Historic Tax Credits - The 10% Solution
By John Tess President & CEO, Heritage Consulting Group | October 28, 2008
At the other end of the spectrum, federal tax law allows a 10% investment tax credit for the rehabilitation of a non-historic building placed in service before 1936. To be "non-historic" a building cannot be individually listed on the National Register. A building located within a National Register historic district is presumed to be historic; to use the 10% tax credit, the Park Service must determine that the building in question is not historic.
Like the 20% credit, the 10% applies only to non-residential buildings. It does not apply to ships, bridges or other structures. It also may not be used for single family houses, residential condominiums, and unlike the 20% credit, cannot be used for rental housing. It also does not apply to any building that has been moved since 1935. And the rehabilitation must be "substantial," that is, the work must exceed either $5,000 or the adjusted basis of the property, whichever is greater. The 10% investment tax credit does apply to hotels.
To secure the 10% credit, a project does not need to meet the Secretary of Interior Standards, nor is the work reviewed by the National Park Service. It does however need to meet a specific physical test relating to the 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.
10% or 20%
The 10% and 20% investment tax credits are mutually exclusive. On one level, the 10% tax credit is attractive. It is free of the Secretary of Interior Standards for Rehabilitation and National Park Service design review - thereby allowing a greater design freedom and less regulation. That said, while the 20% credit is a gateway to state and local preservation incentives, the 10% is typically an insurmountable barrier to these incentives. And while the 10% does not incur the Park Service design review, most communities will require local design review with many of the same hurdles.