Historic HomeWorks Forum

[johnleeke]

From the Illinois Historic Preservation Agency:

HISTORIC PRESERVATION FINANCIAL INCENTIVES
Financial incentives fall into four major categories: federal rehabilitation tax credits, local incentives,
low-interest loans, and grants. Of these categories, grants are generally only made to non-profit and
government entities. Only at the local level are grants generally made to private, for-profit property
owners.
FEDERAL REHABILITATION INVESTMENT TAX CREDITS
The federal tax credits reduce the amount of federal tax owed by owners whose buildings have been rehabilitated
to meet certain criteria.
􀂃 Federal Rehabilitation Investment Tax Credits (ITC) are credits applied to an owner’s federal taxes owed
or to future tax liabilities.
􀂃 The credit typically is worth a percentage of the cost of the renovation.
􀂃 The Passive Activity Limitations, the Alternative Minimum Tax, and the At-Risk Rules all affect the
amount of credit an individual can claim in one year.
􀂃 Eligible owners may be individuals or businesses and must pay federal income taxes.
􀂃 Approximately $9,000 is the maximum credit any one individual can claim in any one year. Larger credit
amounts, however, can be divided up and carried to other years.
20% Rehabilitation Tax Credit for Historic Buildings
Administered by the Illinois Historic Preservation Agency (IHPA), National Park Service (NPS),
and Internal Revenue Service (IRS). Contact the IHPA: 217-785-5042.
Federal Historic Preservation Tax Incentives
www.nps.gov/history/hps/tps/tax/index.htm
Historic Preservation Certification Application
www.nps.gov/history/hps/tps/tax/hpcappl.htm
􀂃 Only for depreciable property:
o Properties rehabilitated for commercial, agricultural, industrial, rental residential.
􀂃 Owner-occupied housing is not eligible.
􀂃 Building must be a certified historic structure:
o Listed on the National Register (individually or as a contributing building within a National
Register district); or
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o A contributing building within a local historic district that has been certified by the National Park
Service.
o Individually listed local landmarks are not eligible.
􀂃 Project must be certified by the NPS to meet the Secretary of the Interior’s Standards for Rehabilitation.
o Requires the preservation of as much of the existing significant historic features and materials as
possible.
o Does not require restoring a building or its features to their original appearance.
o Non-historic features may be retained.
o New, compatible alterations or additions may be added.
o New additions outside the historic building envelope cannot be included in the amount submitted
for credit.
􀂃 Owner must spend more than $5,000 or the Adjusted Basis (explained at the end of this document),
whichever is larger, during a 24-month period. Owners may qualify for a 60-month phased project, but it
requires more up-front planning.
􀂃 Eligible rehabilitation expenditures may include:
o Architectural and construction costs on the historic building.
o Soft costs that are depreciable rather than taken as a one-time expense: Architectural/
􀂃 Engineering fees, survey, legal, development fees, construction-related costs.
􀂃 Ineligible expenditures include acquisition, furnishings, new additions, or landscape or site improvements.
􀂃 Apply Early: It is strongly recommended that applications be filed before work begins to avoid costly
mistakes or possible certification denial. At a minimum, the Part 1 must be submitted prior to placing the
project in service or the project will be denied.
􀂃 The building must be placed in service.
􀂃 The owner must retain the building for five years.
􀂃 The NPS charges a sliding fee for review, ranging from free (for projects with budgets of under $20,000)
to $2,500 (for projects with budgets in excess of $1 million).
􀂃 Must fill out a three-part application that is reviewed by IHPA and the NPS.
o Part I: Certifies that the building is indeed “historic.”
o Part II: Describes the work to be done to the building. Most proposals are described in written
format, though architectural drawings and specifications may be included. Photos of the existing
conditions of the building are also submitted. It is recommended that Part II be certified before
construction begins.
o Part III: Certifies that the work has been completed, has met the Standards, and lists the value of
the renovation. The certified Part III is filed with the IRS for claiming the tax credit in the year
the project is completed.
􀂃 Approval of proposed work typically takes from 3 to 6 months.
