Maximizing Value with the Historic Rehabilitation Tax Credit

If your company is planning to relocate, expand, or renovate a commercial space—especially in a historic building—the Historic Rehabilitation Tax Credit (HTC) can provide a significant financial advantage. This program offers a 20% federal income tax credit on qualified rehabilitation expenses for certified historic structures. The credit can serve as an important source of project funding or as a long-term tax benefit.

How the Federal HTC Works

The federal HTC is available for projects involving “qualified rehabilitated buildings”—properties certified as historic by the National Park Service, which also oversees the approval process in coordination with state agencies.

Key federal program points:

• Credit Amount: 20% of qualified rehabilitation expenditures (QREs).
• Usage Requirement: The building must generate income (e.g., office, retail, rental property) and cannot be primarily for sale or used as a personal residence.
• Substantial Rehabilitation Test: QREs must exceed the greater of the building’s purchase price or adjusted basis.
• Eligible Costs: Capital expenditures for the building’s structure and systems (not land, furnishings, personal property, or expansion costs).
• Claiming the Credit: Taken evenly over five years, beginning when the rehabilitated building is placed in service.
• Carryforward: Unused federal credits can be carried forward for up to 20 years.

Changes from the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act of 2017 made two key adjustments to the HTC:

1. Requires the 20% credit to be spread over five years rather than claimed entirely in the year the building is placed in service.
2. Eliminated the 10% credit for non-historic pre-1936 buildings.

New York State’s Additional Incentives

For projects in New York, the Historic Preservation Tax Credit mirrors many federal requirements but offers additional benefits:

• Location Requirement: Property must also be in a qualifying census tract.
• Credit Amount:
  • 30% for projects with QREs of $2.5 million or less.
  • 20% for larger projects (credit capped at $5 million).
• Timing and Refunds: The state credit is claimed in the year the building is placed in service, and unused credits can be carried forward or refunded to the taxpayer.
• Transferability: Starting in tax year 2026, state HTC credits can be sold or transferred independently of the federal credit, giving owners more flexibility in monetizing the benefit.

Why It Matters for Your Business

The HTC can make a substantial difference in the economics of a historic property renovation—either by reducing project financing needs or improving returns. Because the program has strict qualification and documentation requirements, engaging an experienced consultant early can help ensure eligibility and maximize benefits. Reach out to our team for help evaluating potential properties, ensuring compliance with tax credit requirements, and tracking eligible costs.