Breathe New Life Into Your Home (And Wallet) With Historic Tax Credits

Imagine a grand building, its facade a chronicle of time’s passage.  Years of neglect had dimmed the luster of what was once a vibrant urban landmark. But determination and vision took hold. Step by step, a restoration unfolded, bringing the building back to its former glory. Today, that structure serves as a thriving hub within its neighborhood.  Philadelphia’s Divine Lorraine Hotel embodies the transformative power of revitalization.

Once a luxurious apartment house, later a racially integrated hotel owned by the charismatic Father Divine, the Divine Lorraine fell into disrepair and sat abandoned for years. Now, through careful rehabilitation, the building has become a mixture of apartments and retail, a renewed symbol of community and economic revival. It’s a story mirrored across the United States, with countless historic buildings finding new purpose.

But such restorations aren’t driven by nostalgia alone. Historic tax credits play a significant role in the preservation of architectural  heritage. These financial incentives provide crucial support for homeowners and developers alike, encouraging the sensitive rehabilitation of buildings from our past. The benefits aren’t just aesthetic – revitalization projects of this kind foster economic development in their communities.

This article is your one-stop guide to understanding historic tax credits. We’ll explore what these credits are, how to qualify for them, and the step-by-step process of making them work for you.

What are Historic Tax Credits?

Let’s break down the concept of historic tax credits. In essence, these are financial incentives provided by the government to encourage the rehabilitation of historic buildings. Rather than an outright grant, historic tax credits work by directly offsetting your tax liability. If your project generates a $20,000 tax credit – that’s $20,000 less you’ll owe in taxes.

Benefits

The beauty of historic tax credits lies in their ripple effect of benefits:

Reduced Tax Burden for Owners: Restoring a historic property can be a significant investment. Tax credits help make rehabilitation projects more financially viable for owners, thus encouraging the preservation of these unique structures.

Economic Regeneration: Revitalizing historic buildings is so much more than preserving the past; it’s about creating catalysts for future growth. These projects often inject new life into neighborhoods, attracting businesses and boosting local economies.

Property Values and Community Pride: Well-preserved historic districts and individual buildings aren’t just visually appealing; they tend to have higher property values.  Plus, there’s an intangible bonus – the sense of pride and connection that comes from living or working in a space with a rich history.

Federal Vs. State Programs

Historic tax credits exist at both the federal and state levels. The federal program is the most widely known, offering a 20% credit for rehabilitating certified historic structures used for income-producing purposes, meaning commercial, industrial, or rental properties.

Many states have also established their own tax credit programs, which often work in conjunction with the federal program. These state-level credits can vary in percentage and eligibility requirements. The chart below outlines some of the key differences:

It’s worth noting that using both federal and state credits can offer significant tax savings, so it’s important to explore all available options.

Pennsylvania's Historic Preservation Tax Credit

In addition to the federal program, Pennsylvania offers its own  Historic Preservation Tax Credit (HPTC) to further support the rehabilitation of historic properties within the state.  Here’s how it works:

• Credit Amount: The Pennsylvania HPTC provides a 25% tax credit for qualified rehabilitation expenses, potentially covering a significant portion of your project costs.
• Eligible Properties: Properties eligible for the Pennsylvania HPTC must meet the following criteria:
  • Listed on the National Register of Historic Places (individually or as a contributing resource within a historic district)
  • Used for income-producing purposes
• Application Process: The Pennsylvania HPTC application process involves a review by the Pennsylvania Historical and Museum Commission (PHMC) to ensure the rehabilitation plans adhere to historic preservation standards.
• Tax Applicability: The credit can be applied against various Pennsylvania state taxes, including Corporate Net Income Tax, Personal Income Tax, and several others. This flexibility makes it accessible to a wide range of property owners.

Key Points To Consider

• Competitive Program: The Pennsylvania HPTC is a highly competitive program with limited funding available each year. Planning ahead and having thorough documentation are crucial for success.
• Professional Guidance: Due to the program’s complexity, engaging the services of a historic preservation consultant or tax professional can greatly increase your chances of securing a credit.

If you’re a Pennsylvania property owner considering a historic rehabilitation project, the state’s HPTC can be a game-changer. Be sure to consult the Pennsylvania Department of Community and Economic Development (DCED) for the most up-to-date program guidelines and application information.

