com/e/preservecast-ep-87-myth-busting-federal-historic-tax-credits-with-renee-kuhlman/

Secretary of the Interior’s Standards for Rehabilitation codified as 36 CFR 67
http://www.nps.gov/tps/standards/rehabilitation.htm

State Rehabilitation Tax Credit Maps List—National Trust for Historic Preservation
http://www.preservationnation.org/take-action/advocacy-center/additional-resources/historic-tax-credit-maps/list.html?related_state=VA#.VLxUPid3p6k

Tax Incentives for Preserving Historic Properties—National Park Service
http://www.nps.gov/tps/tax-incentives.htm