Rehabilitation Credit (Historic Preservation)

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Rehabilitation Credit (Historic Preservation)

What Is the Rehabilitation Credit (Historic Preservation)?

The rehabilitation credit (historic preservation) is a federal tax credit designed to encourage private-sector preservation of historic sites across the United States. According to a statement from the US National Parks Service, it provides a credit for 20% of the expenditures for extensively repairing facilities for commercial or income-generating use. Those that take use of the credit must maintain the property’s “historic character.” Recently, attention has been drawn to the racial imbalance of historic places, however groups are working to correct the imbalance.

Key Takeaways

  • The rehabilitation credit (historic preservation) is a tax credit provided by the federal government of the United States to promote the preservation of historical sites around the nation.
  • Properties that have been designated as historically important may be eligible for a 20% credit on rehabilitation costs.
  • The credit is meant to help the American economy recover in part.
  • There is a difference in preservationism over whether assets associated with the history of minority communities have been deemed valuable enough to preserve.

Understanding the Rehabilitation Credit (Historic Preservation)

The Federal Historic Preservation Tax Incentives Program administers the rehabilitation credit (historic preservation). The initiative, which began in 1976, aims to protect historic houses while also economically rejuvenating rural regions and stagnant Main Streets throughout the nation. According to the National Parks Service’s 2020 annual report, it has encouraged the restoration of an estimated 46,000 sites valued around $181 billion since the program’s inception, while generating 2.9 million employment (the latest available).The bulk of projects approved under the program were modest, with 46% costing less than $1 million and 19% costing less than $250,000.

Qualified Expenses

The credit cannot cover all expenditures. According to the National Park Service, building expenditures for structural components such as walls, floors, and staircases are often eligible, however costs for other features such as cabinets, walkways, and pavement are not. Engineering or architect expenses may also count as “soft charges.”

The National Parks Service works with state historic preservation offices to administer the program in collaboration with the Internal Revenue Service (IRS). For example, in California, where total restoration expenses were $621.3 million between 2016 and 2020, the program is handled in collaboration with the California Office of Historic Preservation’s Architectural Review and Incentives Unit.

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Other costs associated with historic preservation may also be deducted. According to the IRS, tax breaks are available for historic preservation easements.

10% Credit Removed by Congress

There was also a 10% tax credit available for homes that were not classified as “historic” but were built before 1936. However, the Tax Cuts and Jobs Act of 2017 terminated the program. The measure also altered the 20% credit.

Legislative changes

During Trump’s administration, the rehabilitation credit (historic preservation) was significantly restricted by legislation, although various additional legislative bills in recent years have tried to enhance it. The United States Congress revised it in 2017 and deleted a 10% credit granted for sites that were in operation before to 1936 but were not recognized as historic. The Tax Cuts and Jobs Act amendments extended the 20% credit across five tax years.

Two recent suggestions have looked at improving access to and boosting credit, which supporters think is an effective instrument for job growth. The House of Representatives and the Senate introduced two versions of the Historic Tax Credit Growth and Opportunity Act in 2021, which, if passed, would increase the tax credit to 30% (for expenses less than $2.5 million in the House version and less than $3.75 million, capped at $750,000 in the Senate version) and make access to the credit easier.

“In Western New York, historic tax credits have been very beneficial in promoting economic opportunity via the repair of historic buildings and community regeneration,” said Representative Brian Higgins, D-N.Y., who is named as a co-introducer of the House measure. “Use of these credits during the current epidemic is more critical than ever as they offer a road to rebuilding our economy, increasing local employment, and re-energizing our community,” he said.

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The credit has been described as “one of the most effective historic preservation instruments we have” by the National Conference of State Historic Preservation Officers, a professional association for state preservation authorities. The group has also said that even if the legislative efforts to extend it and make it more accessible fail, they will most likely serve as models for future legislation.

According to a 2020 Congressional Research Service analysis, just 8% of the historic sites on the National Register of Historic Places were associated with Black, Latinx, Native American, or Asian American history prior to fiscal year 2014.

Historical Preservation and Minorities

Historic preservation has not always sought to conserve sites associated with the country’s history of minorities. In an editorial published in 2020, Cornell University professor Sara Bronin, an expert on historic preservation legislation, claimed that the National Register of Historic Places, the designation that qualifies a property for a historic tax credit, represents largely White history. According to Bronin, the earliest Latinx memorial was the César E. Chávez National Monument, which was added just eight years before her essay was written.

Bronin claims that the inclusion of minority sites has been hampered by a “overly technical, legalistic approach to evaluating what warrants categorization.” According to Bronin, the legislation demands that properties be listed for historical relevance and integrity, but interpretations of historical significance have tended to rely on affiliation with wealthy, White historical personalities and architectural forms associated with White forefathers.

Activists claim that the architectural importance criteria hampered the preservation of historically important structures such as slave quarters. In the lack of safeguards, such homes were deliberately demolished for a number of purposes, including racial terrorism in the years after Reconstruction, as well as more recent initiatives to create roads, gentrify, and assure urban regeneration.

Other scholars, such as Michael deHaven Newsom, have argued that historical preservationism actually drove up house prices and forced Black landowners to sell their land in Georgetown, a wealthy district in Washington, D.C., in the twentieth century. This, according to Newsom, had also occurred in Philadelphia and Charleston, South Carolina. Other minority groups have similar stories. According to Andrew Dolkart, the United States has been hesitant to safeguard LGBTQ+ areas, just gathering up momentum in the last few years.

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Some attempts are being undertaken, however, to remedy the imbalance in American preservationism. In 2017, the National Trust for Historic Preservation established the African American Cultural Heritage Action Fund to protect Black heritage. To far, the fund has raised $70 million and aided in the preservation of 200 projects.

How Does the Rehabilitation Credit (Historic Preservation) Work?

Those who fulfill the IRS’s requirements for “approved rehabilitations” on a historically listed property are eligible for the tax credit. They must, among other things, protect the historic character of the site. When filing taxes, they may claim it on Form 3468, Investment Credit.

Who Is Eligible for the Credit?

Individuals, businesses, partners, shareholders, and beneficiaries of a pass-through organization, estates, and trusts, according to the IRS, may claim for the credit if they possess an interest in the property in issue or, in certain situations, are leasing the facility.

Is the Credit Worth It?

Tax credits are a popular way to reduce taxes while incentivizing behavior, and the rehabilitation credit (historic preservation) has been described as one of the best available tools for encouraging private sector preservationism, allowing both businesses and individuals to recoup preservation-related costs, which revitalizes communities. It also helps the economy by creating 2.9 million employment by 2020. There are, however, several qualifying conditions.

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