10% Rehabilitation Tax Credit for Non-Historic
Commercial Buildings Built Before 1936
Administered by IRS; does not involve review by IHPA. Go to the IRS website to download Form
3468 and instructions: www.irs.gov/pub/irs-pdf/f3468.pdf Contact the IRS: 800-829-1040.
􀂃 Receive a credit of 10% of the amount spent to rehab a ‘non-historic’ building built before 1936.
􀂃 Only building that are not listed on the National Register are eligible.
􀂃 Income-producing residential and owner-occupied housing are not eligible.
􀂃 Must be a substantial rehabilitation:
o Spend more than $5,000 or the adjusted basis during a 24-month period.
􀂃 Eligible work includes architectural construction work (same as the 20%), such as masonry repair,
exterior painting, interior remodeling, painting, mechanical and electrical work.
􀂃 Ineligible work includes building additions, appliances, furniture, and fixtures.
􀂃 Building must pass a physical retention test:
o 50% of exterior walls must remain as exterior walls; and
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o 75% of exterior walls must remain as exterior or interior walls; and
o 75% of building’s internal structure must remain.
􀂃 No IHPA, NPS, formal design-review process. IRS reviews after submittal of application.
􀂃 No application fee.
􀂃 Applicant submits form to the IRS.
􀂃 Documentation of renovation expenditures must be retained.
50% Disabled Access Tax Credit
Administered by the IRS. Go to the IRS website to download Form 8826 (Disabled Access Credit)
and instructions: www.irs.gov/pub/irs-pdf/f8826.pdf Contact the IRS: 800-829-1040.
This is a tax credit for an eligible small business that pays or incurs expenses to provide access to persons with
disabilities. The expenses must be to enable the eligible small business to comply with the Americans with
Disabilities Act of 1990.
􀂃 Designed for rehabilitation of buildings housing small businesses:
o Less than $1 million in gross receipts in preceding year; or
o Fewer than 30 full-time employees in preceding year.
􀂃 Work must meet current ADA Standards.
􀂃 Credit = 50% of the amount spent making a business accessible.
􀂃 Credit may be taken on work expenditures between $250 and $10,250.
􀂃 A maximum of $5,000 of credit may be taken each year.
􀂃 Documentation of the expenditures must be retained.
􀂃 Eligible expenses include installing ramps, restrooms, elevators, sidewalks or walkways, and the redesign
of entries and interior circulation.
􀂃 Only work that is necessary for accessibility may be claimed as a tax credit.
􀂃 New buildings are not eligible.
􀂃 Credits may be claimed in more than one tax year provided that the expenses claimed were made in the
current tax year.
New Markets Tax Credits
Contact the U.S. Treasury's Community Development Financial Institutions (CDFI) Fund
(www.cdfifund.gov ) or the National Trust Community Investment Corporation
(www.nationaltrust.org/ntcicfunds ).
U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund allocates the New Markets Tax
Credit (NMTC) Program, which permits taxpayers to receive a credit (typically 5% to 6% of the amount invested
in a distressed area) against Federal income taxes for making qualified equity investments in designated
Community Development Entities (CDEs).
􀂃 Substantially all of the qualified equity investment must in turn be used by the CDE to provide
investments in low-income communities.
􀂃 The credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven
year credit allowance period.
􀂃 In each of the first three years, the investor receives a credit equal to five percent of the total amount paid
for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is
six percent annually.
􀂃 Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.
􀂃 The National Trust for Historic Preservation was the recipient of a $53 million allocation of the New
Markets Tax Credit on May 31, 2006, which is then to be reallocated to projects.
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OTHER TAX INCENTIVE PROGRAMS
Property Tax Assessment Freeze Program
Administered by IHPA. Contact Mike Ward: 217-785-5042, fax: 217-524-7525
www.state.il.us/hpa/PS/taxfreeze.htm
􀂃 For non-commercial, residential-only buildings.
􀂃 Building must be a certified historic structure:
o Listed on the National Register (individually or as a contributing building within a National
Register district); or
o A contributing building within a local historic district in a community whose ordinance has been
approved by the IHPA for the Tax Freeze Program; or
o An individually designated local landmark in a community whose ordinance has been approved
by the IHPA for the Tax Freeze Program.
