Federal and State Tax Credits, Grants & Other Funding Sources
Looking for assistance in rehabilitating an historic building?
Here's where you'll find basic information about
- federal and state historic tax credits, as well as
- links to information about
Since 1976, federal law has provided tax incentives for historic preservation. A state tax incentive has been available since Jan. 1,1998. The availability of the federal and state tax credits has encouraged investment in historic resources – in urban cores, residential neighborhoods and small towns throughout the state.
According to the National Park Service's FY2004 annual report on tax incentives, the success of the federal historic rehab tax credit program in Missouri demonstrates the impact of the existence of the state tax credit on the use of the federal tax credits, and has enticed developers from other states to join local developers in hiring workers to rehab historic buildings in communities across Missouri.
The Department of Natural Resources’ State Historic Preservation Office (SHPO) works with property owners, developers and architects to provide advice on appropriate rehabilitation. SHPO staff review applications for tax certification and make recommendations for approval.
Below is a summary of the application and review process for state and federal historic rehab tax credit projects.
- Tax credits for historic rehabilitation
- What buildings qualify for the credits?
- Minimum investment requirements
- What rehabilitation work qualifies for the credits?
- Rehabilitation standards
- What if a building is not currently listed in the National Register?
- Who reviews the proposed work to ensure that the Secretary of the Interior’s Standards are followed?
- Recapture provisions
- Can the credits be carried over?
- What is the process for obtaining the credits?
- When is the tax credit claimed?
- Timeframe for review
- Can a project have multiple investors? Are there limitations in the use of the credits?
- Is there an application fee for projects seeking the credits?
- Are there other things to keep in mind when undertaking a tax credit rehabilitation?
Tax credits for historic rehabilitation
A 20 percent income tax credit is available for the rehabilitation of historic, income-producing buildings that are determined by the Secretary of the Interior, through the National Park Service, to be “certified historic structures.” The State Historic Preservation Office and the National Park Service review the rehabilitation work to ensure that it complies with the Secretary’s Standards for Rehabilitation. The Internal Revenue Service defines qualified rehabilitation expenses on which the credit may be taken. The federal credits are limited to income-producing, depreciable property only. The property may be either commercial or residential rental property. A taxpayer’s personal residence would not qualify for the federal credit. The federal program requires recapture if the developer does not hold it for the production of income for 5 years or longer.
Missouri law provides an investment tax credit equal to 25 percent of approved costs associated with qualified rehabilitation made after Jan. 1, 1998. The State Historic Preservation Office is responsible for certifying that a building is a historic structure (see below) and for reviewing and approving rehabilitation work for the state credits. The federal and state credits can be used in combination for the rehabilitation of commercial or income-producing properties. Missouri's historic tax credit program not only facilitates the rehabilitation of buildings for uses that meet the federal requirements, but also allows tax credits for the rehabilitation of buildings that will be sold on the projects' completion. In addition the state law allows credits for the rehabilitation of a taxpayer’s personal residence. The state credits are administered by the Missouri Department of Economic Development; please consult the Department for information regarding the administration of the state program.
What buildings qualify for the credits?
To be eligible for the state or federal credits, a building must be " historic." To qualify as "historic" a building must either:
- Be listed individually in the National Register of Historic Places, or
- Be a contributing element of a historic district that is listed in the National Register of Historic Places, or
- Be a contributing element of a Local Historic District that has been certified by U.S. Department of the Interior as substantially meeting National Register criteria.
The federal credits are limited to income-producing, depreciable property only. The property may be either commercial or residential rental property. A taxpayer’s personal residence would not qualify for the federal credit.
The state credits also apply to income-producing property including either commercial or residential rental property. Additionally, a taxpayer’s personal residence can qualify for the state credit if the property is a certified historic structure and if the minimum investment threshold is met.
Minimum investment requirements:
The rehabilitation must be " substantial," meaning that a minimum amount must be invested during the rehab. The threshold requirement for the federal program is $5,000 or the adjusted basis of the property, whichever is larger, within a 24-month (60-month, if phased) test period.
For the state credits, the threshold requirement is 50 percent of the basis, within the project period defined by the applicant, but beginning AFTER the applicant's receipt of a letter from the Department of Economic Development conveying preliminary approval and the applicant's credit allocation.
Note that the federal credits use the "adjusted basis" while the state credits use the "basis" for determining if the threshold has been met. "Basis" is the cost, or fair market value, of the property at the time of acquisition, or as otherwise defined in the U.S. Internal Revenue Code. The "adjusted basis" of a building is essentially the current book value of the building. It is determined by taking the purchase price of the building and subtracting the value of the land (which does not depreciate). Any previously claimed depreciation is subtracted from this figure and the value of any improvements made up to the beginning of the 24-month (60-month, if phased) test period is added to the figure.
Applicants considering the federal tax credits should consult a qualified tax professional for information on determining the basis of a property, the 24-month test period for meeting the threshold, and the impact of phasing a project.
