The City of Canton
Historic Preservation Commission


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.

 

IRS Requirements

To be eligible for the 20% rehabilitation tax credit, a project must also meet the following basic tax requirements of the Internal Revenue Code.

  • The rehabilitation must be substantial. That is, during a 24-month period selected by the taxpayer, rehabilitation expenditures must exceed the greater of $5,000 or the adjusted basis of the building. The adjusted basis is generally the purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken. Once the substantial rehabilitation test is met, all qualified expenditures, including those incurred outside of the measuring period, qualify for the credit.
  • If the rehabilitation is completed in phases, the same rules apply, except that a 60 month measuring period applies. This phase rule is available only if: (1) there is a set of architectural plans and specifications for all phases of the rehabilitation, and (2) it ran reasonably be expected that all phases will be completed.
  • The building must be a certified historic structure when it is placed in service. This means, generally, for buildings not individually listed in the National Register that Part I of the Historic Preservation Certification Application must have been filed before the building was placed in service.

 

Allowable Expenditures

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"

  • Apply as soon as possible - preferably before beginning work. Consult with MDAH as soon as possible to receive an application and regulations. Submit your application early in the project planning and wait until the project is approved in writing by the National Park Service (NPS) before beginning work. Owners who undertake rehabilitation projects without prior approval from the NPS do so at their own risk.
  • Photograph the building inside and outside before and after the project. "Before" photographs are especially important. Without them it may be impossible for the NPS to approve a project.
  • All work must meet the Secretary of the Interior’s Standards for Rehabilitation, as reviewed by the MDAH and approved by the NPS. The Standards cover both exterior and interior work.

 

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

  • Applicants should understand that this is a federal program. Just because an owner has received approval from a local preservation commission for a rehabilitation project does not mean that the work will be Certified by the NPS. Without NPS certification, there can be no federal tax credit.
  • In order to receive project approval, a Historic Preservation Certification Application must be submitted to MDAH, which first reviews the form before forwarding it to the NPS for a decision. To receive the necessary application forms and other pertinent information, please contact:

Brenda R. Crook, Preservation Specialist
Division of Historic Preservation
Mississippi Department of Archives and History
P.O. Box 571
Jackson, MS 39205
Telephone: (601) 359-6940

 

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:

  • at least 50% of the building’s walls existing at the time the rehabilitation began must remain in place as external walls at the work’s conclusion, and
  • at least 75% of the building’s existing external walls must remain in place as either external or internal walls, and
  • at least 75% of the building’s internal structural framework must remain in place.

2003 Canton Redevelopment Authority, All Rights Reserved