Maximizing Tax Benefits: Understanding Renovation Tax Credits Under the TCJA

Discover how the Tax Cuts and Jobs Act (TCJA) impacts tax credits for building renovations, focusing on the historic structures credit while eliminating the rehabilitation tax credit.

Overview of Tax Credits for Building Renovations

The TCJA introduces significant changes to tax credits associated with building renovations. While the rehabilitation tax credit (rehab credit) has been entirely eliminated, the historic structures credit remains viable but with modified terms.

Understanding the Rehab Credit

Previously, the rehab credit allowed a 10% credit for substantial renovation expenses incurred on buildings placed in service before 1936. Specific requirements included substantial work and compliance with wall retention rules. However, this credit is no longer available for expenses incurred after 2017, though transitional rules may apply under certain circumstances.

The Historic Structures Credit

Unlike the rehab credit, the historic structures credit offers a 20% credit for renovations to buildings of historical significance. Eligible properties include those listed on the National Register of Historic Places or located within registered historic districts certified by the Secretary of the Interior. The renovation must preserve the building's original historic character, although not necessarily its original use.

Changes and Requirements Under TCJA

Under TCJA, the historic structures credit must be claimed over a five-year period at a rate of 4% per year. This slower pace reduces the immediate tax benefit but allows for gradual realization over time. Importantly, the requirement to forfeit part of the credit if the property is sold within five years has been repealed, providing more flexibility to investors.

Application Process and Tips

To qualify for the historic structures credit, the rehabilitation project must be certified by the State Historic Preservation Office (SHPO) and approved by the National Park Service (NPS). Visit the NPS website for a list of eligible locations and detailed application instructions.

Conclusion

Navigating the tax implications of building renovations under TCJA requires careful planning and adherence to updated regulations. Consult with a qualified tax professional to maximize your tax benefits and ensure compliance with current laws.

Ensure to customize this content with your specific business details and contact information to enhance SEO performance.