Federal 20% Historic Rehab Tax Credits

Whether the applicant is seeking state historic rehab tax credits or federal historic rehab tax credits depends on use and amount of investment... not on the building or the impact of the project on the building, i.e. in either case the building must meet the same standards to be eligible and the rehab must meet the same standards to be certifiable at the end of the project.

There are differences in project eligibility:

1) the federal version is only for depreciable structures (translation: homeowners & nonprofits are not eligible, but long-term leases to developers who do the rehab and take the tax credits have been used as have equity partnerships... all of which fall under the jurisdiction of the IRS, so check their links below or call them for more information); and

2) the federal version requires that the eligible rehab expenses equal at least 100% of the adjusted basis (purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken by the beginning of the 24-month test period) or $5,000, whichever is greater; and

3) the federal version requires meeting the adjusted basis during a 24-month period selected by the taxpayer, unless the project has been presented as "phased" up front ... in which case it may be met within a 60 month period; and

4) the federal version has a recapture provision (translation: credits are non-transferable and must be repaid on a prorated basis if property is sold within 5 years of project completion -- which is why the federal tax credit isn't generally used to develop condos); and

5) Furthermore, the provisions of the tax code regarding at-risk rules, passive activity limitation, and alternative minimum tax can affect a taxpayer's ability to use these tax credits. Applicants are strongly advised to consult an accountant, tax attorney, or other professional tax advisor, legal counsel, or the Internal Revenue Service for help in determining whether these incentives pertain to their own situations.

For more information about federal tax credit regulations, particularly the financial side of things, please check with Don Modglin, IRS agent for this subject in this area, at (636) 940-6480.

Links to the federal historic rehab tax credit process.

Federal forms themselves are linked from: Federal Forms

Federal tax code info links:

Federal Tax Regulations Small Business Information IRS Answers Applicable IRS Tax Law

All this may seem daunting. However, there are many developers such as the principles in rehabbing of the nationally historic Coronado Hotel and Moolah Temple across Lindell from Saint Louis University who formally mentor other developers on tricks and tips of using federal tax credits in the St. Louis metropolitan area. For example, the combination of 20% federal and 25% Missouri tax credit is being used by private developers to partner with non-profits like Washington University to rehab large sections along Manchester Blvd in the City of St. Louis.