Real Estate Tax Tips: Taking Advantage of the Rehabilitation Tax Credit

Introduction

If you’re a real estate investor looking to renovate or restore a historic property, you may be eligible for the Rehabilitation Tax Credit. This tax credit is designed to encourage the preservation of historic buildings by providing a financial incentive for their rehabilitation.

What is the Rehabilitation Tax Credit?

The Rehabilitation Tax Credit is a federal tax credit that provides a financial incentive for the rehabilitation of historic buildings. The credit can be worth up to 20% of the qualified rehabilitation expenses incurred in the renovation of a certified historic structure.

To be eligible for the Rehabilitation Tax Credit, the property must be listed in the National Register of Historic Places or located in a registered historic district and certified by the Secretary of the Interior as being of historic significance.

Qualifying for the Rehabilitation Tax Credit

To qualify for the Rehabilitation Tax Credit, the rehabilitation work must meet certain standards for historic preservation. The work must be:

• Substantial: The cost of the rehabilitation work must exceed the greater of $5,000 or the adjusted basis of the property.
• Historical: The work must be consistent with the historic character of the property.
• Comprehensive: The work must address all major architectural features of the property.

How to Claim the Rehabilitation Tax Credit

To claim the Rehabilitation Tax Credit, you must file IRS Form 3468, Investment Credit, with your tax return. The credit can be claimed in the year the rehabilitation work is completed or over a five-year period.

It’s important to note that if you sell the property within five years of claiming the Rehabilitation Tax Credit, you may be required to recapture some or all of the credit.

Consulting with a Tax Professional

Navigating the complex world of real estate taxes and incentives can be challenging, and it’s important to consult with a tax professional if you have any questions or concerns. A tax professional can help you understand your eligibility for the Rehabilitation Tax Credit and can help you maximize your tax savings.

By taking advantage of the Rehabilitation Tax Credit, you can not only save money on your taxes but also contribute to the preservation of historic buildings. Remember to consult with a tax professional and ensure that your rehabilitation work meets the necessary standards for historic preservation.