They are credits that are designed to encourage the renovation and re-use of older buildings. There are 2 types of tax credits available: a 20% - 35% State Income Tax Credit (STC) and a 20% Federal Income Tax Credit.
On your state and/or federal income taxes, unlike a deduction, which reduces your taxable income, a tax credit directly reduces the amount of tax you owe. If you spend $100,000 on a project, claiming the 20% Federal ITC would reduce the amount of taxes you owe the IRS by $20,000. If you don't owe $20,000 in one year, you can spread the tax credit out over a period of up to 20 years. If you claim the 20% State Tax Credit, it would reduce the amount of taxes you owe the State of Colorado by $20,000. The State Tax Credit can be spread out over a period of up to 10 years.
The State Register, which is a list of historic properties designated by History Colorado.
The National Register, which is a list of historic properties reviewed by History Colorado and designated by the National Park Service. Properties listed on the National Register are automatically listed on the State Register.
Must be on the State Register OR be a Locally Landmarked by a CLG
Must be on the National Register, OR a contributing structure in a National Register district, OR eligible for the National Register, OR a contributing structure on a National Register-eligible district.
Step 2: Current Use
The State Tax Credit applies to any building that can meet the requirements listed above. The Federal Tax Credit only applies to certain uses, as listed in the chart below:
I own the building, and:
I live in the building
I rent out the building for others to live in
I live in one part of the building, and rent out another part to others
I run a business in the building
I live in one part of the building, and run a business in another part
I don't own the building, but I lease all or part of it for my business
* In these cases, work on personal living areas would not count, but work on the rented/business part would. Work which covers both personal and business areas (a new roof on the house, for example) would also count.
History Colorado can tell you if a building has been listed on the State or National Register. Local Landmark designations are made by local officials. You can get a current list of local landmarks in your community by contacting your municipal or county government. History Colorado can help if you need to get your property listed on the State or National Register.
The project must be "substantial." For the State Tax Credit for residential properties, you must spend at least $5,000. For the State Tax Credit for commercial properties, you must spend at least 25% of the Adjusted Basis of the building. For the Federal ITC, you must spend the greater of $5,000 or the Adjusted Basis of the building.
Projects under the residential State Tax Credit have no time limit for completion once the project plans have been approved by the reviewing entity, although only work completed 24 months prior to plan approval qualify. Projects under the commercial State Tax Credit must be 20% complete 18 months after reservation of credits and only work complete 60 days prior to reservation request qualifies. Projects which claim the Federal ITC must finish within 24 months split into phases, unless split into phases which allows the work to be completed within 5 years. If you plan on taking longer than 24 months to finish your project, you may wish to break it up into two or more smaller projects.
The maximum credit for the State Tax Credit is $50,000 for residential properties within a ten-year period; amount resets with change of ownership. The maximum credit for the State Tax Credit for commercial properties is $1 Million per year per property. The State Tax Credit for commercial properties has a cap on the amount that can be awarded to all projects during a calendar year - $5 Million to projects with rehabilitation expenditures of $2 Million or less and $5 Million to projects with rehabilitation expenditures greater than $2 Million. These credits are awarded on a first come – first serve basis. There is no maximum for the Federal ITC programs.
For the State Tax Credit, you can sell the property anytime after you receive your final credit certificate, with no penalty. For the Federal ITC, you must keep the property for five years after completing the work. If you sell the property or break a lease, you may have to pay back all or some of the credit.
Not all costs associated with the rehabilitation are eligible for the credit.
You mentioned that not all costs are associated with the credit. What is and what is not?
The laws that established the federal and state tax credit programs also stipulated what costs could be counted towards the tax credit, and which could not. The costs which do count towards the credit are known as qualified rehabilitation expenditures. The State and Federal versions differ slightly. In general, the following items are considered qualified expenditures:
"Hard costs" associated with the physical preservation of the property-demolition, carpentry, plaster and/or sheetrock, painting, ceiling/floor repair, doors and windows, roofing and flashing, cleaning, brick and mortar repair, wiring, light fixtures, stairs, elevators, heating systems, etc.
"Soft costs", such as architect, engineer, and developer fees, count towards the Federal ITC but NOT the State Tax Credit.
Appliances which are permanently installed (a built-in stove, for example) count towards the State Tax Credit, but NOT the Federal ITC.
State Tax Credits for residential properties allow only for repair of kitchens and bathrooms. Replacement items of any type (appliances, fixtures, flooring) do not.
For more information, please contact History Colorado or the National Park Service. You should also contact an accountant if you have questions. Although we can provide general information about costs, we cannot give the same sort of detailed, line-by-line analysis that a certified accountant can.
Are there any other requirements I should know about?
The projects are reviewed according to the Secretary of the Interior's Standards for Rehabilitation. These were designed by the National Park Service to help people to renovate their homes and buildings in a historically sensitive manner. You do not need to "restore" your building in order to claim the tax credit, but you must preserve existing historic features whenever possible.