􀂃 Assessment level is frozen for 8 years at the pre-rehabilitation rate. Then it is raised in steps up to the
current level over the next 4 years, until the assessment reaches its current rate.
􀂃 Only one level of design review by IHPA.
􀂃 Project must be certified by IHPA that it meets the Secretary of the Interior’s Standards for Rehabilitation.
􀂃 Eligible properties include:
o Single-family owner occupied
o Six-flats if one unit is owner occupied
o Co-ops and condos
Class L
Administered by Cook County Assessor’s Office. Contact Brian Goeken (within Chicago city
limits): 312-744-3201; or Len Motisi (if outside Chicago city limits, but still in Cook County): 312-
603-7929. www.cookcountyassessor.com/forms/clslb.pdf
Class L is a property tax assessment reduction for locally designated industrial & commercial individual historic
landmarks in Cook County.
􀂃 Requires approval of Certified Local Government
􀂃 Only for Cook County
Easements
Administered by various entities. In Illinois, Landmarks Illinois is an organization that has an
easement program. Contact Landmarks: 312-922-1742.
www.landmarks.org
An easement is a voluntary legal agreement that protects part or all of a building (or other historic resource) in
perpetuity. Under the terms of an easement, a property owner grants a portion of or interest in his property rights
to an organization whose mission includes historic preservation. In return, the owner receives a substantial tax
deduction because he has theoretically reduced the value of his structure by reducing his and any future owner’s
ability to unduly alter or demolish the designated significant features protected by the easement. The portion of
the building property rights that are donated are monitored and protected by the preservation organization.
􀂃 Building must be a certified historic structure:
o Listed on the National Register (individually or as a contributing building within a National
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Register district); or
o A contributing building within a local historic district that has been certified by the National Park
Service.
o Individually listed local landmarks are not eligible.
􀂃 Easement equals the loss in value due to contribution. A typical easement might average 10% of the value
of the rehabilitated building.
􀂃 Timing is complicated and critical if an easement is combined with the historic tax credit.
􀂃 Entity holding easement may a charge fee.
Investment Tax Credit for Low Income Housing
Administered in Illinois by the Illinois Housing and Development Authority (IHDA). Contact the
IHDA: 312-836-5200. www.ihda.org/ViewPage.aspx?PageID=150
The Tax Reform Act of 1986 established a credit for acquisition, construction, and rehab of low-income housing.
􀂃 Owner must retain for 15 years.
􀂃 The amount of credit funds is limited and is allocated by IHDA on an annual basis.
The Architectural and Transportation Barrier Removal Deduction
This is the same program as the 50% Disabled Access Tax Credit
Administered by the IRS. Go to the IRS website to download Form 8826 form and instructions:
http://www.irs.gov/forms_pubs/formpub.html See also Chapter 11 in Publication 535, Business
Expenses: www.irs.gov/prod/forms_pubs/pubs/p5351107.htm
This is a deduction (not a credit) of the costs of removing barriers to the disabled and the elderly. This work
entails making your facility or public transportation vehicle more accessible to, and usable by persons who are
disabled or elderly. The cost of an improvement to a business asset is normally a capital expense. However, you
can choose to deduct the costs of making a facility or public transportation vehicle more usable by those who are
disabled or elderly.
􀂃 Cannot deduct costs to completely renovate or build a new facility or public transportation vehicle, or to
replace depreciable property in the normal course of business.
􀂃 Can deduct up to $15,000 per year.
􀂃 Can add any costs over this limit to the basis of the property and depreciate the annual $15,000 tax
deduction.
LOCAL INCENTIVES
Local incentives are designed by individual communities to encourage specific renovation programs. They can
supplement the federal tax credits and often apply to projects not eligible for the credits. Matching grants are one
of the most common local incentives. Grants may be given to eligible applicants for such things as façade
renovations, exterior maintenance, new signage and interior remodeling. Grants are commonly matched with
private funds in the range of 20% to 50%. Low-interest loans are another common local incentive. The loans are
given at reduced interest rate, typically 2 to 5 points below prime. Eligible properties and projects are similar to
those of matching grants. Low-interest loans can be given on a matching basis or have a cap on the low-interest
portion.
