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U.S. Department of the Interior, National Park Service

Part 10: Tax Incentives

Since 1976, the U.S. Internal Revenue Code has contained incentives for historic preservation. These incentives encourage investment in income-producing historic buildings, the revitalization of historic neighborhoods, and the donation of preservation easements. Current incentives (established or retained by the Tax Reform Act of 1986) include a 20% tax credit for the substantial rehabilitation of historic buildings for commercial, industrial, or rental residential purposes, and a 10% tax credit for the substantial rehabilitation for nonresidential purposes of buildings built before 1936. However, for buildings individually listed in the National Register or for contributing buildings in registered historic districts, only the 20% tax credit is available. In addition, the law retains the provisions established by the Tax Treatment Extension Act of 1980 that permit income and estate tax deductions for charitable contributions of partial interests in historic property (i.e., easements).

Since the inception of the preservation tax incentives program in 1976, over 26,000 projects representing an investment of almost $18 billion have been certified. This is a far cry from the situation before passage of the first tax incentives for historic preservation; before then, the tax laws codified a clear preference for new construction over the preservation and reuse of our nation's historic buildings. Today the results of the tax incentives program are seen in cities and towns throughout the country.

Application Process

Preservation tax incentives are available for any qualified project that the Secretary of the Interior designates a certified rehabilitation of a certified historic structure. Certification requests are made through the State Historic Preservation Officer to the National Park Service; certifications are issued by the National Park Service on behalf of the Secretary of the Interior. To qualify for the tax incentives, the applicant must obtain certification both of the historic structure and of the completed rehabilitation. That is, the National Park Service must certify that the building undergoing rehabilitation is indeed a historic structure and that the rehabilitation project is in keeping with the historic character of the building.

To request these certifications, the applicant completes the three-part "Historic Preservation Certification Application." Part 1 involves an "Evaluation of Significance;" Part 2 is a "Description of Rehabilitation;" Part 3 is a "Request for Certification of Completed Work." (Owners of properties listed individually in the National Register of Historic Places do not have to complete Part 1 of the application. Individually listed properties are considered certified historic structures.)

The applicant may apply before, during, or after the rehabilitation project, but the National Park Service has always strongly encouraged applicants to submit applications describing proposed work and to receive approval from the NPS prior to the start of construction. Owners who undertake rehabilitation projects without prior approval from the NPS do so at their own risk. Moreover, Internal Revenue Service regulations require that owners of buildings located in historic districts must submit the Part 1 application before the rehabilitation is completed.

Part 1--Evaluation of Significance

Not every building within a historic district contributes to the significance of the district. The applicant must therefore supply sufficient documentation to enable the National Park Service to determine how the building relates to the district as a whole and to evaluate the historic character of the building. Photographs of the building and its surroundings as they appeared before rehabilitation must be submitted, with a map showing the building within the district. The narrative portion of the Part 1 application consists of a description of the building's physical appearance and a statement of its significance. The latter relates the building to the surrounding historic district. (In compiling the statement of significance, the owner should consult the National Register nomination for the district.)

The Part 1 application is submitted to the SHPO, who reviews the historic significance of the building to the district in which it is located. The SHPO makes a written recommendation and forwards the application to NPS for final evaluation. Notification of certification by the NPS is sent directly to the property owner.

The significance of structures within historic districts is evaluated by the SHPO and the NPS in accordance with the Secretary of the Interior's Standards for Evaluating Significance within Registered Historic Districts:

1. A building contributing to the historic significance of a district is one which by location, design, setting, materials, workmanship, feeling, and association adds to the district's sense of time and place, and historical development.

2. A building not contributing to the historic significance of a district is one which does not add to the district's sense of time and place, and historical development; or one where the location, design, setting, materials, workmanship, feeling, and association have been so altered or have so deteriorated that the overall integrity of the building has been irretrievably lost.

3. Ordinarily buildings that have been built within the past 50 years shall not be considered to contribute to the significance of a district unless a strong justification concerning their historical or architectural merit is given or the historical attributes of the district are considered to be less than 50 years old.

A Part 1 application is also used for purposes other than determining that a building contributes to a registered historic district for purposes of the historic preservation tax incentives credit. An owner wishing to take advantage of the lesser tax credit for the rehabilitation of a non-historic building located within the boundaries of a registered historic district, for example, must obtain a certification that the building does not contribute to the significance of the district.

