Main Street Greenwood works with the Mississippi Department of Archives and History and downtown property owners to locate, apply, and utilize both state and federal tax credits. Upon completion of the updated National Register nomination in 2019, most every property within the downtown district will be eligible for the tax credits. Tax credits are credits towards your state and federal income tax upon completion of a historic renovation project. Renovations must be done to meet the Secretary of the Interior’s Standards for Rehabilitation in order to receive either tax credit. Projects wanting to utilize historic tax credits must begin the application process PRIOR to beginning any renovation work.
state tax credit
The Mississippi Historic Preservation Tax Incentives Program offers a 25% tax credit for the rehabilitation of historic structures used for business purposes. Owner-occupied dwellings and properties used for income-producing purposes are eligible. Expenditures must have been incurred after January 1, 2006, to qualify.
Properties qualifying for the 20% federal preservation tax credit automatically qualify for the state tax credit. The combined federal and state credits can reduce the cost of a certified rehabilitation of an income-producing historic structure by 45%.
To be eligible a building must listed individually in the National Register of Historic Places, be certified as a contributing property in a National Register-listed historic district, or be designated a Mississippi Landmark. Not-for-profit entities are ineligible. In order for owner occupied dwellings to be eligible for the Mississippi Historic Preservation Tax Incentive, the dwelling must be a designated National Historic Landmark.
A project’s rehabilitation expenditures must exceed $5,000 or 50% of the total basis of the building. The basis is the purchase price, less the cost of land, plus improvements already made, minus depreciation already taken.
Allowable expenditures include costs associated with the work undertaken on a structural component of a historic building—such as walls, roofs, windows, floors—as well as central air conditioning and heating systems, plumbing and plumbing fixtures, electrical wiring and lighting fixtures, elevators, and other components related to the operation or maintenance of the building. Architectural and engineering fees, site survey fees, development fees, and other construction-related costs are also allowable.
Costs such as acquiring or furnishing the building, new additions, new building construction, or parking lots, sidewalks, landscaping, or other facilities related to the building are not eligible.
All work must meet the Secretary of the Interior’s Standards for Rehabilitation.
To qualify for the state tax credit, property owners must submit a three-part State Historic Preservation Certification Application, along with photographs, to MDAH for review. For properties that have qualified for the federal credits, the property owner need only submit the federal certification application, along with the one-page form, Statement of Intent: Mississippi State Historic Preservation Tax Credit.
The three-part application is used to (1) request certification that the property is eligible to receive the credit; (2) request a determination that the proposed rehabilitation is in compliance with the Secretary of the Interior’s Standards for Rehabilitation; and (3) request certification that the project, as completed, meets the Standards. MDAH recommends that owners submit the application for review and approval before starting work to ensure compliance with the Standards.
Photographs must accompany the application and clearly document interior and exterior conditions before and after the rehabilitation. Include views of each exterior elevation and all major interior spaces, typical minor spaces, and significant details such as porches, mantelpieces, staircases, etc. A set of photographs of the completed project must be included with the request for final certification. Photographs must be color prints at least 4″x6″ (35 mm recommended). Polaroids and photocopies do not provide images of suitable quality. Do not email digital photos or send images burned to a CD.
Claiming the Credit
MDAH will issue a certificate verifying the eligible credit, and this certificate shall be attached to all income tax returns on which the credit is claimed. If the amount of the tax credit exceeds the total state income tax liability for the year in which the rehabilitated property is placed in service, the unused tax credit may be carried forward for the ten succeeding tax years.
For more information contact Todd Sanders by email or call 601-576-6950.
Federal Tax Credit
The 20% rehabilitation tax credit equals 20% of the amount spent in a certified rehabilitation of a certified historic structure. Under ideal circumstances, if an owner spent $100,000 restoring a historic building he would get $20,000 worth of tax credit. Unused tax credit can be applied to the previous year’s tax bill and carried forward up to twenty years. Long-term lessees may also apply for the credit if their lease is at 27.5 years for residential property or 39 years for nonresidential property.
