The Tax Reform Act of 1986 and its regulations provide a federal income-tax credit for owners of historic buildings that undergo substantial rehabilitations into income-producing uses. A credit equal to 20% of a rehabilitation's qualified rehabilitation expenditures may be subtracted directly from the owner's federal income taxes. A program of the National Park Service (NPS), the federal tax credits are administered in Illinois by the Illinois State Historic Preservation Office (IL SHPO).
Download a one-page program summary
- Helps close the financing gap between the cost of a rehabilitation project and its return on investment
- Encourages the preservation of historic buildings
- Sustainably reuses the built environment
- Increases the value of rehabilitated, historic properties
- Returns underutilized structures to the tax rolls
- Revitalizes downtowns and neighborhoods and often increases the amount of rental housing within the community
- The building must be listed individually on the National Register of Historic Places (NRHP) or contribute to a historic district that is either listed on the NRHP or certified by the NPS for the purposes of the federal tax credit program; and
- After the rehabilitation, the building must be used for income-producing purposes, such as rental-residential, commercial, agricultural, industrial, or any combination thereof; and
- The rehabilitation (both interior and exterior) must meet the Secretary of the Interior's Standards for Rehabilitation (Standards); and
- The project's Qualified Rehabilitation Expenditures (QREs) must exceed the greater of the building's adjusted basis or $5,000, within either a 24-month period or a 60-month period as long as phasing plans are approved in advance.
Determine if federal credits work for you and your project
- Contact your tax advisor to make sure the tax credits are appropriate for your financial situation, and consult these documents:
- "Rehab Tax Credit" defines QREs and a whole lot more.
- 26 CFR § 1.48-12 discusses qualified rehabilitated buildings and QREs, a figure you need to submit your application.
- This QRE bulletin from the IRS further clarifies qualified expenditures.
- IRS's Real Estate Tax Tips offers several resources about the program.
- NPS tax-credit webpage on IRS rules and regulations.
- Public Law No: 115-97 (December 22, 2017) modifies the 20% Historic Rehabilitation Tax Credit, repeals the 10% non-historic tax credit, and provides transition rules for both credits.
- A prorated portion of the tax credit will be recaptured by the IRS if during the five-year period following the placed-in-service date you sell the property, change its use from income-producing, or alter it in a manner that does not meet the Standards.
- Determine your building's adjusted basis, and decide whether your QREs will exceed it within a 24- or 60-month period.
- Determine if your property is a certified historic structure:
- If your building is located in the City of Chicago, consult Chicago's Zoning and Land Use Map. Turn on the NRHP layer by opening the map legend and clicking on the "National Register" section.
- Our Hargis webpage can help determine if your property is on the NRHP.
- Read about the Standards for Rehabilitation and their interpretation, which will be used to review your scope of work.
- Email us, so we can help you determine if you can meet the four provisions listed above
- We strongly advise owners to contact us prior to any construction or demolition.
- Any work undertaken prior to approval is at the owner's risk and could disqualify a project for the credit if it does not meet the Standards.
How to apply
- Download, fill out, and submit the 3-part federal tax credit application.
- Early in the development of your application, contact us so we can schedule a site visit.
- The IL SHPO digitally reviews applications in advance of your hardcopy submittal to the NPS. Unless specifically requested, please do not mail any hard copies to the IL SHPO.
- Beginning Monday, March 1, 2021, all applications must use the forms that are dated 2019 in their upper-left corners.