History in the Making Tax program gives back to historic fixer-uppers

You'll find them scattered throughout America's olderneighborhoods, historic districts and rural stretches-historichomes that have found new life among preservationists and at-homeworkers.

And unbeknownst to many, the federal government is lending ahelping hand to people who undertake the task of reviving thesepieces of American history. The federal Historic Renovation TaxCredit program provides a 20-percent tax credit against current orfuture tax liabilities for money spent on renovating a registeredhistoric structure. The only caveat: The properties must beincome-generating, meaning anything from a warehouse to a retailshop to a home office may qualify.

Since 1976, some $21.8 billion has been spent under the programto renovate more than 28,000 historic properties nationwide, saysMichael Auer, a program administrator with the Federal HistoricPreservation Tax Incentives program, which is part of the NationalPark Service in Washington, DC.

Journalist and author Jeff Zbar has worked from homesince the 1980s. He writes about home business, teleworking,marketing, communications and other SOHO issues.

How It Works

An owner or purchaser of a historic property certified orregistered with the National Park Service (or a property in aregistered historic district) must spend at least 100 percent ofthe purchase price or the adjusted basis value of the building onrenovations. For example, if a purchaser buys a qualified structurefor $100,000, he or she has to spend at least $100,000 onrenovations.

If the state preservation office and the National Park Serviceapprove the project, the owner can take a 20-percent credit againstfederal income taxes. The tax years affected span from the yearprior to the project's completion to 20 years in the future,explains Mark Primoli, national office analyst with the IRSRehabilitation Tax Credit Program in St. Paul, Minnesota. Homebasedbusiness owners would only be allowed to take the credit equal tothe percentage of the home the office occupies.

Renovations can range from restoration of the building'sexterior to new electrical wiring or plumbing. New appliances,landscaping, driveways or anything else not part of the physicalstructure don't qualify, says Mark Primoli, national officeanalyst with the IRS Rehabilitation Tax Program in St. Paul,Minnesota. All exterior work must maintain the historic integrityof the property, he adds. What you do on the inside is not ascritical as the exterior.

For property resold or removed from business use within fiveyears of the completion of the renovation, owners will have arecapture liability equivalent to 20 percent of the tax credit foreach year under five, Primoli says. If, for example, the ownerreceives a $100,000 tax credit and sells the building after threeyears, he or she will have to pay back $40,000 (two of the fiveyears remaining at 20 percent per year) in tax credit. As with allhomebased businesses, deductions taken for office space would alsobe computed against the base value of the property, resulting in aliability at resale.

It's not a simple program, and it can be nerve-wracking tonavigate through all the required paperwork, says Charles Uhl,owner of Historic Preservation Services, a Pittsburgh-basedconsulting firm for developers seeking the tax credit. Betweenobtaining state certification of a property's historicalsignificance and then wading through the tax-rebate program, Uhlrecommends applicants work with someone who knows the ropes,including having a keen knowledge of architecture, construction andarchitectural history.

Have questions about the federal Historic Rehabilitation TaxCredit? Visit http://www2.cr.nps.gov/tps/tax/brochure2.htmor e-mail hps-info@nps.gov.