Don’t Overlook the Rehabilitation Tax Credit for Business Space Improvements

Your rehabilitation tax credit equals 20% of qualified rehabilitation expenditures (QREs) for the certified historic structure, as designated by the National Park Service. To qualify, the building must:

• Be depreciable and placed in service before rehabilitation begins.

• Be used in business or for income-producing purposes (not primarily for resale).

• Undergo “substantial” rehabilitation, meaning QREs must exceed the greater of $5,000 or the cost of acquiring the building.

Eligible Costs

QREs are capital expenses for rehabilitating or reconstructing a building — not the land — and do not include costs for purchase or expansion.

The credit is claimed ratably over five years, starting in the year when the rehabilitated building is placed in service. This allows taxpayers to claim 4% of the QREs annually for five years. The credit applies to both regular federal income tax and the alternative minimum tax.

Permanent Changes Under the TCJA

The Tax Cuts and Jobs Act of 2017 (TCJA) changed the timing of the credit:

• The 20% credit must now be spread over five years.

• The former 10% credit for pre-1936 buildings was eliminated.

Unlike many other TCJA provisions, these changes are permanent and not set to expire after 2025.

Maximizing the Benefits

The rehabilitation credit may be just one of several tax-saving opportunities tied to your project. Depending on factors like location and energy efficiency, additional federal, state, or local tax incentives may also apply.

How We Can Help

Our team is prepared to assist in determining whether a building meets the criteria for rehabilitation credit eligibility and in accurately tracking and substantiating costs to optimize potential benefits. If you are considering relocating, renovating, or investing in a historic property, we encourage you to reach out. Working together, we can determine if the rehabilitation tax credit and other available incentives may help reduce your expenditures while advancing your strategic business goals.