7808 / What is the credit for rehabilitating old buildings and certified historic structures?
Designed as a tax incentive to encourage the preservation of historic buildings and as a means of spurring commercial growth in older cities and neighborhoods, a special investment tax credit is available for certain expenditures incurred in the rehabilitation of qualified buildings. The credit has been available for qualifying expenditures incurred after 1981 but underwent substantial revision in TRA ’86.
A 20 percent credit is available for expenditures incurred in rehabilitations of certified historic structures (residential or nonresidential) and a 10 percent credit was available for expenditures incurred in the rehabilitation of other buildings (nonresidential) that were first placed in service before 1936. These percentages apply to property placed in service (as a result of the rehabilitation) after 1986.2 Under the 2017 tax reform legislation, the 20 percent credit is to be claimed ratably over a five-year period beginning with the tax year in which the structure is first placed in service (i.e., 4 percent each year).3
This credit is effective for tax years beginning after December 31, 2017. However, a transition rule provides that: (1) if the building is owned or leased by the taxpayer during the entire period beginning after December 31, 2017 and (2) the 24-month period for substantial rehabilitation work (60 months in the case of phased projects) begins within 180 days of the legislation’s enactment, the amendments will not apply until after the 24-month (or 60-month) period ends.