Federal Historic Preservation Tax Credits

NOTICE: On December 22, 2017, Public Law No: 115-97 (Pub. L. 115-97) was signed and enacted, amending the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. Pub. L. 115-97 (Sec. 13402) modifies the 20% Historic Rehabilitation Tax Credit as well as provides certain transition rules. These and other changes to the Internal Revenue Code may affect a taxpayer's ability to use the 20% Historic Tax Credit. Pub. L. 115-97 also repeals the 10% Rehabilitation Tax Credit for non-historic buildings. The text of Pub. L. 115-97 is available at www.congress.gov. Applicants requesting historic preservation certifications by the National Park Service as well as others interested in the use of these tax credits are strongly advised to consult an accountant, tax attorney, or other professional tax adviser, legal counsel, or the Internal Revenue Service regarding the changes to the Internal Revenue Code related to Pub. L. 115-97.

The Tax Reform Act of 1986 provides a 20% federal income-tax credit for owners of income-producing, historic buildings that undergo substantial rehabilitations. A credit equal to 20% of a rehabilitation's qualified expenditures may be subtracted directly from the owner's federal income taxes. Housed within the National Park Service (NPS), the Historic Preservation Tax Credit program is administered in Illinois by the Illinois State Historic Preservation Office (IL SHPO).

Download a one-page program summary

Benefits

The program benefits the owner, the occupants, and the community by:

  • helping close the financing gap between the cost of a rehabilitation project and the return on investment;
  • encouraging the preservation of historic buildings through promotion, recognition, designation and reuse;
  • increasing the value of rehabilitated properties;
  • returning underutilized structures to the tax rolls;
  • revitalizing downtowns and neighborhoods and often increasing the amount of available housing within the community; and
  • sustainably reusing the built environment.

Provisions

To quality for the Tax Credit, the four following provisions must be met:

  1. the building must be listed individually on the National Register of Historic Places or contribute to a historic district that is either listed on the National Register or certified by the NPS for the purposes of the Tax Credit program;
  2. the building must be used for income-producing purposes, such as rental-residential, commercial, agricultural, industrial, or any combination thereof;
  3. the rehabilitation (both interior and exterior) must meet the Secretary of the Interior's Standards for Rehabilitation (Standards); and
  4. the project budget must exceed the greater of the building's adjusted basis (roughly the current depreciated value of the building, not including land) or $5,000, either within a 24-month period or within a 60-month period, as long as phased plans are approved in advance.

How to Apply

Step 1: Determine if your property is historic, and see if the tax credits are right for you and your project.

Step 2: If your building is singly listed on the National Register, you don't need to submit a Part 1 and you can skip to Step 3. If your building is not yet on the National Register or if it's within a historic district, you must submit a Part 1 to the IL SHPO.

Step 3: Get approval for the work that you plan to do.

  • Submit two copies of Part 2 of the application to the IL SHPO, along with proposed rehabilitation plans and photographs showing the pre-construction condition of the building. The IL SHPO will advise whether the scope of work meets the Standards and, if necessary, how it may be modified to meet the Standards.
  • Once you and the IL SHPO have agreed on a scope of work that meets the Standards, the IL SHPO will submit your Part 2 with any recommendations to the NPS for their review.
  • When the NPS receives your Part 2, it will invoice you via pay.gov for half of their review fee. Click here to read more about the review fee.
  • When the NPS approves your Part 2, you can begin construction. Contact the IL SHPO with any questions or if there are changes during construction.

Step 4: Get approval for your finished work.

  • When construction is complete, send two copies of the Part 3 of the application and post-construction photographs to the IL SHPO.
  • If the IL SHPO determines that the work meets the Standards, it will submit your Part 3 with its recommendations to the NPS.
  • When the NPS receives your project, it will invoice you through pay.gov for second half of its review fee. Once paid, it will review your Part 3. If it determines that your project meets the Standards, it will certify the project and mail you a certification letter.

Important Points

  • Owners are strongly advised to contact the IL SHPO prior to any construction or demolition.
  • Any work undertaken prior to approval is completely at the owner's risk and could disqualify a project for the tax credit if it does not meet the Standards.
  • If, during the five-year period following the claiming of the credit, the property is sold, or its use changes from income-producing, or the property is altered in a manner that does not meet the Standards, the certification may be revoked and a prorated portion of the tax credit recaptured by the IRS. Click here to read an IRS document about recapture.
  • The Secretary of the Interior's "Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings" are used by the NPS and IL SHPO to evaluate whether changes to a historic structure respect its historic features. Applicants and their architects who want to qualify their projects should be familiar with these provisions.