Historic Rehabilitation Tax Credits

Historic Rehabilitation Tax Credits

DHR’s Tax Credit program provides state tax credits to property owners who undertake the rehabilitation of historic buildings in compliance with the Secretary of Interior’s Standards for Rehabilitation. Through the federal and state rehabilitation tax credit programs, property owners are given substantial incentives for private investment in preservation, resulting in enormous advantages to the public. The preservation of these structures encourages a connection to the past, enhances the identity of a community, and stimulates private investment.

Tax Credit Specialist

Please note these recent announcements:


As of August 15, 2023, the National Park Service (NPS) requires the electronic submission of all Federal Historic Rehabilitation Tax Credit (HRTC) Program materials. To facilitate this, updated application forms, guidance on electronic signatures, and information on the required NPS file- and photo-naming conventions and file organization is available at: https://www.nps.gov/subjects/taxincentives/hpca-electronic-submission.htm.   

All applications submitted to the Department of Historic Resources (DHR) on or after August 15, 2023, MUST be submitted on the newly revised 2023 application forms and must follow NPS’s requirements for electronic submission.  Previous versions of application forms will NOT be accepted after this date. 

Please note: DHR still requires one (1) hard copy of all application materials, with wet-ink signature, for DHR’s review and files 

Once DHR receives the hard copy application (Parts 1, 2, Amendments, and/or Part 3), associated materials (plans, photographs, etc.), and confirms the application is complete, DHR staff will email the project contact with a unique upload link. The project contact will use that unique link to upload an identical, electronic copy of the hard copy application submitted to DHR.  DHR will store this electronic file until the State review is complete and will then forward the electronic file and DHR recommendation to NPS for their independent review and response. 

It is the applicant’s responsibility to ensure that the electronic documents follow the NPS required file- and photo-naming conventions and organization of electronic files guidance, and that the physical set of materials reviewed by DHR are identical to the electronic version. DHR staff will not be responsible for verifying the electronic materials match the physical copy and cannot modify the electronic materials in any way.   

The above guidance does not impact projects seeking only State credits – this applies only to those projects seeking Federal credits. 

New State HRTC Guidance and Application Documents Available
  • All available State HRTC documents have been updated for clarity and ease of use, and new guidance documents have been created to answer frequently-asked questions. New documents contain the notation “REV. 2023” on each page.
  • Beginning April 1st, 2023 all State HRTC applications must use the new application forms.
Appointments with Tax Credit Program Staff

NOTE: Tax credit staff are available for virtual or in-person meetings for all applicants upon request as follows:

  • Existing Projects: Applicants/consultants should contact the DHR tax credit staff assigned as the project reviewer directly.
  • For those without existing applications: Contact Chris Novelli (chris.novelli@dhr.virginia.gov or 804-482-6097) to set up a call in which the appropriate member of the tax credit staff can answer questions and provide general guidance.



Introduction to Historic Rehabilitation Tax Credits

The preservation of historic buildings benefits communities and connects us to our heritage, enriching the quality of our lives in many tangible and intangible ways. Their preservation also provides demonstrable economic benefits.

Through the federal and state rehabilitation tax credit programs, property owners are given substantial incentives for private investment in preservation, resulting in enormous advantages to the public.

Both the federal and state tax credit programs are administered in Virginia through the Department of Historic Resources.

State tax credits are available for owner-occupied, as well as income-producing buildings. If your property is income-producing, you may also be able to take advantage of federal tax credits. Additional information and assistance with tax-credit projects may be requested from DHR’s Richmond office. Contact Chris Novelli at (804) 482-6097.

Statewide Economic Benefits of the Tax Credit Program:

Virginia’s Historic Rehabilitation Tax Credit (HRTC) program has played an essential role in the preservation of thousands of historic properties since its inception in 1997. Since its inception, the program has issued $1.7 billion in tax credits, reimbursing 25 percent of eligible rehabilitation expenses as tax credits. Those tax credits have stimulated $6.8 billion in private investment since 1997. Although the $1.7 billion in tax credits issued represents revenue not immediately realized by the Commonwealth, much of the private investment may not have otherwise occurred, according to the most recent economic impact study by VCU’s L. Douglas Wilder School of Government and Public Affairs. The VCU study analyzes the Historic Rehabilitation Tax Credit program to better understand its costs and benefits to Virginia, its communities, and its historic buildings. The study shows that Virginia’s return in investment, represented by tax credits, is repaid in five to nine years. Here’s the full 56-page report. No time for that? Read the Executive Summary (4 pgs) or this Illustrated Summary.

