PRESERVATION TAX INCENTIVES AT A GLANCE
The Mississippi Department of Archives and History (MDAH) administers the 20% federal tax credit which encourages the rehabilitation of historic buildings. A 10% tax credit is also available for the rehabilitation of non-historic, non-residential buildings constructed before 1936. Briefly, a tax credit is better than a deduction. An income tax deduction merely lowers the amount of income subject to taxation, but a credit lowers the amount of tax owed. In general, a dollar of tax credit reduces the amount of income tax owed by one dollar.
20% REHABILITATION TAX CREDIT
The 20% rehabilitation tax credit equals 20%, of the amount spent in a certified rehabilitation of a certified historic structure. Thus, under ideal circumstances, if an owner spent $100,000 restoring a historic building, he would get 20%, or, $20,000 worth of tax credit.
What Properties Qualify
To qualify, a building must be listed in the National Register of Historic Places or must be certified as a historic component of a National Register Historic District. Owners of historic buildings which are not yet listed either individually or as part of a historic district may use the Historic Preservation Certification Application, Part 1, to request a preliminary determination of significance. This preliminary determination allows the owner to proceed with the rehabilitation project while the process of nominating a building or a district continues.
In addition, to qualify the building must be depreciable - it must be used in a trade or business or held for the production of income (for example: offices, commercial, industrial or agricultural use, rental housing). It may not serve exclusively as the owner’s private residence.
To be eligible for the 20% rehabilitation tax credit, a project must also meet the following basic tax requirements of the Internal Revenue Code.
Qualified rehabilitation expenditures include costs associated with the work undertaken on the historic building, as well as architectural and engineering fees, site survey fees, legal expenses, development fees, and other construction-related costs. They do not include costs of acquiring or furnishing the building, new additions, new building construction, or parking lots, sidewalks, landscaping, or other facilities related to the building.
Getting Your Project Approved, Or "Certified"
Recapture of the Credit
The owner must hold the building for five full years after completing the rehabilitation, or pay back the credit. If the owner disposes of the building within a year after it is placed in service, 100% of the credit is recaptured. For properties held between one and five years, the tax credit recapture amount is reduced by 20% per year.
Other Things to Note
10% REHABILITATION TAX CREDIT
The 10% rehabilitation tax credit is available for the rehabilitation of non-historic buildings built before 1936.
As with the 20% tax credit, the rehabilitation must be substantial, exceeding either $5,000 or the adjusted basis of the property, whichever is greater. The property must be depreciable and applies only to buildings rehabilitated for non-residential uses.
Buildings listed in the National Register of Historic Places are not eligible for the 10% credit. Buildings located in National Register historic districts are presumed to be historic and are therefore not eligible for the 10% credit. Owners of buildings in districts may claim the 10% credit only it they file Part I of the Historic Preservation Certification Application and receive a determination that the building does not contribute to the district and is not a certified historic structure. Owners of historic buildings denied certification for the 20% credit may not claim the 10% credit.
Projects undertaken for the 10% credit must meet a the following physical test for retention of external walls and internal structural framework: