Step 1: Qualifying for the Historic Tax Credit
The federal government has established a number of criteria that must be satisfied to qualify for either the 20 percent or the 10 percent federal Historic Tax Credit. These stipulations relate to the property itself and the specifics of the planned rehabilitation project.
The building’s historic significance is the key to whether the project may be considered for the 10 percent or the 20 percent historic tax credit. Only a certified historic structure is eligible for the 20 percent credit. This is defined as a building that is listed individually on the National Register of Historic Places or that contributes to a National Register, state or local historic district that has been certified by the Secretary of the Interior. To confirm its certified historic status, the property owner must file and have approved Part 1, Evaluation of Significance, of the National Park Service’s (NPS) three-part Historic Preservation Certification Application.
If a property does not meet 20 percent credit conditions, it may qualify for the 10 percent credit as a non-historic, non-contributing structure. This means the property was placed-in-service before 1936, is ineligible for individual listing on the National Register, and does not contribute to a National Register, state or local historic district that has been certified by the Secretary of the Interior. If this property is located within a historic district, the Part 1 application must be filed and approved by the National Park Service to confirm its non-contributing status.
The key project related criteria for both the 10 percent and 20 percent credits is that the property be income-generating or used in trade or business. Thus, the rehabilitation of owner-occupied residential properties does not qualify for the tax credit.
Once it is initially determined whether the building is a 10 percent or 20 percent tax credit candidate, a more detailed investigation into the project’s eligibility is needed. The requirements for each credit are unique; there are six for the 10 percent tax credit and two for the 20 percent credit.