Local governments often have resources available to provide incentives such as grants, low-interest loans, and
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public investment incentives. The programs can be administered much like any other local incentive program.
Grants and low-interest loans can be funded from special taxes or economic development districts. Tax Increment
Financing (TIF) and special service area taxing districts (SSA) are common funding sources. The TIF district
collects increased property tax revenue from a specially defined district over a specific numbers of years. Special
service districts collect a special tax on properties in the district. The moneys collected must be reused for the
improvement of the districts. Other communities have been designated as state or local economic development or
empowerment zones that can provide for financial incentives for district improvements.
Some cities have offered public improvements as incentives. For example, if a property owner invests a certain
amount in a façade renovation, the city will agree to replace sidewalks, add pedestrian amenities, or make
improvements in the alley next to the building. Another incentive for building improvements is a property tax
freeze on renovated buildings for a specified number of years.
LOAN PROGRAMS
Low-interest loans enable owners to borrow money to rehabilitate historic buildings usually at a reduced interest
rate.
Opportunity Illinois
Illinois State Treasurer Alexi Giannoulias administers several low-interest loan programs.
Though more than one program may apply to a particular project, the Treasurer offers a
program specifically for Historic Preservation: http://www.treasurer.il.gov/programs/opportunityillinois/
community-development-loans/historic-preservation.aspx
Organizations or businesses use community development loans to restore landmark buildings or historical
structures for the benefit of future generations.
Amounts and Terms:
Borrowers can receive up to $10 million.
• The loan duration is two years with the possibility of a three-year extension.
• A site visit may be required for approval.
Interest Rates:
• Interest rates are indexed daily here or you may contact the Treasurer’s office at (217) 782-2072.
The listed rates are posted to give potential borrowers an indication of current rate figures. The
final deposit rate is determined on the business day prior to issuing the loan.
Program Eligibility:
• The National Park Service or a certified local government entity must designate the property as a
historic landmark.
• The applicant must present documentation, certifying that he/she will follow the Secretary of the
Interior’s Standards of Rehabilitation.
• The applicant must show that with the help of the Opportunity Illinois loan, he/she will provide a
benefit to their community.
• The applicant must provide a brief description of why conventional loan financing is not
adequate and why the Treasurer’s deposit is a necessary incentive.
• A participating Illinois financial institution must approve the application.
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How to Apply:
1. Contact the Treasurer’s Office for an overview of the program.
2. Apply for a loan at a participating financial institution.
3. Complete the Opportunity Illinois program application and forward your application package,
including all required documentation, to the Treasurer’s Office. Often times, your financial
institution will provide the application and forward it on your behalf.
4. Your financial institution must submit a completed application for deposit.
5. The Treasurer’s Loan Committee will review your application for approval. The committee
meets twice monthly.
If you have questions, please e-mail opportunityillinois@treasurer.state.il.us or call (312) 814-1244.
203(k) Rehabilitation Loan Program
Administered by the U. S. Department of Housing and Urban Development (HUD). Contact the
loan officer at your bank or mortgage institution to find out if they participate.
www.hud.gov/offices/hsg/sfh/203k/203kabou.cf
􀂃 HUD’s 203(k) Rehabilitation Loan Program allows a qualifying private owner to borrow a single, longterm
mortgage loan to finance both the acquisition and rehabilitation of an older home.
􀂃 The mortgage amount, which is usually at a higher rate than most mortgages, is based upon the projected
value of the property with the work completed, taking into account the cost of the work.
􀂃 The loan can also be used to refinance the mortgage on a home one already owns in order to rehabilitate
it.
􀂃 The loan cannot be used for rehabilitating properties for resale.
Community Partners within the National Trust for Historic Preservation
For more information, go to the Trust’s website: www.nationaltrust.org/loan_funds/index.html or
complete the information request form at www.nationaltrust.org/loan_funds/loan_info_request.html
National Trust Loan Funds are the vehicle by which the Trust provides loans and lines of credit to preservation
projects that stimulate revitalization in older residential and/or commercial areas.