Part 2--Description of Rehabilitation

The second part of the Historic Preservation Certification Application completed by an owner or other applicant (e.g., a long-term lessee) is the "Description of Rehabilitation." In it the applicant describes the rehabilitation project. The application must document the entire project and not simply those portions for which the tax credit will be sought. For example, the construction of new townhouses on the same property as a historic building undergoing rehabilitation would have to be described in the application, since the new construction would have an effect on the historic resource, even though the new construction is not eligible for the investment tax credit. The application must describe interior work as well as exterior work.

Photographs clearly documenting interior and exterior conditions must accompany the application. Photographs of "before" conditions must be submitted even if the rehabilitation is completed; such documentation is necessary for the SHPO and the NPS to evaluate the effect of the rehabilitation on the historic structure. Similarly, drawings or sketches are required for proposed work to show planned alterations or new construction.

The Part 2 application is submitted to the SHPO, who reviews the rehabilitation and forwards the application with a recommendation to the NPS for final evaluation. Notification of certification by the NPS is sent directly to the property owner.

All rehabilitation projects are reviewed and evaluated in accordance with the Secretary of the Interior's "Standards for Rehabilitation." The scope of review includes interior and exterior work, site work, and adjacent new construction. Certification is based on whether the overall project meets the Standards. A rehabilitation project must meet all ten Standards. The Secretary's Standards for Rehabilitation take precedence over other regulations and codes in determining whether the rehabilitation project is consistent with the historic character of the property.

Part 3--Request for Certification of Completed Work

Part 3 of the Historic Preservation Certification Application is a one-page form submitted by the owner after all project work is completed. Photographs of the completed work (both exterior and interior) must accompany the form. The Part 3 is submitted to the SHPO, who reviews the finished project and forwards the application with a recommendation to the NPS for final evaluation. Notification of certification by the NPS is sent directly to the property owner.

The owner attaches a copy of the approved Part 3 form to the tax return filed with the Internal Revenue Service. The Part 3 verifies the taxpayer's eligibility for the 20% investment tax credit for historic preservation.

The Secretary of the Interior's Standards for Rehabilitation

1. A property shall be used for its historic purpose or be placed in a new use that requires minimal change to the defining characteristics of the building and its site and environment.

2. The historic character of a property shall be retained and preserved. The removal of historic materials or alteration of features and spaces that characterize a property shall be avoided.

3. Each property shall be recognized as a physical record of its time, place, and use. Changes that create a false sense of historical development, such as adding conjectural features or architectural elements from other buildings, shall not be undertaken.

4. Most properties change over time; those changes that have acquired historic significance in their own right shall be retained and preserved.

5. Distinctive features, finishes, and construction techniques or examples of craftsmanship that characterize a historic property shall be preserved.

6. Deteriorated historic features shall be repaired rather than replaced. Where the severity of deterioration requires replacement of a distinctive feature, the new feature shall match the old in design, color, texture, and other visual qualities and, where possible, materials. Replacement of missing features shall be substantiated by documentary, physical, or pictorial evidence.

7. Chemical or physical treatments, such as sandblasting, that cause damage to historic materials shall not be used. The surface cleaning of structures, if appropriate, shall be undertaken using the gentlest means possible.

8. Significant archeological resources affected by a project shall be protected and preserved. If such resources must be disturbed, mitigation measures shall be undertaken.

9. New additions, exterior alterations, or related new construction shall not destroy historic materials that characterize the property. The new work shall be differentiated from the old and shall be compatible with the massing, size, scale, and architectural features to protect the historic integrity of the property and its environment.

10. New additions and adjacent or related new construction shall be undertaken in such a manner that if removed in the future, the essential form and integrity of the historic property and its environment would be unimpaired.

Owners may appeal the certifications or denials of certification (Part 1 or Part 2). Such appeals are made to the Chief Appeals Officer, Cultural Resources, in the Washington Office of the National Park Service. The decision of the Chief Appeals Officer is the final administrative decision with regard to the rehabilitation.

Role of the Review Board in the Tax Incentives Program

Although Review Board members do not play an official role in the tax incentives process, their knowledge of the program is very important. Review Board members can inform property owners, real estate developers, and planners about the financial incentives offered by the program. These incentives allow preservation to be competitive with other forms of construction and property development.

Review Board members are also positioned to help owners avoid potentially costly errors caused by misunderstanding the tax incentives program.

One such error is the assumption that the National Park Service is limited in its review of rehabilitation projects by the wording (or boundaries) of the National Register listing. Program regulations state: "The NPS decision on listing a property in the National Register of Historic Places, including boundary determinations, does not limit the scope of review of the rehabilitation project for tax certification purposes. Such review will include the entire historic property as it existed prior to rehabilitation and any related new construction."