Also of note, in 2017 Preservation Virginia, in partnership with the Home Builders Association, undertook a deep-dive study into the economic benefits of the historic rehabilitation tax credit program in Virginia. Baker Tilly Virchow Krause, LLP (Baker Tilly), a nationally recognized, full-service accounting and advisory firm, studied the economic impact of 21 projects completed in 2014. Their findings demonstrate the Historic Rehabilitation Tax Credit Program doesn’t just preserve the places that make Virginia unique. In 2014 alone it resulted in:

  • $467 million in economic output
  • supported 9,960 jobs, and
  • generated $3.50 for every $1 invested through the first three years.

The study can be found here on the Preservation Virginia website.

Virginia Tax Credit Application Part II: Application Cover Sheet
Sample Tax Credit Proposal
Preservation Briefs, Tech Reports

Frequently Asked Questions

The credits described above are available only for “Certified Historic Structures,” which are defined as follows:

  • Under the Federal Program, a certified historic structure is one that is either:
    • Individually listed on the National Register of Historic Places, or
    • Certified as Contributing to a Historic District that is so listed.
  • Under the State Program, a certified historic structure is one that is:
    • Individually listed on the Virginia Landmarks Register or National Register, or
    • Certified as a contributing structure in a Historic District that is so listed, or
    • Certified as eligible for listing.
      • Please note that for the State Program, a final listing on the State or National Registers is not required. A formal finding of eligibility for listing will enable a structure to participate in the Virginia Historic Rehabilitation Tax Credit Program. See the “Preliminary Information Form” document for more information on requesting a formal finding of eligibility for a structure that is not currently listed.

With a few exceptions, most Virginia properties that are listed on one of these registers are listed on both. Note, however, that National and Virginia Register historic districts may differ from locally designated historic districts. Certification that a building contributes to a listed district, or, for purposes of the State credit, is eligible for individual listing, is obtained only by submitting the Part 1 application for review.

The proposed use of a building also has an impact on potential eligibility for the State and Federal Programs:

  • For the Federal Program, only income-producing properties are eligible for HRTCs.
  • For the State Program, both income-producing properties and owner-occupied homes are eligible for HRTCs.

Applying for the State or Federal HRTC Program is a three-part process. See the “Detailed Application Process” document for more details.

  • The Part 1 application requests certification that the building is historic and that it is eligible for the Program. For properties that are individually listed, with no outbuildings or other structures, it is not necessary to submit a Part 1. For all other properties – i.e., those seeking certification that they are contributing structures in a listed historic district, are individually listed but have multiple buildings, or have been found to be individually eligible for listing (State-only) – a Part 1 is required.
    Photographs showing the property in its pre-rehabilitation state must be submitted with the Part 1.
  • The Part 2 application requests certification that the proposed rehabilitation work appears to be consistent with the Standards. The Part 2 is the most complex part of the application. It requires a description of each significant architectural feature of the property and detailed information on the specific work that will be done in the rehabilitation on each architectural feature. Many property owners choose to complete the Part 2 themselves using the available “Sample Narrative Description of Work” document as a guide. Others hire a professional consultant to assist them with completing the required forms. A list of consultants is available from the Virginia Department of Historic Resources upon request.
    Please note that additional pre-rehabilitation photographs are often necessary to include with the Part 2 application if the photographs submitted with the Part 1 application are not sufficient for a comprehensive review of the existing conditions and proposed work.
  • The Part 3 application requests certification that the completed work is consistent with the Secretary’s Standards.
    Photographs showing the completed work must accompany Part 3.
    All Part 3 applications must have an independent Certified Public Accountant review the expenses incurred for the specific project and submit the required financial report. Projects with below $500,000 in total project expenses should follow the “Agreed-Upon Procedures Report” example; projects with total project expenses of $500,000 or greater should follow the “Illustrative Audit Report” example. The appropriate financial report must be submitted concurrently with the Part 3 application – see the “Financial Certification Requirements” document.

Technically speaking, eligible expenses include any work that is properly chargeable to a building’s capital account in connection with a certified rehabilitation. Essentially, this means that all work done to structural components of the building will be eligible, as well as certain soft costs such as architectural and engineering fees, construction period interest and taxes, construction management costs, and reasonable developer fees. Expenses related to new heating, plumbing and electrical systems are eligible, as well as expenses related to updating kitchens and bathrooms, compliance with ADA, and fire suppression systems and fire escapes.

Costs that are not eligible include acquisition costs, any expenses attributable to additions or enlargements of the building (including excavation), personal property such as appliances, and certain soft costs such as legal fees for syndication. Under the Federal program, site work, landscaping elements, solar, and geothermal systems are not eligible expenses. Under the State Program, certain historic, man-made landscape features may be eligible. See the “Eligible and Ineligible Costs” document for more information.

