00:01
All right, today's episode is for all of you that have a very old building. It's a pretty exciting, the Federal Historic Tax Credit, but if you have a building, and I'll go over the specific requirements for it.
00:18
It's not a personal house, but there's a way potentially where you could convert your house into this and qualify for the credit. But if you have a house that is on the historic preservation database. Um, or it's if it's 50 years or older, that's when you want to check that's kind of the cut off and that's when it could potentially qualify for this.
00:39
if the building and it's not just land or at one point if something was built on it 50 plus years ago might qualify the building still needs to be standing and if it's 50 years or older you might qualify so here here's some of the specifics of it first off i'll talk about the benefit of it like like why this might be important and why this could be very uh very worth it to you to uh do all these calculations go through the application process and approval process and and jump through these hoops to qualify for this credit because this credit is up to 20% of the dollar amount that you spend on substantial improvements to a historic property.
01:21
So what, and so I'll break that down a little because as in a lot of things with the tax law, like there's very specific words that can like make or break something.
01:31
So I mentioned that it is 20% and it's, what is it? 20% of what? So I'll give you this example. So let's say you bought, let's say you have a property and say the original purchase price of it, what you bought it for was $500,000. and it is an old building so say there's not a ton of value in the building right now so let's say the land is worth let's say the land is worth like 300 000 and the building is worth 200 000 and there's you could get an appraisal on it you could check county records to kind of get a value of the land we go at this point you go okay i've got 200 000 of this really old building
02:13
For you to qualify for this credit, you need to substantially improve that property. Which substantially improve that property in under this, this part of the tax law means that you need to put in at least 200,000 dollars of. Improvements like of cost going into this property.
02:33
To match the original basis or the original value of the building, you've got to put in at least $200,000 of new stuff, new flooring, new walls, new infrastructure, just new build-out, electrical and plumbing and roofing and the things that are making this property withstand another 50 years into the future. So it could be a big...
02:55
A big lift, but you think of you think of why the government is promoting this.
03:00
The government, they want to preserve these historic structures.
03:04
And they're not making it an easy thing to do, because you got to put a lot of money into it, but to in order to preserve them, they want people to. Like, they're expecting and they think people will need to put in a lot of money. Like, there's.
03:15
I'm sure there could be a lot of abuse or there's a lot of things that wouldn't qualify if it was just like, oh, you put $10,000 of flooring in or you put some sheetrock in. Those little projects aren't going to qualify. But if you did them all together, so think of that. If you've got one of these buildings, you did them all together at once and you're able to get past that substantial improvement test, it could be huge for you. So, of course, the calculation, say you put $200,000 into it.
03:41
The calculation on that, you multiply it by 20%, you've got a $40,000 tax credit. And this tax credit can be used to offset, it can reduce your federal income tax. And if it's not used in that current year, you can carry it forward into the future years. So there is a little bit of a catch. There's lots of catches with the tax law type stuff. But one of the catches here is that it can't be your personal property. It can't be a personal residence. So if you're just thinking of improving your own house, your personal residence, it can't be your own house. But something you can think of doing is you could be living in an old home right now.
04:22
if you convert it into a commercial property or a rental property an airbnb a long-term rental an office it could be an industrial building it could be a warehouse it could be any type of like for-profit building
04:38
And at the federal level, we'll talk about some state credits here in a 2nd, but at the federal level. Well, I don't know why it's not for the, it doesn't qualify for personal residences because it's like, if you want to preserve historic properties.
04:54
let's preserve historic properties and open it up for personal residences as well. But they didn't. For the federal, this 20% specific credit right now, it's only for those commercial use properties and properties are for rent. So you as an investor own this property. So remember that, that's kind of a catch. But there are, I looked it up just now, I didn't know this off the top of my head, but there are 38 states
05:16
That have historic preservation related credits for these old buildings and a lot of them and look up this specific number. A lot of them do have credits for personal homes, like, personal residences, the state credit. You can qualify for those and so that can help you with your state taxes. If you live in a state that hasn't state income tax.
