Two previous articles about the Historic Homes Rehabilitation Tax Credit have generated a number of questions. We have gathered the most common and reached out to an expert to get the best answers possible. Hopefully this will point you in the right direction if this program is relevant to you…
What is the Historic Homes Rehabilitation Tax Credit?
We’ve written two versions of the overview. The first was in 2011 and focused on the nuts and bolts of the program. The second was in 2012 that emphasized the value with an example. Read them before getting into this Q&A because they are better for background and understanding the big picture.
Do I use the tax credit on my tax return or do I get cash?
You do not use the tax credit on your tax return. The program is set up so that the tax credits are only able to be used by certain types of corporations. One specific example is Connecticut Light & Power, which the Hartford Preservation Alliance recently recognized for their willingness to buy tax credits from homeowners at face value. At the end of the whole process you will get cash.
To quickly recap, once the projects on an application are complete, the homeowner goes back to the State Historic Preservation Office (SHPO) to turn in their documentation. SHPO reviews and (hopefully) approves the work. Next the homeowner lines up a buyer for their tax credit voucher and submits that information to SHPO. The voucher is issued directly to the corporation, who sends the homeowner a check once it is received.
Does the work have to be completed all in one calendar year?
No, the work does not need to be completed within either a calendar year or a tax year.
Once an application is approved, the credit funds for the project are reserved for, and allocated to, that homeowner’s application. However, a homeowner cannot collect the tax credit, and therefore sell it for cash, until they circle back to SHPO and submit their receipts and paperwork.
All the work must be completed within 5 years or you lose the funds that have been allocated to your project. This means that SHPO has to receive the paperwork for both the completed project and the request for the tax credit voucher to be issued within the 5 year deadline.
Am I, as an individual, limited to one application to the program, or can I apply multiple times?
Homeowners are not limited to a single application to the program. However, there are restrictions.
First, every application must contain more than $25,000 in budgeted work, for which you are eligible for a 30% tax credit voucher.
Second, for a particular property you are only able to claim the 30% credit on the first $100,000 in budgeted work for each dwelling unit. So if you live in a single-family home (one dwelling unit), then you could do four applications that each had $25,000 in budgeted work or two applications that each had $50,000 in budgeted work. The total budgeted work over all the applications can exceed the $100,000 cap, but the credit you receive will be limited to 30% of $100,000, which is $30,000 in value to you.
Third, you must fully complete your current application before you can submit another application. Practically speaking, this means that all the work has been done, approved, and that the tax credit voucher has been issued to the company you chose to purchase it.
Can I use the credit to replace windows and doors for better energy efficiency?
It’s very difficult to find an adequate replacement windows. SHPO has to review application using certain historic preservation standards and replacing original building fabric just doesn’t meet them. They rarely approve replacing original windows and doors. This is because recent studies show that a properly restored window with a good storm window provides the same and often better energy efficiency as a replacement. Very often a property owner is comparing the energy efficiency of a new window to that of an existing window in need of restoration.
Can I use the credit to add air conditioning?
Introducing or upgrading an HVAC system does qualify, but the work needs to be reviewed to ensure that the system is installed in a way that does not harm the historic building material.
What happens if I sell my house and move before the five year owner-occupancy requirement is satisfied?
It’s okay to sell the property before the five year owner-occupancy requirement has been satisfied as long as the home continues to be owner-occupied.
One of the pages of the program’s application is called the “Owner-Occupancy Assurance Statement.” It essentially makes you promise that you will either live there for five years or sell it to someone else who will live there for five years.
Suppose I bought a home that has been renovated using this program. Am I, as the new homeowner, limited in my ability to apply to the program?
No, a new homeowner can apply to the program again to make additional repairs to the property. Once you took ownership of the property the budget reset and you are eligible to apply for tax credits on up to $100,000 in budgeted work for each dwelling unit.
Can the program run out of money if too many homeowners apply for funding?
Theoretically yes, the program does have a limited budget. SHPO can allocate up to $3 million per fiscal year in tax credits, which translates to total project budgets of up to $10 million. So it would take 100 homeowners applying for the maximum to exhaust the funds.
Mary Dunne of SHPO, who is in charge of this program, reports that since 2000 they have never allocated the entire $3 million. And most years they only reserve between 30% and 60% of the total.
What else do I need to know?
The big thing that we haven’t mentioned this time is that in order to qualify for the program that the building needs to be a contributing structure in a Historic District (it needs to be old). And that the work needs to be appropriate for the historical nature of the house. The State’s tax credit program requires recipients to follow the Secretary of the Interior’s Standards for Rehabilitation, which are more specific as to what may or may not be done to a historic home, both on the inside and outside.
Please always feel free to call about the program if you are interested in learning more (Kyle: 860-655-2922). We’ve done a good amount of research on it at this point, and know the answers to most of the basic questions. And we’re also able to get you in touch with the right people for your particular project or situation.