Tax Incentives for Preserving Historic Properties

Renovating a commercial building can yield significant tax credits if that property will be used for business or rental housing. The biggest benefit is a dollar for dollar reduction in the amount of taxes owed equaling 20%. Trying to understand the Tax Incentives for Preserving Historic Properties can often be mind boggling. Before diving into the finer details, three simple steps can be used to determine if the project is Eligible for these tax incentives.

The first is does the building contribute to a historic district recognized by the National Park Service. With five districts recognized by the NPS in Lakeland, the city has performed a contributing structure survey as part of this recognition. A phone call to the City of Lakeland Community Development office would quickly answer this question.

The second step is will the rehabilitation be “substantial”.  The way to satisfy this criteria involves a little bit of math. The project must exceed the greater of $5,000 or the building’s adjusted basis. The formula to determine the adjusted basis requires four pieces of information;  A – the purchase price, B – the part of the purchase price attributed to the land cost, C – depreciation for an income-producing property and D – the cost of any capital improvements made since purchase.  The adjusted basis equals the purchase price subtracting the land cost and the depreciation and adding back and cost of imporvements. (A-B-C+D). For instance assume a building owned for a number of years was purchased for $100,000 and of that $30,000 is attributed to land. The building has since depreciated by $20,000. A new roof was added since purchase that cost $5,000. The adjusted basis would be $100,000 – $30,000 – $20,000 + $5,000 or $55,000. In order to qualify for this second criteria the project would need to exceed $55,000 in order to receive the tax incentive.

The final step is the completion of a 3 part application. The application will be used by the State Historic Preservation Officer and the National Park service as a record to ensure that the project was completed using the widely accepted standards of practice for historic preservation. The first part is information used to help the National Park Service determine if your building qualifies as a “Certified historic structure”.  The second is documenting the condition and the planned work for the building. The final part is the certification that the completed project complied with the Standards and is a “certified rehabilitation”.

The final thing to note even though a project is currently underway, it is never too late to apply for this credit. Although it is better to have the rehabilitation plans submitted prior to construction to ensure that any required changes are identified early and minimize costs.