05:36
And you can stack those credits. So you could get a 20%. And even there's some commercial like rental property ones as well. So if you have a rental property, you substantially improve it. You could get a 20% federal credit and then 5, 10, 15, 20% state credit as well, depending on your state and one of these 38 states. So they can be stacked. It's pretty sweet. And so you could be getting paid back.
06:01
20, 30, 40% of what you put in, you can get a bunch of that back 20, 30, 40% back as a credit to offset your taxes. Some other, let me think some other gotcha or just specific things. Well, actually I will talk about like the approval process. So it's not before you like, hopefully you're still listening and you didn't just go out there and just go under contract or start putting money into this because you have to follow the specific process in not every old building. If your building is old, like remember the first one of the first steps is it's got to be over 50 years old but that doesn't automatically approve you for it or qualify you for it and you still need to go through the steps to do it so you do need to go through an application process before you even swing a hammer or pay any money to improve it go submit an application oh if i had the website no i don't have the website in front of me
06:51
But it's the NPS, actually, I think this is worth looking up. So it is through the National Park Service. So nps.gov, there's a historic preservation, but they have a database of areas and specific properties that qualify. But for you, you do need to fill out an application and say, okay, houses, it's this old, I use it for commercial use, like it's a rental property.
07:20
And as part of that application process, they're going to have you submit like after you go through that first approval and they go, OK, well, if you have a project that's going to qualify, we'll consider it.
07:33
The second step of this application process is you need to give them the plan. Like, what are you going to do? to preserve the building like and the plan can't be like oh i'm going to tear it down and build apartment buildings it's they want to know how you're going to be preserving it what you'll be doing if you got flooring or siding or roofing and what you're going to be doing with that and they want to know the estimated cost as well and so you go through that you submit that process and the fees looking these up too it's like if it's up to like 80 000 a cost there's no fee
08:05
for this application process, but it goes up to like 800 bucks above that, $1,600 above that, up to like a $2 million build out. And then it's a sliding scale up there and it can, or up above there, it could be $2,500 plus for this application.
08:22
And then, so once it's approved, they go, okay, if you do this, we'll approve you, you'll get on the register, this will be a historic preservation, you'll qualify for the credit.
08:34
And then the real work begins. So then you're actually paying the cost, doing the build out, hiring the contractors, maybe doing some of the work yourself, but you're actually going through that and improving it. And during that process, they could it doesn't the people we've worked with, I've not seen
08:50
a lot of like inspections in the middle of it but typically after the fact they're going to inspect it after the fact they're going to be comparing before and after pictures they'll be on site likely i know especially with the state credits they're going to be on site they're going to be confirming that you've done what you said you're going to do um they may want receipts so make sure you're keeping receipts and invoices and you're tracking all that because there definitely could be inspections and audits and because this credit is so big hang on to your receipts hang on to yeah hang on to everything and just really just like when you're doing any tax return just make sure you've got documentation for it make sure it's filed correctly on your tax return and we fill out the form 3468 we fill out this form
09:35
we we don't like submit your receipts without or the pictures with that even on the tax return but we provide the calculations we do the calculation of the credit and then we file the tax return and then that's that's how you get the credit in the end so that's that's about all the detail we're going to today on this but so a few key takeaways if you have a 50 year old property or older
09:58
i think it's worth it if you do if the property does need some rehab or substantial renovation definitely worth applying for it even if it's 800 bucks you don't get approved i think it's still worth it to make sure that you go through that application process before you even start any project so that's key just do it before you start it's got to be a commercial property remember it needs to be a rental or an income producing property but if you convert a personal house into one of those properties like a rental at some point at that point it would qualify i don't don't do the build out before it's converted to a rental property so think of that as and just make sure the other the other big key takeaway is
10:40
do research at the state level as well, because the state credit in some cases can be just as significant as the federal credit. So definitely worth looking at the state credit as well, and they can be stacked. So a pretty sweet way of, if you have an older property, very old property, you could potentially qualify for it. So that's it for today on the preservation, the federal preservation tax credit, and how you could potentially get 20% back in tax savings based on the total cost of the project. Have a good rest of the day. See you. Thank you.
