Rehabilitation Tax Credit

What is the Rehabilitation Tax Credit?

In order to preserve historic structures, the IRS offers the Rehabilitation Tax Credit to offset the cost of rehabilitating certain properties. These tax credits can be split into two categories:

  • 10 percent Credit for the Rehabilitation of Non-Historic Buildings placed in service before 1936
  • 20 percent Credit for the Certified Rehabilitation of Certified Historic Structures

The 10 percent Rehabilitation Tax Credit is for any property originally placed in service prior to 1936. The IRS requires that the renovation be “substantial,” exceeding the adjusted basis of the property, or $5,000, whichever is greater. It also requires that the property be rehabilitated for non-residential uses. Occasionally, a renovation may fall a little short of meeting the “substantial renovation” requirement. In this case, the professionals at McGuire Sponsel can perform a cost segregation study to reduce the value of the real property on the existing building, therefore qualifying the renovation as substantial.

IRS requirements state that the building must not have been moved since 1935 and that the property meets the following tests for retention of structural members:

  • At least 50 percent of the external walls existing at the time rehabilitation began must remain in place as external walls at the completion of the rehabilitation,
  • At least 75 percent of exterior walls must remain in place as external or internal walls, and
  • At least 75 percent of internal structural framework must remain in place

The 20 percent credit is similar to the 10 percent credit but requires that the property be a certified historic structure. A certified historic structure is a building that is listed individually in the National Register of Historic Places or a building that is located in a registered historic district and certified by the National Park Service as contributing to the historic significance of that district. Additionally, the credit requires that the National Park Service certify the rehabilitation.

How McGuire Sponsel can Help

McGuire Sponsel is well versed in the intricacies of the Rehabilitation Tax Credit. It is important that potential rehabilitation projects be properly qualified with thorough documentation. We offer detailed engineering based studies that confirm that a structure and renovation has met all the requirements. The professionals at McGuire Sponsel maximize the benefit received through the Rehabilitation Tax Credit while minimizing the risk under audit.

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