If you will be renovating the historic home you plan on purchasing, consider renting part of it out or using a portion of it as office space to get a tax break.

Using your historic home for income-producing purposes after renovation could make you eligible for the The Federal Historic Preservation Tax Incentives program, which offers a 20 percent tax credit.

In order to qualify for the credit, you must meet the following requirements:

1. Your property must be used for income producing purposes for at least five years after rehabilitation (e.g., offices, retail, apartment housing). The credit cannot be used to rehabilitate your personal residence, but if you rent out part of your house or use part of it for business purposes, the amount of rehabilitation costs spent on that portion of the residence may be eligible for the credit.

2. Your building must be listed in the National Register of Historic Places or included in a National Register Historic District. Also, if your state historic preservation office deems your building eligible for listing in the National Register, if your building is included in a local certified historic district, or if your building is in a historic district potentially eligible for listing in the National Register, you may qualify for the credit.

3. You must meet the Secretary of the Interior's 10 standards for rehabilitation. These standards do not require restoration, but allow some alteration to allow your building to "provide an efficient contemporary use." However, the rehabilitation project must not damage, destroy, or cover those exterior or interior materials or features that define the building’s historic character.

4. Your project must cost more than the pre-rehabilitation cost of the building. Generally, this "substantial rehabilitation test" must be met within two years or within five years for a project completed in multiple phases.

To qualify for the tax credit, you must submit a lengthy application to the National Park Service. Fees range from $250 to $2,250.

The National Park Service urges you to wait for approval before beginning work on your project. "Sometimes projects need to be modified to meet the Secretary of the Interior's Standards for Rehabilitation, and meeting conditions for approval can be difficult if the work has already begun," NPS says.

For more information, visit NPS' Federal Historic Preservation Tax Incentives program page.

Source: National Park Service

Keep reading the Historic Homes for Sale blog for more on tax incentives and grants.

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