Rehabilitation credit


The rehabilitation credit–under Internal Revenue Code (IRC) Section 47–is also commonly referred to as the historic preservation or historic tax credit. The credit provides a tax incentive to rehabilitate historic buildings. If your rehabilitation and expenses qualify, you may claim a tax credit equal to 20% of your qualified expenses. The credit is allocated ratably over a 5-year period on your federal income tax return. See IRC Section 47 and Treas. Reg. 1.47-7.

Rehabilitation includes renovation, restoration, or reconstruction of a building, but doesn't include an enlargement or new construction. IRC 47(c)(2) and Treas. Reg. 1.48-12(b)(2)(iv).

Rehabilitation credit (historic preservation) FAQs

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You may be eligible to claim the credit if you own a direct or indirect interest in a building or in an entity that is the lessee of a building in certain cases such as:

  • An individual
  • Corporation
  • Partner, shareholder or beneficiary (not the passthrough entity such as partnership, S-corporation)
  • Estate or trust
  • Certain long-term lessees and lessees treated as purchasers because of lessor elections under IRC 50(d)(5) and Treas. Reg. 1.48-4.

See the FAQs for Eligibility and definitions and Tax-exempt and lessee issues.

Basic requirements

To decide whether your rehabilitation meets the National Park Service's requirements, review the National Park Service (NPS) eligibility requirements.

IRC 47 generally requires that you have qualified rehabilitation expenditures (QREs) PDF for a qualified rehabilitated building (see IRC 47(c)(2)). A qualified rehabilitated building includes any building and its structural components that:

  • Has been substantially rehabilitated as defined in IRC 47(c)(1)(B) and Treas. Reg. 1.48-12
  • Was placed in service as a building before the beginning of the rehabilitation
  • Is a certified historic structure under IRC 47(c)(3) and Treas. Reg. 1.48-12(d)(1)
  • Has allowable depreciation

See the IRS Instructions to Form 3468, Investment Credit for more information on qualified rehabilitated buildings.

Substantially rehabilitated

In general, a building is considered substantially rehabilitated if, during the 24-month measuring period you selected ending within the taxable year, your QREs exceed the adjusted basis of the building and its structural components, or $5,000, if greater.

You may substitute a 60-month measuring period for the 24-month measuring period if certain requirements are met. See What conditions must be met to substitute a 60-month measuring period for the 24-month measuring period?

Apply for NPS certification

Before you start rehabilitation work, apply for your building to be a certified historic structure by completing NPS's Historic Preservation Certification Form 10-168 (Historic Preservation Certification Application) Part 1 – Evaluation of Significance.

If you didn't submit Part 1 before you placed the property in service, you may be eligible to request relief. See Treas. Reg. 301.9100-1 through 301.9100-3 and when your NPS application is submitted late PDF. See also Treas. Reg. 1.48-12(d)(7)(ii) on late certification.

Claim the rehabilitation credit

The amount of the credit is 20% of the QREs for the qualified rehabilitated building. You claim the credit ratably over 5 years after 2017 and not under the transition rule.

For each year you claim the credit on your federal income tax return, attach Form 3468, Investment Credit.

If the credit is a carryback or a carryforward from another year, don't file Form 3468. Instead report the credit on Form 3800 (and, if required, Form 8582-CR, Passive Activity Credit Limitations).

Tips for filing Form 3468, Investment Credit, with a rehabilitation credit

When filing Form 3468:

  • Property owner: When you claim the credit, list the NPS project number on your tax return. Don't use state or other identification numbers such as internal identification numbers.
  • Shareholders, partners and beneficiaries: Claiming a credit through an S corporation, partnership, or trust: If you're receiving the QREs through a passthrough entity, you must file Form 3468 as the shareholder, partner, or beneficiary of the passthrough entity.
  • S corporations, partnerships, estates or trusts: Owners of the certified historic structure must file Form 3468 even though they don't claim the credit in order to passthrough the QREs to the shareholder, partner, or beneficiary. If the QREs are passed through to the shareholder, partner, or beneficiary, then the shareholder, partner, or beneficiary should list the pass-through entity's employer identification number on the Form 3468.
  • Lessees: If the lessor elected to treat the lessee as having acquired the property, the lessee must file Form 3468, Part 1 and list the NPS project number. The lessor attaches a copy of the election to their return and must give the NPS project number to the lessee.