How does a Building Become a Certified Historic Structure?
To be designated a certified historic structure, a building must be either listed individually in the National Register of Historic Places or be certified as a contributing property in a National Register-listed historic district. To request certification by the National Park Service, submit Part 1 of the Historic Preservation Certification Application, Evaluation of Significance, to MDAH.
To determine if their property is listed on the National Register, owners may view the collected National Register listings for the state or contact the Historic Preservation Division by email or at 601-576-6940. Owners of historic buildings not listed either individually or as part of a historic district may use the Historic Preservation Certification Application, Part 1 to request a preliminary determination of significance. If NPS determines the property meets National Register criteria, the owner may proceed with the rehabilitation project while the nomination process is underway.
What is a Certified Rehabilitation?
A certified rehabilitation is a rehabilitation of a certified historic structure that is approved by NPS as meeting the Secretary of the Interior’s Standards for Rehabilitation. The Standards are commonsense principles in non-technical language about maintaining, repairing and replacing historic materials, as well as designing new additions or making alterations.
Requirements for Eligibility
The building must be depreciable. It must be used in a trade or business or held for the production of income (offices; commercial, industrial, or agricultural enterprises; or rental housing). It may not serve exclusively as the owner’s private residence.
The property must be placed in service (i.e., returned to use). Furthermore, the owner must hold the building for five full years after completing the rehabilitation, or pay back the credit. If the owner disposes of the building within a year after it is placed in service, 100% of the credit is recaptured. For properties held between one and five years, the tax credit recapture amount is reduced by 20% per year.
The rehabilitation must be substantial. During a 24-month period selected by the taxpayer, rehabilitation expenditures must exceed the greater of $5,000 or the adjusted basis of the building. The adjusted basis is generally the purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken. If the rehabilitation is completed in phases, the same rules apply, except that a 60-month measuring period is used. This phase rule applies only if there is a set of architectural plans and specifications for all phases of the rehabilitation, and it can reasonably be expected that all phases will be completed.
The building must be a certified historic structure when it is placed in service. This means, generally, that for buildings not individually listed in the National Register Part 1 of the Historic Preservation Certification Application must have been filed before the building was placed in service.
To qualify for the tax incentives, property owners must complete the appropriate part or parts of the Historic Preservation Certification Application.
Qualified rehabilitation expenditures include costs associated with the work undertaken on a structural component of a historic building—such as walls, roofs, windows, floors—as well as central air conditioning and heating systems, plumbing and plumbing fixtures, electrical wiring and lighting fixtures, elevators, and other components related to the operation or maintenance of the building. Other costs that qualify are architectural and engineering fees, site survey fees, legal expenses, development fees, and other construction-related costs. The credits do not apply to such costs as acquiring or furnishing the building, new additions, new building construction, or parking lots, sidewalks, landscaping, or other facilities related to the building.
Tips for Having Your Project Approved
If possible, do not begin work until receiving pre-approval for your project. If work must begin before that time, make sure to submit your application as early in the process as possible.
Provide good photographs that clearly document interior and exterior conditions before and after the rehabilitation (35 mm photographs are recommended). Include views of each exterior elevation and all major interior spaces, typical minor spaces, and significant details such as porches, mantelpieces, staircases, etc.
The National Park Service has an excellent web site devoted to this tax credit. Read and follow the Secretary of the Interior’s Standards for Rehabilitation and the Guidelines for Rehabilitating Historic Buildings.
Other Tax Provisions Affecting Use of Preservation Tax Incentives
Due to IRS provisions regarding real estate investments, some taxpayers may not be able to use all of the tax credits earned in a certified rehabilitation project. MDAH recommends consulting a tax professional or the IRS directly to determine the particulars of your situation.
The Internal Revenue Service coordinates the tax aspect of this program. Specific tax questions should be directed to Colleen Gallagher, national coordinator for the historic preservation tax incentives program, at Colleen.K.Gallagher@irs.gov or 651-726-1480.
For more information contact Todd Sanders by email or call 601-576-6950.