Rehabilitation Tax Credits

Frequently Asked Questions

Can I sell the building after I complete the rehabilitation?
Under the federal program, if the building is disposed of, or if it loses its income-producing status, within five years after the rehabilitation is completed, the taxpayer will face recapture of the credit. The amount of recapture is reduced by 20% in each succeeding year after the year the rehabilitation is completed – in other words, if the building is sold after one year, there will be recapture of 80% of the credit, if it is sold after two years, there will be recapture of 60% of the credit, and so forth. In addition, the National Park Service reserves the right to inspect a rehabilitated property any time during the five-year period, and to revoke certification if work was not undertaken as presented in the application, or if further unapproved alterations have been made.

Under the state program there is no continuing ownership requirement following completion of the rehabilitation.

Can I sell the tax credits? Technically speaking, no. Credits may be syndicated through the use of limited partnerships, but they may not be directly sold. Syndication is a common tool for bringing investors into a rehabilitation project, but must be carefully thought out at the beginning of the project. Federal credits must be allocated according to percentage of ownership. The state credit, however, may be allocated by agreement among partners.

How can a nonprofit organization take advantage of the tax credits? By taking on taxpayers under a limited partnership arrangement and maintaining a minority ownership interest as a general partner, many nonprofit organizations have been able to use the tax credits to their advantage.

How do I apply for the credit? Applying for the credit is a three-part process. Part 1 requests certification that the building is historic – i.e. eligible for the program. For properties that are individually listed, Part 1 is not necessary. For all other properties – i.e. those seeking certification that they are contributing structures in a listed historic district or individually eligible for listing – a Part 1 is required. Photographs showing the property in its pre-rehabilitation state must be submitted with Part 1.

Part 2 requests certification that the proposed rehabilitation work appears to be consistent with the Secretary’s Standards. Part 2 is the most complex part of the application. It requires a description of each significant architectural feature of the property and how it will be treated in the rehabilitation. Many property owners choose to complete Part 2 themselves using the Department’s Sample Rehabilitation Proposal as a guide. Others hire a professional consultant to assist them. A list of consultants is available from the Department upon request. Additional photographs of the property are sometimes necessary to document Part 2.

Part 3 requests certification that the completed work is consistent with the Secretary’s Standards. Photographs showing the completed work must accompany Part 3. For the state credit, if the eligible expenses exceed $100,000, a CPA certification is also required.


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