􀂃 The National Preservation Loan Fund (NPLF): This is a more flexible fund in terms of project criteria
that provides funding for a variety of preservation projects. These may include establishing or expanding
local and statewide preservation revolving funds, acquiring and/or rehabilitating historic buildings, sites,
structures and districts, and preserving National Historic Landmarks.
􀂃 The Inner-City Ventures Fund (ICVF): This fund provides financial assistance to organizations that
serve low and moderate income households or provide economic benefit in low and moderate income
communities.
GRANT PROGRAMS
Most grants are targeted for publicly owned or non-profit-owned buildings and may be geared for
specific building or occupancy types. They offer lump sums of money for specific rehabilitations. They can
involve stringent qualifying criteria and can be competitive.
Tourism Attraction Grant Program
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Administered by the Department of Commerce and Economic Opportunity (DCEO). Contact
Cindi Fleischli: 217-785-6337. www.illinoisbiz.biz/bus/gri/grants_tour_tap.html
􀂃 Funds historic projects that are heritage-tourism related.
􀂃 Property must be open to the public on a regular basis (at least 5 days a week).
􀂃 Must be able to show that the project will result in visitors staying overnight in hotels in your region of
Illinois.
􀂃 Projects are funded on a 1:1 (50/50) matching basis, and the maximum grant is $100,000.
Preservation Heritage Fund Grants
Administered by the Landmarks Illinois. Contact them at: 312-922-1742. See
www.landmarks.org/heritage_fund_guidelines.htm for full guidelines and procedures.
􀂃 Funds (grants or loans) may be applied to one or more of the following services:
o Engineering, architectural, and feasibility studies
o Stabilization
o Legal services
o Surveys and National Register Nominations
o Preservation ordinance support
􀂃 Grant amounts are determined by need and are awarded on a matching basis.
􀂃 For significant structures or sites in Illinois that are under threat of demolition, imminent deterioration, or
are of such architectural importance that their preservation will benefit the public.
􀂃 Applicants must be not-for-profit organizations or governmental bodies that own or have sufficient legal
control of the resource.
􀂃 A project must preserve all or part of the resource. Ordinary maintenance expenses are not considered
preservation expenses.
􀂃 A project must comply with the Secretary of the Interior’s Standards for Rehabilitation, Restoration, or
Adaptive Reuse.
Public Museum Grants Program
Administered by the Illinois Department of Natural Resources, Illinois State Museum. Contact
Karen Fyfe: 217-782-7388, Fax 217-782-1254, Email: kfyfe@museum.state.il.us
www.museum.state.il.us/programs/musgrants/mgrants.html
􀂃 Provides operating funds and capital project funding.
􀂃 Grants given to museums operated by or located on land owned by a unit of local government.
􀂃 At the time of application, the museum must have been in existence for 2 years and have professional
staff.
􀂃 A minimum grant of $10,000 is available for operating expenditures, and it must be matched locally on a
1:1 basis.
Transportation Enhancement Program (TEA-LU)
Administered by the Illinois Department of Transportation (IDOT). Contact: IDOT 217-782-7388. The
Illinois Department of Transportation (IDOT) is pleased to announce solicitation of projects for the 2008 Illinois
Transportation Enhancement Program (ITEP) and Governor Rod Blagojevich’s Illinois Green Streets Initiative.
Application period will run from March 7, 2008 and end on May 5, 2008. Any applications received after the
close of business (4:30 PM) on May 5, 2008 will not be accepted.
ILLINOIS TRANSPORTATION ENHANCEMENT PROGRAM (ITEP)
ITEP provides funding for community based projects that expand travel choices and enhance the transportation
experience by improving the cultural, historic, aesthetic and environmental aspects of our transportation
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infrastructure. Project sponsors may receive up to 80 percent reimbursement for project costs. The remaining 20
percent is the responsibility of the project sponsor. A project must qualify as one of the 12 eligible categories
listed in the ITEP Guidelines Manual and it must relate to surface transportation to be eligible for funding.
