Historic Tax Credit: How to Get 20% Back on Old Buildings

If you have a building that is 50 years old or older, this is something you need to know.

There is a tax credit called the Federal Historic Tax Credit, and it can give you back up to 20% of what you spend on improving a property. And this is not a deduction. This is a credit. That means dollar-for-dollar reduction in your taxes.

If you would rather listen to this instead of reading, you can check out the full podcast episode: HERE

What Qualifies

Let’s start with the basics. First, the property needs to be at least 50 years old. That does not automatically qualify you, but that is the starting point.

Second, it cannot be your personal residence. This has to be an income-producing property. That could be a rental, an Airbnb, an office, a warehouse, or another type of business use property.

Now here is where a lot of people miss the opportunity. If you are currently living in an older home, you could convert that property into a rental or income-producing property and potentially qualify.

The Big Requirement Most People Miss

This is the part that matters most.

You need to “substantially improve” the property. What that means is you need to invest at least the value of the building itself into improvements.

So let’s say:

• You buy a property for $500,000
• The land is worth $300,000
• The building is worth $200,000

To qualify, you need to put in at least $200,000 of improvements into the building. This is not small upgrades. This is real renovation. Flooring, electrical, plumbing, structural improvements.

How the Math Works

Let’s keep it simple. If you put $200,000 into the property:

20% of that is $40,000.

That is a $40,000 tax credit.

If you do not use all of it this year, you can carry it forward into future years.

You Can Stack This With State Credits

This is where it gets even more interesting. Many states offer their own historic tax credits.

So you might get:

• 20% federal credit
• Plus 5% to 20% state credit

Now you are potentially getting back 30% to 40% of your total project cost. That is a significant return just from the tax side.

Do Not Skip the Application Process

Before you start any renovations, you need to apply. This goes through the National Park Service.

You will submit:

• Details about the property
• Your renovation plans
• Estimated costs

They will review and approve the project before you begin. If you skip this step, you risk losing the credit entirely.

Final Thoughts

If you own or are thinking about buying an older property, this is something you should look at.

There are rules, and you need to follow the process. But if you structure it correctly, this can be a powerful way to reduce your taxes while improving a property.

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