Finding funds for your preservation rehabilitation project can be complex and confusing. Fortunately, in Maryland, there are many programs designed to help private property owners maintain and rehabilitate their historic structure. Historic tax credits are a critical tool and may be just the funding boost you need to get your project completed!
DISCLAIMER: Preservation Maryland and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should always consult your own tax, legal and accounting advisors before engaging in any transaction.
How Does a Tax Credit Work?
From the Motley Fool: “A tax credit is a type of tax incentive that can reduce the amount of money a taxpayer owes the government. Unlike a tax deduction, which reduces taxable income, a taxpayer can subtract a tax credit from the amount of taxes they owe, lowering their tax liability dollar-for-dollar.”
In other words, tax credits are one of the best tax incentives available.
For historic rehabilitation projects tax credits generally offset the cost of your rehab. In the simplest terms, they work like this:
If you have $100,000 worth of rehabilitation expenses, a 20% state historic tax credit would provide $20,000 worth of credits to lower your state tax liability. But, what if you don’t owe $20,000 in state taxes? In Maryland, you’re in luck – the Maryland homeowner tax credit is refundable which means you get a check for the amount over and above your state tax liability. So, if in this same example you owed $10,000 in state taxes – you would then get a check for $10,000. That’s the $20,000 value of your historic tax credit minus your $10,000 in state tax liability.
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- Eastern Avenue Pumping Station and Baltimore Food Hub complex | Tax Credit Recipient | Photo from The Baltimore Sun | The rehabilitation of these buildings is part of a larger project, already underway, that will reimagine the site as the Baltimore Food Hub, a campus designed to bring jobs and neighborhood amenities back to this neighborhood.
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- 110-116 North Potomac Street, Hagertsown, MD. Image from Google | Tax Credit Recipient | These buildings will be rehabilitated for continued commercial use on the first floors with residential units on the upper floors. The carriage house will also be rehabilitated for residential use with the stable as garage and storage space.
How do you Get a Tax Credit?
There are a variety of historic tax credits available. Before you pick up a phone to call a contractor or think about your project, you should begin to research the various tax credit programs and reach out to the program staff to explore the options and requirements. It’s extremely important to start your research early and learn about the application process. In most cases, it’s a three step process:
- 1. Confirming eligibility
- 2. Approving plans
- 3. Confirming you completed your project
In Maryland, there are several types of historic tax credits available:
- Federal Historic Tax Credit: The federal tax credit applies only to income producing properties and there are several property-valuation requirements which limit the availability of this 20% federal tax credit to large-scale preservation projects. The program is administered by the National Park Service and applications must be made well in advance of any construction. Learn more at: https://www.nps.gov/tps/tax-incentives.htm
- Maryland Historic Tax Credit: Administered by the Maryland Historical Trust, this program provides a 20% tax credit against qualified rehabilitation expenses. Applications for tax credits must be submitted in advance of any work and it is highly recommended to speak with the staff of the Trust to discuss your project and how to apply for a tax credit well in advance of planning or beginning any work. There are three specific types of credits within this program – residential, small commercial & large commercial. Learn more at: https://mht.maryland.gov/taxCredits.shtml
- Local Incentives: Many counties and municipalities offer owners of certified historic structures incentives, often in the form of a tax credit or abatement on property taxes, to assist with the rehabilitation of their properties. Similar to the state’s historic preservation tax credits, these credits impact local tax liability and can be used in addition to the state and federal credit, if applicable. Contact your county planning office to learn about what incentives may exist in your community.
What Type of Rehab Work is Eligible for Tax Credits?
Every program is unique, which is why it’s so important to speak with the staff of the program you intend on using.
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- BEFORE | St. Michaels, Baltimore City, 2016 Historic Rehab Tax Credit Recipient for Adaptive Reuse.
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- AFTER | Reused interior of St. Michael’s Church is now the Ministry of Brewing. Photo from Sip & Savor.
In Maryland, generally speaking the building must be a certified historic structure, defined as having at least one of the following designations:
- Individually listed in the National Register of Historic Places
- A contributing resource within a National Register Historic District
- A locally designated structure or contributing resource within a local historic district that the Maryland Historical Trust determines to be eligible for the National Register
Once you determine your overall eligibility, you’ll need to determine if the work you’re doing is eligible. In Maryland, the following types of rehab projects may qualify for the state historic tax credit:
- Roof repair and replacement
- Chimney repair and lining
- Window restoration
- New storm doors/windows
- Masonry repointing
- Floor refinishing
- Structural repairs
- Plumbing, electrical, and mechanical systems
- Architectural and/or engineering consulting fees
- Tool and equipment rental
- Repair of historic outbuildings
In Maryland, there are also rehab projects that are ineligible for funding. Generally, this includes:
- Landscaping
- Sidewalks, patios, driveways
- Non-historic outbuildings
- Appliances
- New construction
- Carpeting over historic flooring
- Curtains, blinds, rugs, or other interior décor
- Tool or equipment purchases
- Work that is primarily remodeling in nature
- Pest control, chimney cleaning, drain cleaning, etc.
Tax Credits Are Good for Maryland
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- Image of Pins reading “I’m a historic preservation voter!”
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- United States Capitol Rotunda.
In addition to providing financial support for complex preservation projects, tax credits also spur economic activity and boost tax revenue for federal, state and local coffers. In Maryland, the historic tax credit has been documented as generating $8.53 in economic activity for every $1 in tax credits – a massive return-on-investment. Preservation Maryland works tirelessly to advocate for this program and make the case for the state investment in tax credits. To learn more about the efforts to sustain this program, visit our Advocacy Program webpage.
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Perhaps nothing in preservation causes as much confusion as the National Register of Historic Places. Does it prevent demolition? Does it protect buildings? Can you change your paint color? Do you get tax breaks? Can you get a grant? Learn more about the National Register here.
Historic structures require significant repair and upkeep – but with routine maintenance the time and expense associated with those repairs can be substantially reduced. Equally important as maintaining the structure is making sure that those repairs are safe for historic buildings. Learn more about preservation best practices here.