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How to Get a Tax Break for Buying a Historic Home
How to Get a Tax Break for Buying a Historic Home
Historic homes evoke charm but the upkeep can be a big responsibility. To help balance out the costs that come with buying a historic home, most states offer tax incentives for the rehabilitation of historic properties, and a handful of states provide a 25% additional credit for homeowners.
You know what they say — they just don't make them like they used to anymore. It can take a while to find a historic home that meets your needs, but with a little effort, you may find yourself a unique home or business location to call your own, that may also have tax benefits as a bonus.
Let’s take a closer look at what makes a home historic and how buying one may lead to tax benefits.
Know what qualifies a home as historic
First things first, before buying what appears to be a historic home, you’ll want to authenticate its status and confirm it will qualify for the tax breaks you’re after.
Age — even old age — alone isn’t enough to make a home historic. Often, historic homes are officially registered with and monitored by the National Park Service, but states and municipalities also have the option to designate a home as historic. If your home is historic, a paper trail likely exists to prove that fact, but unearthing it may require some research. Start by checking with the National Park Service.
That said, you can get an idea of whether your home is historic by asking yourself if it meets any of the following standards (exceptions do apply):
- At least 50 years old
- Connected to a historically significant event
- An embodiment of a certain historic architecture style
- Somehow connected to the life of a significant individual
- Provided in the past or is likely to provide historical information
Research available tax credits and incentives
If your heart is set on buying a historic home, you may find yourself with some pricey renovations and repairs on your to-do list. Luckily, some historic homeowners can gain access to tax breaks that can make tackling these costs easier to do.
No matter what state you live in, you may be able to qualify for the federal Historic Rehabilitation Tax Credit (HTC). Through this credit, homeowners who own a historic income-producing building will receive 20% of the qualifying costs spent on rehabilitating their historic property. Any rehabilitation work you do on the home must comply with the Secretary’s Standards for Rehabilitation, and the Internal Revenue Service (IRS) has standards you must meet regarding what is considered to be a qualified rehabilitation expense.
Even if your home is not considered historic, you may be able to qualify for a similar credit. The National Parks Service also offers a tax credit to help offset the costs of the rehabilitation of non-historic buildings placed in service before 1936.
While you will need to research the exact tax credits offered in your state, most states offer some form of incentive to rehabilitate historic properties. The majority of states — 37 as of 2022 — offer a historic home incentive separate from the HTC. For example, New York state allows residents to qualify for an additional 25% credit if they choose to rehabilitate a barn. If your home is located in South Carolina, you can also enjoy an additional 25% tax credit, but only if you fix up a mill.
In Illinois the requirements for the Illinois Historic Preservation Tax Credit Program (IL-HTC) are more general in regards to what type of property you can rehabilitate, and the credit is equal to 25% of your qualified rehabilitation expenditures (up to $3 million). The home must be a certified historic structure and the rehabilitations must be certified, so be careful with any do-it-yourself work.
In Wisconsin the Historic Homes Tax Credit Program offers owners of historic homes a 25% state income tax credit for rehabilitating historic personal residences (non-income-producing). In Indiana homeowners can qualify for the Federal Historic Rehabilitation Investment Tax Credit, which offers a 20% federal income tax credit on qualified expenses for the rehabilitation of historic homes, except unlike Wisconsin they have to be income-producing properties to qualify for this tax credit.
Not sure what your options are where you live? Call your state’s historic preservation office and ask them to point you in the right direction.
The takeaway
Understand the hard work and solid cash investment that goes into buying a historic home, and making the home livable or getting it ready to earn income, before you commit to the purchase. That said, the time and money you put into a historic home can be well worth the effort, and you’re contributing to maintaining our country’s unique history.
If a tax break is essential to your home buying plan, consult with a tax credit consultant before you purchase the home to learn more about your options and how to pursue a tax break.
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