Historic Tax Preservation

Melissa N. Collar

Source: West Michigan Commercial Development & Real Estate Quarterly

"Location, location, location." Many of our state's urban areas, including the cities of Grand Rapids, Muskegon, Battle Creek and Detroit, are enjoying a much-needed rejuvenation as old buildings are rehabilitated into efficient, popular new offices, homes, and retail centers. What is fueling the emerging trend for businesses and residents to return to the cities?

For many: economics. If the historical integrity of a building undergoing renovation is preserved, federal and state preservation tax incentive programs can significantly reduce the cost of the project. For some, these programs make good business sense despite the administrative complexities.

While a tax incentive lowers the amount of income subject to taxation, a tax credit lowers the amount of tax owed. Thus, a credit basically permits a dollar-for-dollar reduction in the amount of income tax liability, such that if an owner receives a $100,000 tax credit, the owner's income tax liability is generally reduced by $100,000.

This article provides a brief overview of three tax credit programs available.

20% Federal Historic Preservation Credit. A 20% federal income tax credit is available for a historic rehabilitation project under the following conditions:
  • The use of the property must be depreciable. Accordingly, an owner that rehabilitates his or her own strictly personal residence does not qualify.