Federal Rehabilitation Tax Credit Program

Old Waco High School A federal tax credit worth 20 percent of the eligible rehabilitation costs is available for buildings listed in the National Register of Historic Places. Established in 1976, the federal rehabilitation tax credit program is administered in Texas by the National Park Service (NPS) in partnership with the Internal Revenue Service (IRS) and the Texas Historical Commission (THC).

Eligible Buildings and Costs

In order to be eligible for the 20 percent rehabilitation tax credit, a building must meet these basic requirements:

The building must be listed individually in the National Register of Historic Places, contributing to the significance of a historic district, or determined to be eligible for listing in the National Register. A building determined eligible for listing in the National Register at the beginning of the project does not need to be officially listed until the tax credit is claimed by the owner.
Only buildings qualify for the tax credit. Structures such as bridges, ships, railroad cars, grain silos, and dams are not eligible for the credit.
The building must be income-producing. For example, it may be used as a hotel, for offices, for commercial, industrial, or agricultural purposes, or for rental housing. Owner-occupied residential properties are not eligible for the credit.
The work to the building must be a substantial rehabilitation and not a small remodeling project. In general, the rehabilitation costs must exceed the greater of $5,000 or the adjusted basis of the building and its structural components. The adjusted basis is generally the purchase price, minus the cost of the land, plus improvements already made, minus depreciation already taken.
Most rehabilitation costs are eligible for the credit, such as structural work, building repairs, electrical, plumbing, heating and air conditioning, roof work, and painting. Architectural and engineering fees, site survey fees, legal expenses, development fees, and other construction-related costs are also qualified expenditures if such costs are reasonable and added to the property basis. Some costs are not eligible for the credit, such as property acquisition, new additions, furniture, parking lots, sidewalks, and landscaping.
The building must be placed in service (returned to use) after the rehabilitation. The tax credit is generally allowed in the taxable year that the rehabilitated property is placed in service. Unused tax credit can be carried back one year and carried forward 20 years.
The work undertaken as part of the project must meet the Secretary of the Interior's Standards for Rehabilitation. The entire project is reviewed, including related demolition and new construction, and is certified, or approved, only if the overall rehabilitation project is determined to meet the Standards. More information about the Standards can be found here.

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The Application Process

An application for the tax credits must be submitted before the project is completed, although work may begin prior to the application or approval. Ideally, the application should be submitted during the planning stages of the work so the owner can receive the necessary guidance to ensure that the project meets the Secretary of the Interior’s Standards for Rehabilitation, and therefore may qualify for the credits. The application process consists of three parts.

Part 1 of the application, the Evaluation of Significance, determines if the building is eligible for the National Register or contributes to the significance of a National Register historic district. Part 1 of the application is not needed if the property is already individually listed in the National Register, since these properties are already "certified historic structures" for the purposes of the tax credit program.

Part 2 of the application, the Description of Rehabilitation, describes the existing condition of the building and the proposed work. Photographs are required showing the major character-defining features of the building prior to the start of work. The proposed work is evaluated using the Secretary of the Interior’s Standards for Rehabilitation.

Part 3 of the application, the Request for Certification of Completed Work, is submitted upon completion of the rehabilitation and documents that the work was completed as proposed. Once the National Park Service determines that the completed work meets the Standards and approves Part 3 of the application, the project is a “certified rehabilitation” and qualifies for the tax credits.

For More Information

The tax credit requirements, which include both NPS and IRS regulations, can appear confusing at times. THC staff is available to assist property owners in understanding and applying for the credits. All three parts of the application are submitted to the THC first. THC staff may visit the property and may request additional information from the applicant prior to sending the application to NPS with a recommendation as to whether the project meets the Standards for Rehabilitation. For more information, please contact your county's Division of Architecture project reviewer.

Please note that THC staff cannot give tax advice. Consult a tax advisor regarding the IRS regulations and their implications for your particular tax situation.

For more information about the 20 percent rehabilitation tax credit program, including a downloadable application, FAQs about the IRS requirements, and NPS review fees, please visit the National Park Service website.