Qualifying for Historic Tax Credits

Unlocking the benefits of historic tax credits involves meeting specific criteria. Let’s break down the key factors:

The Historic Property

• National Register of Historic Places: Your building must either be individually listed on the National Register of Historic Places (NRHP) or contribute to a designated historic district. The NRHP is the country’s official list of properties deemed worthy of preservation due to their historical significance.
• Age Requirements: Generally, historic properties must be at least 50 years old to qualify. This time frame ensures that enough time has passed to assess the building’s historical importance.

The Rehabilitation Project

Not all renovation work qualifies for tax credits. A “qualified rehabilitation project” must meet specific standards to be eligible. Most importantly, proposed changes must align with the Secretary of the Interior’s Standards for Rehabilitation.  

These  standards begin with a thorough definition of what rehab is: “Rehabilitation is defined as the act or process of making possible a compatible use for a property through repair, alterations, and additions while preserving those portions or features which convey its historical, cultural, or architectural values.” 

Project Costs

Typical eligible costs include structural work, restoration of interior and exterior features, and upgrades to mechanical, electrical, and plumbing systems – all with the goal of preserving the building’s historic nature.  Routine maintenance or additions that expand the building’s footprint generally do not qualify.

• Example: Outdoor Lighting Restoring original outdoor lighting fixtures, or replacing missing ones with replicas that match the historic style, could very well qualify for tax credits. If those fixtures are considered part of the building’s overall historic design, their rehabilitation contributes to preserving the historic character.

Remember that even if a portion of your project falls outside the scope of qualified expenses, you may still be able to claim the credit for the eligible work.

Applying for Historic Tax Credits

The Process

While the specific application process varies between federal and state programs, here’s a general outline of the steps involved:

Pre-application Consultation

Engaging with your State Historic Preservation Office (SHPO) early on is necessary to ensure your project is on the right track. A pre-application consultation lets you present your ideas, receive feedback on your proposed rehabilitation approach, and ensure your plans align with historic preservation principles. This is a valuable checkpoint to avoid potential pitfalls later in the process.

Formal Application

The application itself is a comprehensive package demonstrating your project’s eligibility.  Along with photographs and architectural plans, you’ll need to provide detailed descriptions of the materials you’ll use and the specific work being done.  This is where detailed cost estimates also come into play. The SHPO and the National Park Service (NPS) – for federal tax credit projects – carefully scrutinize your application to make sure it meets all established program standards.

Review and Approval

The SHPO and NPS are critical in assessing your project’s adherence to the Secretary of the Interior’s Standards for Rehabilitation. This in-depth analysis involves weighing the historical significance of your building and the proposed changes. Successful approval grants you certification as a qualified rehabilitation, unlocking those valuable tax credits.

Resources

Don’t feel daunted by the process — there’s a network of support available to guide you:

• State Historic Preservation Office (SHPO): Your SHPO is your go-to resource within your specific state. They can answer your questions, clarify application procedures, outline deadlines for your region, and inform you about any state-specific programs that might benefit you alongside the federal incentives.
• National Park Service (NPS): The NPS website is a treasure trove of information focused on the federal historic tax credit program. You’ll find detailed explanations, instructions for applying,  and guidance documents designed to help you understand every aspect of the process. https://www.nps.gov/subjects/taxincentives/index.htm

Professional Help

Historic rehabilitation projects often encompass a complex blend of architectural, structural, and financial considerations. Working with professionals who have specific expertise in this area can be invaluable. Historic preservation architects meticulously design with the past in mind, engineers address structural challenges posed by older buildings, and tax advisors help you optimize the financial benefits of the tax credit program. Professionals can streamline your entire project and simplify maximizing your credit potential.

Applying for Historic Preservation Tax Credits in Pennsylvania

Note: This is an informal guide and does not constitute professional advice

The Pennsylvania Historic Preservation Tax Credit application process follows a specific path:

1. Pre-Application with PHMC: Contact the Pennsylvania Historical and Museum Commission to schedule a preliminary consultation. This allows you to present your project, receive feedback, and clarify any questions before formally starting the process.
2. The PHMC Application: Pennsylvania uses a three-part application system administered by the PHMC:
   • Part 1: Establishes the historic status of the building.
   • Part 2: Provides a detailed description of the planned rehabilitation work, demonstrating that it adheres to the Secretary of the Interior’s Standards for Rehabilitation.
   • Part 3: This part is completed after the project is finished, documenting that the work was carried out as approved and that it meets the standards for a qualified rehabilitation.
3. DCED’s Electronic Single Application In addition to the PHMC-specific forms, you’ll also submit your project information for the credit allocation through the Department of Community and Economic Development’s Electronic Single Application system.