Owners also occasionally assume that the timing of the listing will determine the nature of the review for tax act purposes: if a building is listed in the National Register in its rehabilitated state, it is assumed, then the rehabilitation must be approved by the NPS, regardless of the whether or not the project work meets the Standards for Rehabilitation. Yet SHPO and NPS review to determine whether the project conforms to the Standards is made "by evaluating the property as it existed prior to the commencement of the rehabilitation project, regardless of when the property becomes or became a certified historic structure."

Since Review Board members sometimes review nominations from owners contemplating--or completing--a tax act project, alerting the owners to such considerations can save the applicants a great deal of time, money, and trouble. It can also save the SHPO and the NPs from expensive litigation.

Problem Areas in Rehabilitation Projects

More than 90% of all rehabilitation projects have been approved over the history of the tax incentives program. Projects have failed to meet the Standards for Rehabilitation for a great number of reasons, but the issues discussed below have been the most common.

Insufficient Information. Owners sometimes assume that the National Park Service does not review interior work. They therefore neglect to photograph the interior before rehabilitation. Sometimes they begin the project before they have heard of the tax incentives program. But for whatever the reason, failure to document the appearance of a structure before rehabilitation can make it impossible to review a project, since there is no way to evaluate the effects of the work on the building's overall historic character.

Masonry Cleaning and Repair. The dangers of harshly cleaning historic masonry are much more widely known than they were a few years ago, but historic buildings are still being damaged by sandblasting, waterblasting, and other improper cleaning methods. Still encountered, too, are improper repointing techniques such as using a mortar that is too hard for the surrounding masonry or that does not match the appearance of the historic mortar.

Windows. The use of tinted glazing has abated in recent years, as has the wholesale replacement of historic windows with fixed sheets of glass. Yet other problems are still encountered: historic windows are frequently removed in the course of a rehabilitation project because they are thought to be too deteriorated to save. The Secretary of the Interior's Standards for Rehabilitation, and accompanying guidelines, however, call for the repair of historic windows except when they are too deteriorated to save. In those cases, replacement windows should match the historic ones removed in material, size, pane configuration, color, trim details, and planar and reflective qualities.

New Additions/New Construction. Among the leading causes of denial of certification is the harm done to a historic resource by unsympathetic new construction. Additions to historic structures take many forms: wings, greenhouses, pedestrian bridges, stairtowers, elevator penthouses, rooftop additions, balconies, and decks. Such additions have the potential to harm the historic character of a building in several ways. Extensive portions of historic buildings are often destroyed or obscured in the process of adding on to them. In other cases, the new additions are incompatible with the historic structure in size or scale, or else they duplicate the form, material, style, and detailing of the historic building so exactly that the historic building gets "lost" in a new and larger composition. Reviewing proposed new construction can be very difficult. This is especially true for proposed rooftop additions, where visibility is often difficult to evaluate.

Also reviewed by the SHPO and the NPs are new buildings built as part of an overall project, even if they are not attached to the historic structure being rehabilitated. New houses built on the grounds of a historic mansion would be reviewed, and the rehabilitation of the historic building could be denied certification if the new construction impaired the historic character of the overall historic property.

Interior Spaces. Alterations to interior spaces are often grounds for determining that a rehabilitation project fails to meet the Secretary of the Interior's Standards for Rehabilitation. Some modifications to a historic floor plan are generally permitted, but extensive changes have the potential for causing radical harm to the historic character of a building. Insensitive changes to the plan and spaces of historic buildings such as inserting floors, cutting atriums, or subdividing major spaces frequently lead to denial of certification, as do changes in the sequence of spaces (for example, enclosing an entrance stairhall in order to separate a new ground floor apartment from the upper floors of a rowhouse). Removal of historic fabric may also lead to denial of certification.

Interior Features and Finishes. "Bare brick" is less frequently encountered than a few years ago. Nevertheless, removing historic plaster to expose the underlying masonry is still encountered in rehabilitation projects submitted for SHPO and NPs review. Other treatments that can lead to denial of certification are: relocating mantels, ceiling medallions, and other features from one floor to another; "burying" trim when furring out walls for added insulation; and stripping painted wood surfaces to bare wood, and then applying clear finishes or stains to achieve a desired "natural" look that has no historical basis.

Storefronts. In historic commercial buildings undergoing rehabilitation, storefronts are often modified unsympathetically. Frequently, the large display windows are replaced with windows of a residential character. In other cases efforts are made to "modernize" the historic storefront by removing historic material to create an arcade or by installing new awnings without regard for their compatibility with the storefront or the building. More frequently, the storefront is mistakenly believed to be too deteriorated to save and is replaced altogether.


Historic Preservation Certifications regulations, 36 CFR Part 67.


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