Downtown Martinsburg
Historic Tax Credits

Historic Rehabilitation Income Tax Credits

by Jim Wilson

Owners of historic buildings are able to take advantage of substantial income tax benefits provided
by the state and federal governments for the rehabilitation of their buildings.

United States code provides for an income tax credit equal to 20% of allowable rehabilitation costs for approved work carried out on a historic building. The building must be listed on or eligible to be listed on the National Register of Historic Places. It can be individually listed or eligible or listed or eligible as part of a historic district. It must be a depreciable building. At this time there is no credit available for work on private residences, although legislation has been introduced at both federal and state levels to provide such relief.

The work must be done in accordance with the Secretary of the Interior’s Standards for Rehabilitation. It is necessary to file an application with the West Virginia State Historic Preservation Office. The credit is based on all capital investment in the building including work done on mechanical, electrical and plumbing systems as well as work on roofs, foundations and the installation of modern bathrooms and kitchens. Rehabilitation must be substantial, defined by the Internal Revenue Service as more than the adjusted basis in the building or more than $5,000, whichever is greater.

The state of West Virginia has provided for a 10% rehabilitation tax credit which in all respects is parallel to the federal credit. In the simplest example possible we can assume that a building is purchased for $50,000, the land is worth $15,000 making the adjusted basis for the building $35,000. Rehabilitation expenses total $40,000 for the project. This would result in an $8,000 federal income tax credit to be applied directly against taxes owed. There would be an additional $4,000 credit to be applied against West Virginia state income tax.

Additional information regarding the Historic Rehabilitation Investment Tax Credit can be obtained from Jim Wilson at 304-558-0220, ext. 155.