How to Get Federal and State Tax Credits for Your Historic Home Renovation


Owning a historic home is like being the steward of a tangible piece of the past. From the intricate woodwork of a Queen Anne to the clean lines of a Mid-Century bungalow, these structures are the heartbeat of our communities. However, as any old-house enthusiast knows, "character" often comes with a significant price tag.

The good news? You don't have to shoulder the financial burden of preservation alone. Through a combination of federal tax incentives and state-level programs, you can unlock substantial financial relief. If you are planning a "substantial rehabilitation," understanding the nuances of these credits can transform a daunting renovation into a savvy investment.

The Landscape of Historic Tax Credits

When people talk about "historic tax credits," they are usually referring to two distinct buckets of money. It is crucial to distinguish between them early on, as the eligibility rules are vastly different.

1. The Federal Historic Preservation Tax Incentive

Administered by the National Park Service (NPS) and the Internal Revenue Service (IRS), this program offers a 20% income tax credit for the rehabilitation of certified historic structures.

  • The Catch: For federal credits, the property must be income-producing. This includes rental properties, commercial offices, or retail spaces.

  • The Rule for Homeowners: If you live in your historic home as your primary residence, you generally cannot claim the 20% federal credit. However, if you rent out a portion of your home (like a carriage house or a basement apartment), you may be able to claim a pro-rated credit for the expenses related to that unit.

2. State Historic Homeowner Tax Credits

Since the federal government focuses on commercial properties, many states have stepped in to support owner-occupied residential renovations. These state-level programs are often the "sweet spot" for homeowners.

  • Credit Amounts: Many states, such as Georgia, Michigan, and Connecticut, offer credits ranging from 20% to 30% of your qualified rehabilitation expenditures.

  • Availability: Each state sets its own budget and application window. For example, some programs may have a "first-come, first-served" reservation system that opens at the start of the calendar year.

Does Your Project Qualify? The "Three-Gate" Test

Before you pick up a hammer, your project must pass three critical "gates" to be eligible for either federal or state credits.

Gate 1: The Building's Status

The home must be a Certified Historic Structure. This generally means:

  • It is individually listed in the National Register of Historic Places.

  • It is a "contributing member" of a National Register Historic District.

  • In some states, being part of a locally designated historic district also qualifies you for state-level credits.

Gate 2: The "Substantial Rehabilitation" Test

Tax credits aren't for minor repairs like fixing a leaky faucet. To qualify, your investment must be "substantial."

  • Federal/Commercial: You typically must spend more than the "adjusted basis" of the building (the purchase price minus the land value and plus previous improvements).

  • State/Residential: State programs often have a lower, fixed threshold—for example, spending at least $25,000 or a certain percentage of the home’s value.

Gate 3: The Secretary of the Interior’s Standards

This is the most important rule: All work must meet the Secretary of the Interior’s Standards for Rehabilitation. These ten guidelines ensure that the historic character of the building is preserved.

  • The Core Philosophy: Repair original materials (like wood windows or slate roofs) rather than replacing them.

  • Compatible Design: Any new additions must be "compatible but differentiated," meaning they should look like they belong to the house without trying to trick people into thinking they are original.

Qualified vs. Non-Qualified Expenses

Not every dollar you spend on your home earns a credit. Understanding the difference between Qualified Rehabilitation Expenditures (QREs) and non-qualified costs is vital for your budget.

Qualified Expenses (QREs)Non-Qualified Expenses
Walls, partitions, and floorsAcquisition/purchase price
Roof and chimney repairNew additions (enlarging the footprint)
Windows and doorsLandscaping and driveways
HVAC, plumbing, and electricalFences and retaining walls
Architectural and engineering feesNew appliances (stoves, fridges)

How to Apply: A Three-Part Process

To ensure you get your credit, you must follow a strict administrative sequence. Never start work before receiving approval for your "Part 2" application.

Part 1: Evaluation of Significance

This application confirms that your building is indeed a "certified historic structure." If your home is already listed, this is a straightforward confirmation.

Part 2: Description of Rehabilitation

This is your "game plan." You will submit detailed photos of the "before" state along with architectural drawings and a written description of every change you plan to make. The State Historic Preservation Office (SHPO) will review this to ensure it meets the Standards.

Part 3: Request for Certification of Completed Work

Once the project is finished, you submit "after" photos. If the work matches your approved Part 2 plan, you receive your certification, which you then use to claim the credit on your tax return.

Professional Tips for a Smooth Approval

  • Consult a Tax Professional: Tax credits are complex. Unlike a deduction (which lowers your taxable income), a credit is a dollar-for-dollar reduction of the actual tax you owe. Make sure you have enough "tax liability" to actually use the credit.

  • Document Everything: Take high-resolution photos of your home before you start. Documentation is the currency of the preservation world.

  • Think Long-Term: Many credits have a "recapture period." For instance, you may be required to live in the home as your primary residence for five years after the project is completed. If you sell the house early, you might have to pay back a portion of the credit.

Final Thoughts

While the paperwork for historic tax credits can feel like a mountain, the financial reward is often the difference between a project that just stays afloat and one that truly shines. By utilizing these incentives, you aren't just saving money—you are ensuring that your home’s unique story continues for another century.


Navigating the Certificate of Appropriateness: A Friendly Guide to Historic Home Ownership



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