For a taxpayer seeking both federal and state credits, it is possible that the project might meet one but not the other of the threshold requirements.
What rehabilitation work qualifies for the credit?
Qualified work for the federal credits includes costs associated with work undertaken on the historic building, as well as architectural and engineering fees, legal expenses, development fees, and other construction-related costs, if such costs are added to the basis of the property and are determined to be reasonable and related to the services performed.
For information regarding the definition and timing of work qualified for the state credits please consult the Missouri Department of Economic Development.
Acquisition costs, furnishing costs, new additions that expand the building, new building construction, parking lots, sidewalks and landscaping are not allowed under the federal and state programs.
In order to qualify for the federal or state credits, the rehabilitation project must follow the Secretary of the Interior’s Standards for Rehabilitation. The same standards are followed for both the state and federal programs. A rehabilitation project approved by the National Park Service as meeting the Secretary of the Interior’s Standards will be approved at the state level.
Copies of the Secretary of the Interior’s Standards are included in both the federal and state tax credit application packets. Additional information on the standards can be obtained by contacting the State Historic Preservation Office or the National Park Service or by following these links:
- How the Standards are interpreted (in plain English!)
- What does NOT work under the Secretary's Standards!
What if a building is not currently listed in the National Register?
Under the federal tax credit program, owners of buildings that are not yet listed in the National Register may use the Historic Preservation Certification Application, Part 1 (dated "Rev. 2014" in the upper right corner) to request a preliminary determination of significance from the National Park Service. Such a determination allows the owner to proceed with the rehabilitation while the process of nominating a building or district continues. Preliminary determinations, however, are not binding and become final only when the building or district is listed in the National Register.
For information regarding the relationship between National Register listing and the eligibility of rehab expenses at the state level, please consult the Missouri Department of Economic Development.
Who reviews the proposed work to ensure that the Secretary of the Interior's Standards are followed?
For the federal credits, the taxpayer submits the Part 2 application (dated "Rev. 2014" in the upper right corner) outlining proposed rehabilitation work. Please do not attempt to fill out the form online; please download the pdf application to your computer and fill out the application This is reviewed initially by the State Historic Preservation Office in the Department of Natural Resources. The application is then submitted to the National Park Service for final certification. The State Historic Preservation Office and the National Park Service are permitted to inspect a property within the five-year recapture period and the certificate can be revoked if it is found that work was not carried out as certified.
To obtain the state credits, the taxpayer submits all required state forms and supporting paperwork to the Missouri Department of Economic Development, which will forward the paperwork necessary for certification that the building is an historic structure and the project meets the Secretary's Standards for Historic Rehabilitation to the State Historic Preservation Office for review.RECAPTURE PROVISIONS
For federal projects, a property owner must maintain ownership for a period of five years after the credit is issued. If the owner sells the property within that five-year period, 20 percent of the credit will be recaptured for each year remaining.
There are no recapture provisions for the state credits.
Can the credits be carried over?The federal tax credits can be carried back one year and forward 20 years or until the credit is exhausted. The state tax credits can be carried back three years and forward 10 years. The credits are to be claimed against the taxes imposed pursuant to §§ 143 and 148 RSMo, except for §§ 143.191 to 143.265, RSMo.
What is the process for obtaining the credits?
To obtain the federal credit, a taxpayer must submit two complete signed copies of the Preservation Certification Application to the State Historic Preservation Office. The application is a three-part form. Part 1 is used to determine if a property is historic. Part 2 outlines in detail the proposed rehabilitation work. Both are submitted DIRECTLY to the State Historic Preservation Office for review and forwarding to the National Park Service. Part 3 is submitted once the rehabilitation work is completed. After the State Historic Preservation Office reviews Part 3, it is forwarded to the National Park Service. The National Park Service issues the final certification, which is filed with the taxpayer’s federal income tax return. Effective May 15, 2014, older forms may not be used. Only those marked "Rev. 2014" in the upper right hand corner will be accepted. Please download the pdf forms and save them to your computer before beginning.
For information regarding the forms, instructions and administration of the state credit, please consult the Missouri Department of Economic Development, which will forward the paperwork necessary for certification that the building is an historic structure and the project meets the Secretary's Standards for Historic Rehabilitation to the State Historic Preservation Office.
It is recommended that an owner seeking BOTH federal and state credits apply concurrently. Please consult with the Missouri Department of Economic Development for information regarding timing issues and substituting the federal Part 2 for the state Part 1b.
When is the tax credit claimed?
Generally, the federal tax credit is claimed on IRS form 3468 for the tax year in which the rehabilitated building is placed in service.
Generally, the state tax credits are claimed on Missouri form MO-TC for the year in which the rehabilitated building is placed in service.
Time frame for review
Federal tax act projects are allowed 30 days for review at the state level and 45 days for review at the federal level. This time frame assumes that all adequate information has been supplied in the application. Should it be necessary to request clarification or additional information from the applicant, the clock would stop at that point and be started again once adequate information is supplied for review. Please send both copies of ALL federal paperwork directly to the State Historic Preservation Office.
