Trieu Law can help you with your historical tax credit program planning and applications.
Tax credits encourage the preservation and continued use of historic buildings by offering economic incentives for their rehabilitation.
The Louisiana Division of Historic Preservation administers three historic rehabilitation tax credit programs: the Federal 20% Historic Rehabilitation Tax Credit Program and the 25% State Commercial Tax Credit Program, both for income-producing buildings; and, the 18.5% State Residential Tax Credit Program, for owner-occupied historic structures.
A Tax Credit is a direct, dollar for dollar reduction in the amount of money a taxpayer must pay in taxes for a given year. The Tax Credit: A tax credit is a direct, dollar for dollar reduction in the amount of money a taxpayer must pay in taxes for a given year. For example, if a taxpayer owes $5,000 in taxes to the Internal Revenue Service (IRS), but has a $3,000 credit, he only pays $2,000. Thus, he pockets the $3,000 he would otherwise pay in taxes. A credit is much better than a deduction which merely reduces a taxpayer’s income and may (or may not) put him in a lower tax bracket. If a taxpayer earns more credit than he can use in a single tax year, he can carry the credit forward up to 20 years and back one year.
The tax credit is calculated on the cost of renovating and restoring the historic property. (in addition to other items the cost of renovating does not include cost of acquiring the property, new additions, landscaping). Credits are not automatically available; an application must be submitted prior to the completion of the project.
The Federal 20% Historic Rehabilitation Tax Credit
The Federal government encourages the preservation of historic buildings through various means. One of these is the program of Federal tax incentives to support the rehabilitation of historic and older buildings. The Federal Historic Preservation Tax Incentives program is one of the Federal government’s most successful and cost-effective community revitalization programs.
- The amount of credit available under this program equals 20% of the qualifying expenses of your rehabilitation
- The tax credit is only available to properties that will be used for a business or other income–producing purpose, and a “substantial” amount must be spent rehabilitating the historic building
- Your building needs to be certified as a historic structure by the National Park Service
- Rehabilitation work has to meet the Secretary of the Interior’s Standards for Rehabilitation, as determined by the National Park Service
State Of Louisiana 25% Commercial Rehabilitation Tax Credit
The 25% State Commercial Tax Credit was created in 2002 by the Louisiana Legislature to encourage the redevelopment of income-producing historic buildings in Louisiana’s Downtown Development Districts. In 2007, the enabling program legislation was amended to allow historic buildings located in certified Cultural Districts to be program-eligible.
The 25% State Commercial Tax Credit Program is jointly administered by the Louisiana Division of Historic Preservation and the Louisiana Department of Revenue. The Louisiana Division of Historic Preservation acts as an applicant’s first point of contact and reviews applications for compliance with the Secretary of the Interior’s Standards for Rehabilitation; the Louisiana Department of Revenue reviews project costs. The credit is available for those income-producing buildings that are contributing elements to Downtown Development Districts or certified Cultural Districts. Rehabilitation projects must exceed $10,000 in qualified rehabilitation expenses and must be completed according to the Secretary of the Interior’s Standards for Rehabilitation. Once earned, credits are fully transferable and may be carried forward for up to five years.
The State Commercial Tax Credit program sunsets December 31, 2021. The credit will equal 25% of eligible costs and expenses incurred through December 31, 2017; the credit will drop to 20% effective January 1, 2018, regardless of the year in which the property is placed in service.
State of Louisiana 18.5% Homeowner Rehabilitation Tax Credit
Effective January 1, 2006, homeowners may qualify for up to an 18.5% tax credit against their individual State income taxes when they rehabilitate their historic home. The property must be the owner’s primary residence. The State Residential Rehabilitation Tax Credit Program encourages taxpayers to preserve and improve their homes by offering a tax credit on rehabilitation costs associated with residences which meet Program requirements. If the property is determined to be vacant and blighted and at least 50 years old prior to rehabilitation, the credit is equal to 36%. The program has a statewide cap of $7.2 million in total credits per year and is effective through December 31, 2017. The credit will be granted on a first come, first served basis.
For this Program, the Credits are calculated as a percentage of the Eligible Rehabilitation Expenditures. The credit is equal to 18.5% of the eligible rehabilitation expenditures, or 36% of the eligible rehabilitation expenditures if the property is determined to be vacant and blighted. If the residential structure is owned and occupied by two or more individuals, the applicable percentage is based on the sum of the adjusted gross incomes of all owner-occupants who contribute to the rehabilitation, and the credit will be divided between the owner-occupants in proportion to their contribution to the eligible costs and expenses, unless they agree to an alternate division. Owners are responsible for maintaining accurate records to show contribution amounts.
If the credit is claimed on only a portion of the building, as in the case of a mixed-use structure, only those Eligible Rehabilitation Expenditures that are properly allocable to this portion may be included as part of the estimate and actual accounting of project expenditures. This is allocated on a square foot percentage basis.