Please keep in mind that the overall work completed for the entire project must Standards; credits cannot be claimed only on the portions of the work that meet the Standards. Therefore, if the overall project does not meet the Standards, no part of the credit may be claimed. If the work is certified as meeting the Standards, the credit is based on all eligible expenses.

The threshold requirements for the State Program are different from the Federal requirements.

For the State Program, the eligible rehabilitation expenses must be:

  • For owner-occupied residential buildings, at least 25% of the assessed value of the building for local real estate tax purposes for the year before the rehabilitation work began.
  • For commercial and all other buildings, at least 50% of the assessed value of the building for local real estate tax purposes in the year before the rehabilitation work began.

Under the Federal Program, the project must be a “substantial rehabilitation” to qualify for the credit. The Internal Revenue Service defines “substantial” as exceeding the owner’s adjusted basis in the building, or $5000, whichever is greater. The adjusted basis is generally defined as the purchase price, minus the value of the land, minus any depreciation already claimed, plus the value of any earlier capital improvements.

The rehabilitation does not have to be completed within any particular period of time. However, the “substantial rehabilitation” test (for the Federal Program) and the “material rehabilitation” test (for the State Program) must be met within a consecutive 24-month period that ends sometime during the year in which the credits are claimed. Essentially, this means that for most projects the greatest expenditures must be made within a 2-year period, ending in the year in which the project ends. For phased projects, the time limit is extended to 60 months. See the “Measuring Test” document for more information.

NOTE: Per Virginia Program regulations, only costs incurred on or after January 1, 2003 may be considered eligible for the Virginia Historic Rehabilitation Tax Credit Program.

The State and Federal Historic Rehabilitation Tax Credits (HRTCs) are dollar-for-dollar reductions in income tax liability for taxpayers who rehabilitate historic buildings according to the Secretary of the Interior’s Standards for Rehabilitation (Standards), a nationally recognized set of guidelines that aim to revitalize historic sites and structures while preserving the essential historic character they possess.

The amount of the credit is based on a project’s eligible rehabilitation expenses, and credits are available from both the Federal government and the State of Virginia. The Federal credit is 20% of the eligible rehabilitation expenses, and the State credit is 25% of the eligible rehabilitation expenses. In some cases, taxpayers can qualify for both the State and Federal Programs, allowing them to claim credits of 45% of their eligible rehabilitation expenses.

Generally, buildings must be contributing to a historic district that is listed in either the Virginia or National Registers in order to receive the credit. In general, work can begin on a structure before final listing in the National Register; however, there is risk involved. If, for some reason, the historic district is not listed after the project is completed, any awarded credits would be subject to recapture. If possible, it is a good idea to wait until the listing process is nearly complete and appears to be on-track before doing any substantial work.

There are some differences between the State and Federal Programs in this matter:

  • State Program: The property must either be determined individually eligible for listing, listed individually, or be in a listed National Register historic district, prior to credits being awarded.
  • Federal Program: If you complete your project before the Historic District is listed, the Historic District must be listed on the National Register within thirty (30) months of the project’s completion date in order to claim/retain Federal credits.

For the State Program, yes. As long as the project is still ongoing it may be Phased at any time before the project has been completed. A Phasing Plan must be submitted for review and approval as soon as possible.

For the Federal Program, no. In order to use the 60-month measuring period for a Phased project, the taxpayer must choose to Phase the project from the beginning. This means that a Phasing Plan, showing what work will be completed during each phase of the project, must be submitted before work begins. For some projects, it may be a good idea to submit a Phasing Plan at the start of the project, even if there is a possibility the project can be completed within two years. This will “hold open” the 60-month time period but does not obligate the taxpayer to take that long to complete the project.

See the “Project Phasing” document for more information.

The credit is claimed for the year the rehabilitation is completed, as identified by the “completion date.”

Per State Program regulations, the “completion date” is EITHER the date of the Certificate of Occupancy OR the date that the final, eligible, physical rehabilitation expenditure was incurred; soft costs incurred after the rehabilitation work is completed, such as the CPA or review fees, are not used to determine the completion date.

The State credit may be carried forward for up to ten years. There is no carryback for the State credit. As of January 1, 2017, there is a $5 million dollar cap on the amount of credits a single taxpayer can claim in a single taxable year.

The Federal credit may be carried forward for up to twenty years, and back for one year. Additionally, under the Federal Program the credit cannot all be claimed during the year of project completion; it must be claimed over at least the first five years in increments of 20% of the total credit.

