Historic Tax Credits

Historic tax credits can be lucrative for businesses wanting to rehabilitate a historic building and can be a valuable incentive for developers and property owners looking to preserve historic buildings. Once the project is complete, an audit will be required to certify the qualified rehabilitation expenses (QRE). Below is a guide on what will be needed for a state and/or federal historic tax audit from Wegmann Dazet partner Kathy Flattmann, CPA.

Eligibility, Certification, and QRE’s

For the project to meet the eligibility requirements and qualify for credits, the building must be income-producing and needs to be listed on the National Register of Historic Places or be part of a historic district and at least 50 years old. Detailed documentation will be needed to certify the building as historic.

Rehabilitation work must meet the Secretary of the Interior’s Standards for Rehabilitation. These standards are in place to preserve the historic features of the building. The Standards cover all aspects of the project, but only certain expenditures will be QRE’s. Generally, QRE’s will include costs related to the physical rehabilitation of historic structure, such as structural repairs, interior and exterior restoration and system upgrades. Non qualifying costs, such as landscaping, additions, enlargements or furnishings should be clearly documented and will be excluded from QRE’s. Financial records, including invoices, receipts, contracts and proof of payment will be needed for QRE’s.

Federal credits will be 20% of eligible costs and state credits will be 25% for expenses incurred after January 1, 2023. The state credit is increased to 35% for properties located in a rural area. The state tax credit can also be sold If it is more credit than the taxpayer can use. As such, historic tax credits can be lucrative for businesses wanting to rehabilitate a historic building.

Rehabilitation work should be completed within 24 months, unless the project is phased. Phased projects should be completed within 60 months. All work will need to be documented, photographed and certified by the Division of Historic Preservation as meeting the Secretary of the Interior Standards for Rehabilitation.

Examples of projects that we at Wegmann Dazet have assisted with include abandoned high rise buildings left empty after hurricane Katrina, former churches rehabilitated into mixed use properties, renovations to hotels, a former bank renovated into luxury condos, and residential rentals, just to name a few.

Audit Preparation

Your CPA will examine the documentation on the QRE’s to ensure that they meet the criteria to receive tax credits. A cost certification audit will be completed and will need to be submitted in order to certify the credits.

Conclusion

Historic tax credits can be lucrative for businesses wanting to rehabilitate a historic building. The audit requires meticulous documentation and adherence to specific state and federal guidelines. By ensuring that all eligibility criteria are met, maintaining detailed financial records, and complying with rehabilitation standards, property owners and developers can successfully navigate the process and benefit from the incentives offered by historic tax credits.

If you have any specific questions or are looking for a historic tax credit audit, contact us at Wegmann Dazet CPAs!