T. Jeffrey Clarke, Princeton
In discussing the designation of a neighborhood as a historic district, issues such as protection from demolition, neighborhood pride and recognition of significance are often cited as rationales for establishing a district. A factor that is often overlooked is the financial advantage that may be gained by utilizing Federal Historic Preservation Tax Credits for the improvement and preservation of income-producing properties in a historic district.
These are not deductions but credits, reducing the owner’s income tax bill, dollar-for-dollar. To make them even more flexible and attractive, these credits may be carried back one year and forward up to 20 years. Credits are designed for income-producing properties, but this may include rental housing and the property owner is permitted to occupy the structure after a period of five years. The credits can be as much as 10 percent of the value of improvements of non-contributing non-residential structures constructed prior to 1936 and up to 20 percent of the value of improvements of any contributing structure, subject to specific guidelines established by the IRS and the National Park Service.
Most of the cost of rehabilitation and preservation of structural components (wall construction, windows, roofs, hvac, plumbing, electrical and even professional fees) can be submitted for credit so long as work conforms to the Secretary of the Interior Guidelines for Historic Structures, although the cost of additions cannot be included.
As one example, a couple desiring to eventually ‘downsize’ yet remain in Princeton could purchase a property, rehabilitate it to suit their eventual use and submit 20 percent of the qualified cost for credit on their tax return. They could then rent the property, sell their present house after five years and move into the renovated house, benefiting from both the rental income and the credit.
Of course, opportunities for the same tax credits exist for qualified business properties. The proper documentation and coordination with the State Historic Preservation Office (SHPO) is required, but the value of the tax credits far outweighs the additional cost of following the rules. Consultation with a tax advisor is recommended, and more information is available at http://www.nps.gov/tps/tax-incentives/before-apply/irs.htm.
T. Jeffery Clarke, AIA
Princeton
Mr. Clarke is a practicing architect in Princeton and an original member of the Princeton Borough Historic Preservation Review Committee.