Can a project have multiple investors? Are there limitations in the use of the credits?
Federal projects can have multiple investors; however passive loss restrictions for federal projects would apply. Note that federal credits cannot be sold. The "Housing and Economic Recovery Act of 2008" (P.L. 110-289 Sec. 3022) repeals the Alternative Minimum Tax limitations on the Federal rehabilitation tax credit "to the extent attributable to qualified rehabilitation expenditures properly taken into account for periods after December 31, 2007." For the implications of this change, please consult a a qualified tax professional.
State law permits distribution of credits to investors based on a pro-rata basis or an executed agreement among the investors. Effective Aug. 28, 1998, state credits can be sold. Involvement by not-for-profits in the sale of state credits is not allowed.
It is recommended that the advice of a qualified tax professional be sought before proceeding with any project involving multiple investors!IS THERE AN APPLICATION FEE FOR PROJECTS SEEKING THE CREDITS?
The National Park Service (NPS) charges a fee for review of federal tax projects. The fee is based on the anticipated cost of the project. The fee must be paid before the NPS will review the Part 2 and Part 3 applications. Fees for projects received by the SHPO prior to December 31, 2012 range from $500 for projects costing between $20,000 to $99,000 to $2,500 for projects costing $1,000,000 or more. Fees for projects received by the SHPO on or after December 31, 2012:
|Project Cost||Federal Fee|
|$5,000 - $79,999||no fee|
|$80,000 - $3,849,999||$845 + 0.15% (0.0015) of rehabilitation costs over $80,000|
|$3,850,000 or more||$6,500|
The NPS handles billing for the federal project review. For more information about changes in the federal fee structure & timing of the fees, please visit http://www.nps.gov/tps/tax-incentives/app-process/fees.htm
The National Park Service will not accept pre-payment by credit card form after May 15, 2014. ALL review fees must be paid through Pay.gov.
Effective Sept. 7, 2005, the Missouri Department of Economic Development (DED) , began collecting a fee of 2.5 percent of the value of the tax credit issued for deposit into that department's Economic Development Advancement Fund. The amount will be determined and the fee required after final certification, but prior to the issuance of the tax credit.ARE THERE OTHER THINGS TO KEEP IN MIND WHEN UNDERTAKING A TAX CREDIT REHABILITATION?
Apply as soon as possible -- well BEFORE beginning work. It is advisable to consult with the Missouri Department of Economic Development regarding timing, eligible costs & allocations BEFORE submitting your application. Consult with the State Historic Preservation Office regarding the architectural review process and the federal credits as soon as you can. Read the program applications thoroughly and follow instructions carefully.
Photograph your building inside and out BEFORE beginning work . Complete before photographs are required for project review. Without them, it is impossible to review a project. A photo-documentation instruction sheet is included in the preliminary guidelines for the state tax credit.
Read and follow the "Secretary of the Interior’s Standards for Rehabilitation." Consult with the State Historic Preservation Office for information on interpreting the standards.
Seek the advice of a qualified tax professional before proceeding with any tax credit rehabilitation project!
More information re: historic tax credits:
- Donovan Rypkema, The Economics of Preservation in Missouri
- How the Standards are interpreted (in plain English!)
- Obtaining Energy Efficiency in Historic Buildings
- Integrating New Technologies
- Guidance on windows, interiors, new additions and related construction, energy efficiency, new materials and code requirements
- What does NOT work under the Secretary's Standards!
- The IRS connection
- Department of Economic Development's Historic Rehab Tax Credit page
- Applications and Instructions for the Federal Historic Preservation Tax Credit Program
- National Register Eligibility Assessment
- Preservation Briefs
- Interpreting the Standards Bulletins
- Case Studies
- Historic Celebration - Missouri Resources Magazine (Fall 2008)
- Investing in the Past - Missouri Resources Magazine (Spring 2000)
- Economic Impact of Historic Preservation Projects in Missouri
Other tax credit possibilities:
In additon to the tax credit programs described above, there is an annual grant competition open only to Missouri's Certified Local Governments and administered by the State Historic Preservation Office.
Other Grant Possibilities & Tips:
Finally, other state and federal agencies and private entities provide grants, fund-raising strategies and other assistance that may help in completing your project:
- Grants.gov - the place to search for grants from all federal agencies
- Save America's Treasures
- President's Committee on the Arts and Humanities
- Arts, Humanities and Historic Preservation Resources
- Funding suggestions from the National Trust for Historic Preservation
- Sources for Financial Assistance from the federal Advisory Council on Historic Preservation
- Community Facility grants from USDA
- Rural housing grant and loan programs from USDA
- Sustainable Communities Regional Planning and Community Challenge program (HUD)
- Community grants in the Missouri Ozarks
- Missouri Association of Community Arts Agencies
- Partners for Sacred Places
- Grants for Parks and Trails
- Grants for Preservation of Local Records
- Catalog of Federal Domestic Assistance
- Grant Writing