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Preservation Primer: Historic Tax Credit

07/19/2021
By Preservation Maryland

Finding funds for your preservation rehabilitation project can be complex and confusing. Fortunately, in Maryland, there are many programs designed to help private property owners maintain and rehabilitate their historic structure. Historic tax credits are a critical tool and may be just the funding boost you need to get your project completed!

DISCLAIMER: Preservation Maryland and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should always consult your own tax, legal and accounting advisors before engaging in any transaction.

How Does a Tax Credit Work?

From the Motley Fool: “A tax credit is a type of tax incentive that can reduce the amount of money a taxpayer owes the government. Unlike a tax deduction, which reduces taxable income, a taxpayer can subtract a tax credit from the amount of taxes they owe, lowering their tax liability dollar-for-dollar.”

In other words, tax credits are one of the best tax incentives available. 

For historic rehabilitation projects tax credits generally offset the cost of your rehab. In the simplest terms, they work like this:

If you have $100,000 worth of rehabilitation expenses, a 20% state historic tax credit would provide $20,000 worth of credits to lower your state tax liability. But, what if you don’t owe $20,000 in state taxes? In Maryland, you’re in luck – the Maryland homeowner tax credit is refundable which means you get a check for the amount over and above your state tax liability. So, if in this same example you owed $10,000 in state taxes – you would then get a check for $10,000. That’s the $20,000 value of your historic tax credit minus your $10,000 in state tax liability.

How do you Get a Tax Credit?

There are a variety of historic tax credits available. Before you pick up a phone to call a contractor or think about your project, you should begin to research the various tax credit programs and reach out to the program staff to explore the options and requirements. It’s extremely important to start your research early and learn about the application process. In most cases, it’s a three step process: 

In Maryland, there are several types of historic tax credits available:

What Type of Rehab Work is Eligible for Tax Credits?

Every program is unique, which is why it’s so important to speak with the staff of the program you intend on using.

In Maryland, generally speaking the building must be a certified historic structure, defined as having at least one of the following designations:

Once you determine your overall eligibility, you’ll need to determine if the work you’re doing is eligible. In Maryland, the following types of rehab projects may qualify for the state historic tax credit:

In Maryland, there are also rehab projects that are ineligible for funding. Generally, this includes:

Tax Credits Are Good for Maryland

In addition to providing financial support for complex preservation projects, tax credits also spur economic activity and boost tax revenue for federal, state and local coffers. In Maryland, the historic tax credit has been documented as generating $8.53 in economic activity for every $1 in tax credits – a massive return-on-investment. Preservation Maryland works tirelessly to advocate for this program and make the case for the state investment in tax credits. To learn more about the efforts to sustain this program, visit our Advocacy Program webpage.

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READ OUR OTHER PRESERVATION PRIMERs HERE TO ANSWER MANY MORE OF THE MOST FREQUENTLY ASKED PRESERVATION QUESTIONS.

Perhaps nothing in preservation causes as much confusion as the National Register of Historic Places. Does it prevent demolition? Does it protect buildings? Can you change your paint color? Do you get tax breaks? Can you get a grant? Learn more about the National Register here

Historic structures require significant repair and upkeep – but with routine maintenance the time and expense associated with those repairs can be substantially reduced. Equally important as maintaining the structure is making sure that those repairs are safe for historic buildings. Learn more about preservation best practices here.

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Preservation Maryland is Maryland’s first and largest organization dedicated to preserving the state’s historic buildings, neighborhoods, landscapes, and archaeological sites.

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