Resource Center Preservation Tax Credits
Tax Credits: A Key Tool for Preservation
Tax credits have long been the most associated financial benefit of historic preservation. The federal government, along with many state and local governments, provide tax credit programs to encourage the preservation of designated historic properties by offering owners a financial return on their rehabilitation investments. The federal rehabilitation tax credit is exclusively offered to commercial property owners, but Maryland and Baltimore City programs commonly extend eligibility to both commercial and single-family residential property owners.
Baltimore Heritage, Inc. is a local non-profit organization that serves as an advocate for preservation in the city. In addition to the resources included below, Baltimore Heritage is an excellent resource to turn to with questions about tax credits for historic preservation.
Federal Tax Credits for Historic Commercial Properties
Federal law (Internal Revenue Code Section 47) provides a federal income tax credit for rehabilitation of eligible properties. National Register-designated commercial properties are eligible for a 20 percent tax credit, while non-designated commercial properties built before 1936 are eligible for a 10 percent credit.
The federal rehabilitation income tax credit process requires the property owner to follow a three-step application. First, the property must be certified as a historic structure through the state historic preservation office (Maryland Historical Trust) and the National Park Service. Second, the property owner must submit a detailed description of the proposed rehabilitation plan. For the third step, the owner makes an official request for qualification of the completed rehabilitation work and the associate expenses. The qualified rehabilitation expenses are the basis for calculating the resulting tax credit. Each step of the process is subject to scrutiny and regulation; documentation should be appropriately well organized and comprehensible.
Maryland Historic Commercial Properties and Home Owners
The federal rehabilitation income tax credit can be even more economically rewarding when combined with similar tax credits available through both the Maryland Historic Trust and the City of Baltimore.
The Maryland Historic Trust (MHT) has established its own rehabilitation tax credit program that follows the same three-step model of the federal program. MHT’s Sustainable Communities Tax Credit Program extends the rehabilitation benefit to both eligible commercial and single-family properties. Property owners begin the tax credit process by contacting MHT for an official application.
The Sustainable Communities Tax Credit application process begins with the certification of the chosen site as historic, which is usually achieved by listing in the National Register of Historic Places (either as an individual structure or as a contributing structure within a National Register historic district). The property owner must submit a detailed description of the rehabilitation project proposal. After completion of the rehabilitation project, the owner submits all expenses for review by MHT. The review qualifies rehabilitation expenses to be used as the base value in determining the tax credit before disbursement.
Similar to the federal program, the Sustainable Communities Tax Credit Program offers a credit worth 20 percent of the qualified expenses for certified historic commercial and single-family residential property, as well as a 10 percent for a non-historic, qualified rehabilitated structure. (The Sustainable Communities Tax Credit Program offers an additional five percent tax credit for commercial rehabilitations that meet LEED Gold energy efficiency standards.)
For more information on the state tax credit, contact the Maryland Historical Trust.
Baltimore City Historic Commercial Properties and Home Owners
A historic residential property owner may further benefit by combining the 20 percent Sustainable Communities tax credit with the local Baltimore Commission of Historical and Architectural Preservation (CHAP) historic property tax credit.
The CHAP historic property tax credit program is similarly designed to encourage investment in rehabilitation and is available for both commercial and residential property owners. The CHAP tax credit is calculated based on the difference between the historic property’s tax assessment before and after the proposed rehabilitation project. The CHAP tax credit is particularly beneficial as it offsets property tax liability in Baltimore City for up to 10 years.
For more information on the city's tax credit program, contact the Commission for Historical and Architectural Preservation.