Show the date of certification of completed work

List the date on Form 3468, that the NPS reviewer signed, NPS Form 10-168, Part 3, Certification of Completed Work. Don't use any other dates from the NPS Form 10-168.

Find how to Claim the credit before you receive the NPS final certification.

When to take the credit

Generally, you can begin taking the credit over 5 years in the tax year your qualified rehabilitated building is placed in service and meets all requirements. See Treas. Reg. 1.48-12(f)(2) and Treas. Reg. 1.47-7.

Transitional rule

Under the 2017 TCJA transition rule: (1) for certified historic buildings, there is a 20% credit entirely claimed in the placed-in-service year. Or (2) for pre-1936 buildings that are not certified historic structures, there is a 10% credit entirely claimed in the placed-in-service year.

The transition rule applies to QREs with respect to a building owned or leased by you during the entirety of the period after December 31, 2017, and with respect to which the 24-month period or 60-month period, whichever is applicable, selected by you begins not later than 180 days after December 18, 2017. The transition rule does not apply to QREs paid or incurred after the end of the taxable year in which the 24-month period or 60-month period, whichever is applicable, ends.

Claim the credit before NPS final certification

You may claim the credit on your tax return before you receive NPS final certification, if you reasonably believe NPS will determine the building to be a certified historic structure when you submitted your NPS request (Part 1) and the NPS later determines it is. Take these steps to claim the credit:

  • Attach a copy of the first page of NPS Form 10-168, Historic Preservation Certification Application, Part 2, showing the Department of the Interior or the State Historic Preservation Officer receipt and proof that the building is a certified historic structure (or that you've requested it). You should send NPS certification when you receive it.
  • Notify us in writing within 30 months after you claim the credit if you haven't received the NPS's final certification of completed work. Mail your notice to the address on the Where to File Certain Elections, Statements, Returns and Other Documents, Returns and Other Documents (see Treas. Reg. 1.48-12(d)(7)(ii)).

Recapture the credit if you no longer meet the criteria

You may have to recapture all or a portion of your credit if the property no longer qualifies as investment credit property or if you dispose of your interest in the property before the end of the 5-year recapture period.

This could happen if you:

  • Disposed of the property
  • Change its use
  • Reduce your proportionate interest by more than 1/3 in an S corporation, partnership, estate, or trust
  • Have property destruction due to casualty within the 5-year recapture period. Examples of a casualty include: a hurricane, flood, tornado, and earthquake. In practice, partially damaged property doesn't trigger recapture if you make repairs and place the property back in service. If destroyed by a casualty after 5 years, you don't recapture the credit.

For a full list of circumstances in which you must recapture the credit, see the Instructions to Form 3468 and Form 4255, Recapture of Investment Credit.

Façade or interior easement donation

Your charitable contribution deduction for a façade or interior easement on a qualified rehabilitated building will be reduced if you make the contribution within five years after the qualified rehabilitated building is placed in service. Generally, the reduction will be determined using a ratio that involves the fair market value of the building on the date of the contribution and the sum of the rehabilitation credits you took in the 5 preceding tax years. For information on donating an easement on a historic building see the conservation easement audit techniques guide PDF.

In addition, if you contribute a façade or interior easement within 5 years after a qualified rehabilitated building is placed in service, the credit recapture provisions of IRC 50(a) apply. See Rome I Ltd. v. Commissioner, 96 T.C. 697 (1991); Rev. Rul. 89-90, 1989-30 IRB 4.

Finally, after you contribute a façade or interior easement, you must reduce the basis of the part of the building you retained by allocating part of the total basis in the building to the donated easement. The amount of the total basis allocated to the easement is an amount that bears the same ratio to the total basis of the building as the fair market value of the easement bears to the fair market value of the building before the easement was granted. If you contribute an easement on a building on which you take depreciation deductions, the basis reduction of the part of the building you retained must be allocated between the building and the underlying land. See Treas. Reg.1.170A-14(h)(3)(iii) and Treas. Reg. 1.170A-14(h)(4)(iii) Example 12.

How the rehabilitation credit impacts other credits

If you claim the rehabilitation credit, consider how it impacts other credits:

  • Energy credit: Generally, you can't use the same property for which you claimed the rehabilitation credit to claim for the energy credit. IRC 48(a)(2)(B).

  • Low-income housing credit: You can claim the rehabilitation tax credit and the low-income housing credit if you meet the rules for each one and properly adjust the property basis.

Compare the rehabilitation credit and low-income housing credit PDF.