Tax Guru – Ker$tetter Letter

Q:

Kerry,

Someone recently told us that if you have a “historic building” or a building built before (I can’t remember what) date, then there were some tax credits available.  I don’t know where to get the info on this subject, but the building you’ll see on our balance sheet … was built in like 1912.  It’s vacant right now as it needs repairs, but I just wanted you to know so when you get to our 2004 return, we might get some extra deductions.

A:

The tax credit you are referring to is the historic rehab credit, which I think I covered in the seminars I was presenting with Wayne Camp.  It’s been around since the Tax Reform Act of 1986.

To summarize, an investment tax credit of 20% is allowed against the  rehab costs on business use buildings that are listed in the Federal National Register.

The credit is 10% of the rehab costs for buildings that were originally placed into service prior to 1936, which was intended to include any over 50 years old when the law was passed.

There are some restrictions on what percentage of the interior and exterior walls have to be retained in order to prevent people from completely tearing buildings down and erecting new ones.

The credit is non-refundable, which means it can only be used to offset Federal income tax, and not SE tax.  The unused portion can be carried forward.  I have one client … who rehabbed a certified historic building … about ten years ago, and we are still carrying forward about $10,000 for the credit.

I will make sure to enter the rehab costs accordingly for your 1912 building.  The purchase of the building itself doesn’t qualify for the credit.  Just the rehab costs do.

Kerry