For more information visit www.dot.il.gov/opp/itep.html
National Trust for Historic Preservation
Contact the National Trust’s Midwest Office in Chicago: 312-939-5547. www.nationaltrust.org
The National Trust has a variety of grant programs for non-capital projects, including the Preservation Services
Fund, which provides funding to non-profit, public agencies, or educational institutions for consultant services,
educational programs, or conferences.
􀂃 Donnelley Family Preservation Fund: This fund provides nonprofit organizations and public agencies
matching grants from $500 to $5,000 (typically from $1,000 to $1,500) for preservation planning and
education efforts. Funds may be used to obtain professional expertise in areas such as architecture,
archeology, engineering, preservation planning, land-use planning, fund raising, organizational
development and law as well as preservation education activities to educate the public. Many
organizations have found that PF funds provided the crucial boost to get a project off the ground. There
are typically three grant rounds per year, February 1, June 1 and October 1. The next PF round will be
October 1, 2007.
􀂃 Hart Family Fund for Small Towns: The purpose of the Hart Family Fund for Small Towns is to assist
small town preservation and revitalization initiatives around the country, with a focus on towns with
populations of 5,000 or less. The Fund will operate within the framework of Preservation Fund grants –
same application, same eligibility requirements, same match requirements, and same deadlines. There
will be just two important differences:
o Grants will range from $5,000 to $10,000.
o Regional offices will be asked to forward the grant applications they recommend for
consideration by the Hart Family to the PF Grants Coordinator within a month of the round
deadline, along with comments that do not exceed one-page.
There are typically three grant rounds per year, February 1, June 1 and October 1.
􀂃 Johanna Favrot Fund for Historic Preservation: This fund provides nonprofit organizations and
public agencies matching grants ranging from $2,500 to $10,000 for projects that contribute to the
preservation or the recapture of an authentic sense of place. Individuals and for-profit businesses may
apply only if the project for which funding is requested involves a National Historic Landmark. Funds
may be used for professional advice, conferences, workshops and education programs. The next
application deadline is February 1, 2007.
􀂃 Cynthia Woods Mitchell Fund for Historic Interiors: This fund provides nonprofit organizations and
public agencies matching grants ranging from $2,500 to $10,000 to assist in the preservation, restoration,
and interpretation of historic interiors. Individuals and for-profit businesses may apply only if the project
for which funding is requested involves a National Historic Landmark. Funds may be used for
professional expertise, print and video communications materials, and education programs. The next
application deadline is February 1, 2007.
Save America’s Treasures
Contact the National Park Service: 202-354-2020, ext. 1 for historic building grants;
http://www.cr.nps.gov/hps/treasures/index.htm
Grants are available for preservation and/or conservation work on nationally significant intellectual and cultural
artifacts and historic structures and sites. Intellectual and cultural artifacts include artifacts, collections,
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documents, sculpture, and works of art. Historic structures and sites include historic districts, sites, buildings,
structures, and object. The historic property will be considered to be nationally significant according to the
definition of “National Significance” listed above if it meets one of the following criteria:
􀂃 Designated as a National Historic Landmark
􀂃 Listed in the National Register of Historic Places for national significance.
Grants are awarded to Federal, state, local, and tribal government entities, and non-profit organizations through a
competitive matching-grant program, administered by the National Park Service
Illinois Clean Energy Community Foundation
Contact: Illinois Clean Energy Community Foundation; email: info@illinoiscleanenergy.org, web:
www.illinoiscleanenergy.org
The Illinois Clean Energy Foundation has a variety of grants for public and non-profit organizations to make
energy efficiency upgrades to their properties. There are also grants for new construction and major renovation.
There is no specific criteria for historic projects within there overall format, but public eligible buildings include
schools, libraries, city halls, etc., any of which could also be historic. There is a new program that provides partial
funding for “green building” design. Most of the funding categories provide proportional funding related to
energy efficiency.