This depends on the type of credit being claimed. Each involves an application, which is reviewed and certified (approved). The Federal ITC is a three-part process and the State Tax Credit is a two-part process.
Review of commercial State Tax Credits is completed jointly by the Colorado Office of Economic Development and International Trade and History Colorado. Applications are submitted online here.
Review of residential State Tax Credit applications depends on where you live. Some municipalities and counties have Certified Local Governments (CLGs), which have elected to review residential State Tax Credit projects in their jurisdiction. Not all CLGs review applications. If you live in a municipality or county without a CLG, or if your CLG does not review tax credit applications, then History Colorado will review it for you.
Both the State of Colorado and the National Park Service review the Federal ITCs. These applications are sent to History Colorado, which then forwards them to the National Park Service in Washington, D.C.
Back to the application process. What do I do to claim the credit?
Starting with the Federal ITC:
This is a 3-part application. The first part, cleverly called Part 1, is to determine that the property is eligible as a historic structure. Properties that are listed INDIVIDUALLY on the National Register do not need a Part 1. All other properties, including those in National Register districts, do.
Part 2 is the section where you describe the work planned for the project. Often, applicants describe their project by dividing it into sections (roof, windows, walls, foundation, etc.) and describing each in detail. An example would be:
Architectural Feature: Roof
Approximate date of Feature: 1980s
Describe work and impact on existing feature:
Remove existing asphalt roof. Replace with new T-lock asphalt shingle roof. Install flashing where needed.
Describe existing feature and its condition:
Existing asphalt roof is in poor condition. Shingles are warped and missing. Gaps in flashing cause leaks.
Photo #: 12, 13, 14, 18 Drawing # A-2, A-3
The Part 2 must include color photographs. Plans, specifications, and drawings should also be included if they help to explain the work being proposed. Two sets of everything is required - one for History Colorado, and one for the National Park Service in Washington, D.C. If two sets of photographs cannot be provided, we will accept one set of photos and a set of clear reproductions instead (color photocopies, color computer scans, etc. We cannot accept B&W photocopies of color prints).
Part 3 is completed after the work is finished. This is the "after" section, which describes the work actually done as part of the project. The Part 3 application also requires two sets of photographs. Ideally, the Part 3 photos should match the same views as the Part 2 photos, so that "before" and "after" views can be compared.
History Colorado, reviews all of the Parts, then forwards them to the National Park Service in Washington D.C. for final approval/disapproval. They have the final word on these matters. Our office can only make recommendations.
Now the State Tax Credit?
The State Tax Credit works like the Federal ITC, with three exceptions. One is that the applications are reviewed in-state; the National Park Service is not involved. Two is that all commercial applications must be submitted online. Third is that for the State Tax Credit application, Parts 1 and 2 of the federal ITC are mashed together and are called Part 1. When filling out Part 1 of the State Tax Credit application, you document the historic eligibility of the property AND outline the plans for its renovation at the same time.
Part 2 of the State Tax Credit is like Part 3 of the Federal ITC - it describes what the place looks like "after" the work has been completed.
Again, good photographs, drawings, plans, and other visual aids are crucial in the review process. When filling out the State Tax Credit application, only one set of photos is needed.
For the Federal ITC, there is a $250 fee to review Part 2, and a larger fee to review Part 3. The Part 3 fee depends on the cost of the rehabilitation, and varies between $500 and $2,500. These fees are charged by the National Park Service- there is no additional charge from the state. You do not have to send any money with your application. The Park Service will send you a letter requesting payment once they have received the application.
For the State Tax Credit for residential properties, fees vary between $0 and $1,000 based on the cost of the rehabilitation. For the State Tax Credit for commercial properties, the Part 1 fee is $250 - $500 and the Part 2 fee is 3% of the value of the credits issued.
History Colorado has up to 45 days to review applications for the State Tax Credit for residential properties and the Federal ITC. History Colorado and the Colorado Office of Economic Development and International Trade have 90 days to review commercial applications for State Tax Credits.
The National Park Service has up to 30 days request payment for review. Once the payment is received, they have another 30 days to review the project and respond to the applicant.
If either the State of Colorado or the National Park Service has questions about the project, or if there is missing information, the process can take longer. Both the State and Park Service are required to respond within the above time limits in every situation, however. The average Tax Credit project takes 2-3 months to review.
Can you recommend a (roofer, builder, architect, window company, door maker, etc.)?
Although we sometimes get product information and literature from companies, we can't really recommend anyone because we can't guarantee their work. The best advice is to check the Internet, restoration magazines such as Old House Journal, as well as other people in your community who have completed a restoration project. History Colorado also publishes a directory entitled Directory of Cultural Resource Professionals and Historic Preservation Service Specialists for Colorado. It's a rather short book, considering the long title. But it does include a list of Colorado-based architects, historians, and consultants who may be of assistance.
The National Park Service offers publications about restoration projects and practices. Preservation Briefs discuss techniques and methods used to restore and rehabilitate various building materials and types. Preservation Tech Notes describe specific case studies dealing with preservation.