Rehabilitation Tax Credits

A state law passed in 2009 allows Arkansans to claim a portion of their investment in historic properties as a credit on their state income taxes. This program, administered by the Arkansas Historic Preservation Program (AHPP), will encourage the rehabilitation of historic properties and will foster revitalization efforts in Arkansas’s historic downtowns and neighborhoods. The AHPP serves as the state liaison between the property owners and the National Park Service, the federal agency that administers the federal Rehabilitation Tax Credit program.

The main goal of the AHPP and NPS will be to:
1. Determine if the structure in question is a "qualified historic property" 
2. Provide a technical review based on the Secretary of the Interior's Standards for Rehabilitation on the proposed work planned for the historic structure and 
3. Approve the final work by the owner to the historic property.

Anyone interested in pursuing the credit should consult an accountant, tax attorney other professional tax advisor, legal counsel, or the Internal Revenue Service for help in determining the tax and other financial implications.

Pictured is the before (right) and after of the ca. 1902 Queen Anne-style Judson Millard House at 1410 South Gaines Street in Little Rock was rehabilitated using historic preservation tax credits. Finished in March 2014, the structure now houses five apartments.

 

Eligibility

Properties that are listed on the National Register of Historic Places or are listed as “contributing” within a historic district on the National Register. Properties that will be eligible for listing following rehabilitation will also be considered. Any individual or firm who pays personal or corporate income tax in Arkansas. Persons or firms without sufficient tax liability to take advantage of the credits they earn are allowed to sell their credits to another taxpayer.

The AHPP uses the US Secretary of the Interior’s Standards for Rehabilitation to determine what kinds of work are appropriate for historic buildings and eligible for the tax credits. These ten broad, common-sense principles of preservation guide property owners around the country in projects that accommodate new uses and revitalization while retaining the overall historic character of their buildings. For more information on the Standards, contact us or visit the NPS website

 

Credits Awarded

tax credit Value

Twenty-five percent (25%) of the approved rehabilitation expenses on a historic building may be claimed as a tax credit. Owners of income-producing properties (commercial, office, rental residential, etc.) may claim up to $125,000 per project. For new tax credit projects starting after July 1, 2017, the credit has been raised to $400,000 for income producing projects. Property owners may claim up to $25,000 per project for work on their private residences. In either case, an owner must invest a minimum of $25,000 to claim any credits.

Types of Projects REceive Tax Credits             

State law allows the AHPP to award up to $4 million in tax credits per year. In addition to meeting all the requirements described above, projects should address one of the program’s community / economic development goals listed below. In order of priority, projects receiving tax credits must contribute to the:

1. Creation of a new business
2. Expansion of an existing business
3. Establishment of a tourist attraction
4. Revitalization of a business district
5. Revitalization of a neighborhood

federal historic rehabilitation tax credit

The federal government has its own tax credit program for historic rehabilitation, with its own rules. It is similar to Arkansas’s tax credit in some ways, but different in others. (For example, the federal tax credit is only available for work on income-producing properties.) However, projects that meet the requirements of both programs should be able to take advantage of both federal and state tax credits. Talk to a tax professional before pursuing any tax credits.

 

Links

For more information from the National Park Service              
Tax Incentives  
Tax Incentive Application
TPS Selection

For more information from the Internal Revenue Service 
Rehabilitation Tax Credit Tips for Small Businesses and those who are self employed.
IRS Investment Credit Form 3468 (PDF)

Topical Tax Briefs (PDF)
Facade Easement Brief August 2009 Late Submission of "HPC Application"
Property Leased to a Tax-Exempt Entity
Use of the Rehabilitation Tax Credit by Lessees
Rehabilitation Tax Credit Recapture
Allocations of Tax Credit

IRS Connection
Get Frequently Asked Questions (PDF) about the Tax Aspects of Historic Preservation

 

For more information from the AHPP about the federal Tax Rehabilitation program click here to download the PDF file.