GENERAL INFORMATION
Illinois Historic Preservation Agency (IHPA)
Preservation Services Division
One Old State Capitol Plaza
Springfield, IL 62701-1507
phone: 217-785-4512; fax: 217-524-7525
IHPA, Preservation Services Division: www.illinois-history.gov/ps
Illinois Clean Energy Community Foundation www.illinoiscleanenergy.org/
National Park Service, Heritage Preservation Services www.nps.gov/history/hps/
National Park Service, Save America’s Treasures: www.nps.gov/history/hps/treasures/index.htm
Internal Revenue Service: www.irs.gov 800-829-1040
Landmarks Illinois www.landmarks.org 312-922-1742
National Trust for Historic Preservation (NTHP): www.nationaltrust.org
National Trust for Historic Preservation Midwest Office: 312-939-5547
National Main Street Center: www.mainstreet.org
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DETERMINING ADJUSTED BASIS & DEPRECIATION
Adjusted Basis is roughly equal to:
Purchase price – land value – annual depreciation + previous capital improvements
Depreciation
􀂃 31.5 years for commercial
􀂃 27.5 for rental residential
Land Value is determined through sales of comparable properties and assessed values. Virtually every commercial
property establishes a land value at the time the property is placed in service, as this is necessary to begin claiming
the depreciation deduction on income taxes.
The value of previous improvements is also added into the adjusted basis.
EXAMPLE OF 20% INVESTMENT TAX CREDIT FOR HISTORIC BUILDINGS
Owner: Individual, single owner.
Building: Built in 1890, 2 stories, listed as contributing to a National Register District, ground floor retail, second
floor former residential unit now used as storage for the store. Owner purchased five years ago for
$80,000. The land under the building is valued at $20,000.
Project: Renovate façade, repointing, new roof, interior remodeling.
To roughly calculate the Adjusted Basis, the Depreciation must first be calculated:
Depreciation for commercial floors within a building = ([Purchase Price] – [Land Value]) ÷ [Number of
floors in building] ÷ 31.5 X [Number of years of ownership] X [Number of floors of commercial usage]:
($80,000 – $20,000) ÷ 2 total floors ÷ 31.5 X 5 years X 1 commercial floor = $4,762
Depreciation for rental residential floors within a building = ([Purchase Price] – [Land Value]) ÷ [Number
of floors in building] ÷ 27.5 X [Number of years of ownership] X [Number of floors of rental residential
usage]: ($80,000 – $20,000) ÷ 2 total floors ÷ 27.5 X 5 years X 1 residential floor = $5,455
Add the two depreciation amounts to get the building’s total depreciation = $10,217
Adjusted Basis (roughly):
$80,000 [Purchase Price] – $20,000 [Land Value] – $10,217 [Total Depreciation] + $5,000 [Previous
Capital Improvements] = $54,783
Minimum Expenditure:
Since $54,783 is greater than $5,000, the minimum expenditure is $54,783
Must spend Adjusted Basis on rehabilitation within 24 months, or can take up to five years with a phased
rehabilitation plan
Project Cost:
$75,000 [Construction] + $5,250 [Professional Fees] + $500 [application fee for the tax credit program] =
$80,750
Tax Credit:
$80,750 [Project Cost] x 20% [Credit percentage] = $16,150
Unused credit may be carried forward 15 years
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Project Cost After Tax Credit:
$80,750 [Project Cost] – $16,150 [Tax Credit] = $64,600
EXAMPLE OF 50% DISABLED ACCESS TAX CREDIT
Owner: Small business with annual gross receipts of $750,000 and 5 employees.
Building: Built in 1915, one-story, not listed on National Register, ground floor commercial.
Project: Replace existing non-accessible restrooms to meet current ADA standards.
Minimum Expenditure: $250
[$10,250 maximum], per year
Project Cost: $8,000
Tax Credit:
50% X ($8,000 [Project Cost] – $250 [Minimum Expenditure]) = $3,875
Project Cost After Tax Credit:
$8,000 [Project Cost] – $3,875 [Tax Credit] = $4,125
This brief summary was compiled by the Illinois Historic Preservation Agency and is accurate to the best of our
knowledge. However, for further information and complete, up-to-date and exact details, and to be certain all
information is correct, please contact the sponsoring agency for each funding sources. We apologize for any
inaccuracies or omissions. In all cases we recommended working with a knowledgeable tax accountant or attorney
regarding the financial aspects these programs.