Under the State Program there is no continuing ownership requirement following completion of the rehabilitation. That said, it is strongly recommended that owners participating in the Virginia HRTC Program do not sell the building before a final certification letter is issued. In some instances, remediation of inappropriate or unapproved completed work is required to certify the project for tax credits. If the previous owner/tax credit applicant no longer owns the building, it may not be possible to complete the required work and so the overall project may be denied. Maintaining ownership of the building until the final certification is issued protects against this.

Please note that per Program regulations, the Virginia Department of Historic Resources reserves the right to inspect a rehabilitated property at any time during the first three years after completion, and to revoke certification if work was not undertaken as presented in the Part 3 application. Please see 17VAC10-30-50 (F) for more information.

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.

The National Park Service reserves the right to inspect a rehabilitated property any time during first five years after completion, and to revoke certification if work was not undertaken as presented in the application, or if further unapproved alterations have been made since the tax credit project’s completion. The recapture rates discussed previously would then apply.

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 it must be carefully thought out at the beginning of the project. Federal credits may be allocated according to percentage of ownership. The State credit, however, may be allocated by agreement among partners. The Virginia Department of Historic Resources does not provide advice on these types of ownership structures. Please consult with an experienced tax credit attorney to determine if this is an option for you.

By taking on taxpayers under a limited partnership arrangement and maintaining a minority ownership interest as a general partner, nonprofit organizations and other entities that do not have a Virginia income tax liability have been able to benefit from the State Historic Rehabilitation Tax Credit Program. The Virginia Department of Historic Resources does not provide advice on these types of ownership structures. Please consult with an experienced tax credit attorney to determine if this is an option for you.

The size and clarity of the photographic images must adequately document the before and after conditions of the building. 24 to 36 photographs are generally sufficient for the average, single-family/small building project. However, it is better to have more photographs than too few. Either conventional film or printed digital photographs are permissible.All photos must be a minimum of 4”x6” in size and may be printed as singles or two to a page. If printing photos for the Federal Program, photographic paper is required. Photographs should be labeled with the following information: building name and/or address, view (e.g., north side), and description (e.g., plaster damage in dining room, north wall). Photographs must be numbered and keyed to the Part 2 narrative descriptions of the scope of work as well as a photo key.

If photographs are judged to be insufficient due to poor lighting, poor resolution, or insufficient coverage of the exterior and interior spaces, the reviewer may place your application on hold and request additional photographs, which could delay your project’s progress.

See the “Photographic Standards” document for more information.

It is much more difficult to qualify for the credits if you don’t submit the Part 1 and 2 applications before beginning work, but it may be possible. You must have good photographs showing the building before the rehabilitation work began, as described in the preceding section. If you do not have this documentation, it will not be possible to evaluate the proposed and completed project. Additionally, all work which you have already completed must meet the Standards – any work that does not meet the Standards would need to be remediated in order for the overall project to be approved.

Failure to submit the Part 1 application before completing work is not necessarily fatal to the State Program, provided that all other requirements of the program are met. However, the deadline for application for participation the State Program is one year after your completion date, which is either the date of the Certificate of Occupancy -or- the date of the final eligible physical rehabilitation expenditure. You must submit a complete, fully documented Part 1, Part 2, and Part 3 application by this date in order to qualify for the State credit.

If you have already completed your rehabilitation work, and your building is not individually listed on the National Register, you cannot qualify for the Federal credit. The IRS has taken a strong position that if the Part 1 application has not been submitted before the building is placed in service, it is not a “Certified Historic Building”, and the Federal credit is not available. Please note that a Part 1 application is required for all properties that are individually listed on the National Register except in cases where there is only one building on the property and there are no other resources.

To claim the State credit, the taxpayer must complete the State Schedule CR and attach a copy of the certification of completed work letter provided by the Department of Historic Resources.

The Federal credit is claimed on IRS Form 3468. The IRS requires information related to the substantial rehabilitation test and a copy of the certification of the completed work by the Secretary of the Interior.

The Virginia legislation authorizing the State Historic Rehabilitation Tax Credit is found at Va. Code. §10.1-2202 and 58.1-339.2 of the Code of Virginia. The section of the Administrative Code is 17VAC10-30. The regulations for the State Program are final as of February 10th, 2016.

The Federal regulations governing the National Park Service’s review of tax credit applications are found at 36 CFR 67. The regulations governing the use of the tax credit itself (the IRS regulations) are found at 26 CFR 1.48-12.

For additional information about the State rehabilitation tax credit program, contact Chris Novelli at 804-482-6097.

For additional information on the Federal program, check out the National Park Service’s website, or its IRS Connection.

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