Key Considerations

• Competitive Program: Keep in mind that the Pennsylvania HPTC is highly sought-after, with limited funding available annually. Strong applications that clearly demonstrate the historical significance of the building and adherence to the rehabilitation standards stand the best chance of success.
• Timeline: The application and review process can take several months, so it’s important to factor this into your project planning.  Beginning early gives you ample time to gather the necessary information and refine your application.

Frequently Asked Questions About Historic Tax Credits

What are the tax benefits of renovating a historic building?

Restoring a historic property can provide significant financial advantages. Historic tax credits directly reduce your tax liability on a dollar-for-dollar basis. This means if you receive a $50,000 tax credit, your tax bill decreases by $50,000. These credits make rehabilitation projects more financially accessible, encouraging the preservation of our architectural heritage.

How much do historic tax credits typically cover?

The federal historic tax credit provides a 20% credit for the rehabilitation of certified historic structures used for income-producing purposes. State programs can offer additional credits, sometimes up to 25% or more. When utilizing federal and state credits together, it’s possible to offset a substantial portion of your eligible rehabilitation costs.

Are there any restrictions on how I can use a historic building after renovation?

Generally, federal tax credits apply to buildings used for income-producing purposes, such as commercial, rental, or industrial properties. Some state programs might offer credits for owner-occupied historic homes, so it’s important to investigate the specific requirements of your state’s program.

How long does the historic tax credit application process take?

The application process can vary in terms of timeline. Factors such as project complexity, the responsiveness of the relevant agencies, and completeness of your application can all influence the time it takes.  It’s wise to start early and anticipate several months for processing, especially if you’re applying for the federal tax credit.

Conclusion

Historic tax credits offer a compelling opportunity to breathe new life into our architectural heritage.  These programs not only honor the past but also create ripple effects of economic revitalization within communities.  If you own a historic property or dream of bringing a grand old building back to its former glory, understanding and utilizing historic tax credits could be a crucial piece of the puzzle.

Imagine your historic home, business, or neighborhood district revitalized, its unique character celebrated for generations to come.  The potential for both aesthetic and financial rewards makes exploring historic tax credits a wise investment.

American Gas Lamps Works Can Work For You

Ready to add the warm glow of historic lighting to your project?  American Gas Lamp Works offers a stunning array of gas lamps and other historically appropriate fixtures. Not only can we give your home the lighting and appeal of gas lamps, we also worked with  Oakmont Borough to replace their street lights. Let us work together to enhance your historic property with the perfect lighting solutions. 

Contact American Gas Lamp Works today for a free design consultation and see your vision illuminated.

Key Takeaways

• Historic Tax Credits: A Powerful Tool These credits are government incentives designed to encourage the preservation of historic buildings.  They directly reduce your tax liability, making rehabilitation projects more financially feasible.
• Benefits Beyond Aesthetics Revitalizing historic properties not only preserves architectural heritage but also stimulates economic growth, increases property values, and fosters community pride.
• Federal and State Programs Both federal and state historic tax credit programs exist. Combining these credits can offer substantial tax savings. Eligibility requirements may vary, so it’s crucial to research both options.
• Pennsylvania’s Program The Pennsylvania Historic Preservation Tax Credit provides a generous 25% credit, but it’s a highly competitive program with specific requirements.
• Qualifying Projects To be eligible, buildings must be listed (or contribute to) the National Register of Historic Places and meet age requirements.  Rehabilitation work must adhere to the Secretary of the Interior’s Standards for Rehabilitation.
• The Application Process Applying for historic tax credits can be complex. Pre-consultation with the State Historic Preservation Office (SHPO) is crucial. The application process involves documentation demonstrating the project’s historical significance and its alignment with preservation standards.
• Professional Help Due to the intricate nature of these projects, seeking guidance from historic preservation architects, engineers, and tax advisors can significantly increase your chances of a successful outcome.

Author: Patrick Jardini, President

Patrick Jardini is the President of American Gas Lamp Works, a manufacturer and distributor of gas and electric lighting, outdoor heaters, and custom fire bowls. Since purchasing the business, Mr. Jardini has focused on expanding both products and brand awareness through direct sales and strategic partnerships with gas utility providers. Patrick is a Pittsburgh native, Air Force veteran, and MBA graduate from the University of Pittsburgh, and has a professional background in metals production, sales, and marketing.