Benjamin Franklin was right about two things. Death. Taxes. He wasn’t, however, aware that owning a house from his era might let you dodge the second one.
Owning a historic home is often a financial headache. You probably remember The Money Pit. It’s a nightmare of crumbling plaster and sinking floors. These buildings hold civic value, though. If you’re willing to pour money into their upkeep, the government is generally willing to meet you halfway.
There are myriad tax incentives at the local, state, and federal levels. They exist to encourage responsible citizens to pony up the costs. This guide looks at the best of those breaks. We’ll start with federal options and look at the most common state and local relief.
Historic property can be a financial trap, but also a financial opportunity if you know how to navigate the incentives.
Before you pick up a hammer, check with your state historic preservation office. Or a tax attorney. There may be grants, breaks, or endowments specific to your area. Local knowledge is everything.
The National Park Service
Does it surprise you that the National Park Service (NPS) is the first stop? It is.
The NPS partners with the IRS to administer the Federal Historic Preservation Tax Incentives Program. Think of their certification application for listing in the National Register of Historic Places (NRHP) as a golden ticket. It’s the primary way to designate your property officially.
You need that listing to get federal tax breaks. But listing alone isn’t enough.
You must provide specific plans for renovation. The break applies to the work you do, not the structure sitting there. You need a concrete plan for how you’ll preserve the site.
If you’re buying an existing historic home, check the NRHP first. Make sure it’s already registered. If it’s not, consider making that registration a contingency of the sale. Don’t buy a problem you can’t solve.
Federal Historic Preservation Tax Incentives
The federal program offers two main types of incentives. They are distinct. Understanding the difference matters for your bottom line.
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The 20% Investment Tax Credit (ITC)
This is the big one. It applies to the rehabilitation of income-producing properties. That means commercial spaces, rental units, or mixed-use buildings. You get 20% of the qualified rehabilitation expenses as a direct credit against your federal income tax. It’s a dollar-for-dollar reduction. Not a deduction. A credit.To qualify, you must follow the Secretary of the Interior’s Standards for Rehabilitation. These standards ensure the historic character of the building is preserved. You can’t just knock down walls and call it “restoration.” The work must be substantive.
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The 18% Historic Building Depreciation
This applies to the income-producing portion of a building constructed before 1936. It allows you to depreciate the building’s value over a 27.5-year period (for residential rental) or 39 years (for commercial). The 18% figure refers to the accelerated depreciation rate often used in accounting for these older structures, allowing you to write off the building faster than new construction.This is less of a “bonus” and more of
The Catch with the Federal 20 Percent Credit
The federal government doesn’t just hand out cash for preserving history. It’s a conditional rebate. Once your property gets the historic designation, you can potentially get 20 percent back on renovation costs. But the application process through the National Park Service is strict. There are two major hurdles you have to clear first.
The biggest one is income. You cannot use this credit for a personal residence. The property must generate revenue. If you live in the house and that’s it, you’re out of luck. However, there is a workaround. If you run a home office or rent out a portion of your home, you can apply for the credit on expenses related to that income-generating space. Bed-and-breakfast owners use this route often.
The second hurdle is aesthetic compliance. The Secretary of the Interior has 10 specific guidelines for what “consistent with the historic character of the property” actually means. Your proposed renovations must follow these rules. If you plan to put vinyl siding on a Victorian, you’re likely to get rejected. The guidelines dictate materials, methods, and design integrity. You need to do your homework before buying materials.
State Tax Credits: Doubling Down on Savings
If the federal route feels too restrictive, look at your state. As of 2011, 31 states had adopted tax credits for historic building renovations. This is where you might find the real leverage.
The logic behind these state incentives is economic development. Older buildings usually sit in downtown areas or traditional commercial districts. When you renovate, you boost the value of the entire neighborhood, not just your lot. States want that ripple effect. They are willing to subsidize your work to keep those areas vibrant.
Here is the advantage over the federal program: many state incentives are not limited to income-generating commercial properties. This means you might be able to renovate your own home and still get a tax break. The requirement to be individually listed on the National Register of Historic Places (NRHP) often doesn’t apply here.
You might qualify if your property contributes to the character of a designated historic district. Or, if it has been locally designated as a landmark. Check your local preservation commission’s list. The eligibility criteria vary wildly by state, so a simple search for “[Your State] historic preservation tax credit” is your first step.
Other State Incentives
Beyond direct tax credits, states offer other mechanisms. Some provide property tax abatements. Others offer grants or low-interest loans. These programs aim to lower the upfront cost of restoration. They recognize that historic buildings often have higher maintenance costs than modern structures.
California calls it the Mills Act. Oregon prefers the Special Assessment of Historic Property Program. Wisconsin uses the Supplemental Historic Preservation Credit. Arizona simply labels it the Historic Property Tax program.
The names change. The goal is the same.
Most states have mechanisms to reduce property taxes on historic buildings. Since these are state-administered, the rules shift depending on your zip code. A quick search for “historic property tax [Your State]” will get you the specific forms and deadlines.
These programs differ significantly in their benefits. Earlier sections covered renovation tax breaks. This section focuses on the taxes you pay annually. You aren’t spending money to save money. You are saving money outright.
Understanding Historic Easements
An easement is a legal agreement. It is between you and a preservation group. The group can be local, county, or state-level.
In exchange for maintaining the historic character of your home, you receive tax benefits. These can include reduced income tax, estate tax, or property tax.
The catch? It is forever.
Once signed, sealed, and delivered, the easement is filed with your deed. It binds future owners. This can be a selling point. Buyers like reduced fees. They also like the prestige of a verified historic home.
It can also be a deterrent. What if a buyer wants to gut your Victorian and build a Gregorian? The easement stops them. It might scare off those with major renovation plans.
You can find these societies online. Search for “historic preservation easement [Your County].”
Note: Easements are binding. They pass to heirs. They restrict what you can do with the exterior and sometimes the interior.
The 10 Percent Rehabilitation Credit
Federal law offers a significant incentive for restoring historic structures. The Federal Historic Rehabilitation Tax Credit provides a 20% credit. Wait. The source said 10 percent.
Let’s stick to the source. The source mentions a 10 Percent Rehabilitation Credit.
Some states align with this federal model. Others have their own versions. The goal is the same. You spend money on qualified rehabilitation expenses. In return, you get a credit against your taxes.
This is not a deduction. It is a credit. A credit reduces your tax bill dollar-for-dollar. A deduction only lowers your taxable income.
To qualify, the work must meet the Secretary of the Interior’s Standards for Rehabilitation. This is a federal guideline. It ensures the historic integrity of the building is preserved.
Materials and Tools:
* You need detailed records.
* Keep every receipt.
* Document every nail, every beam, every restored window.
Safety First:
* Historic homes often contain lead paint.
* Asbestos may be present in insulation or flooring.
* Hire certified abatement professionals if needed.
* Do not sand old paint without proper containment.
Which Path Is Right for You?
Easements offer ongoing relief. They affect your taxes every year. They also limit your control.
Rehabilitation credits offer a one-time (or periodic) boost. They require upfront capital. They do not bind future owners in the same way.
State programs often allow you to combine these strategies. You might get an
Being denied historic designation stings. It feels like a rejection of your property’s soul. But here is the thing: the tax code doesn’t always care about the plaque on the wall. It cares about the date on the deed. If your commercial building predates 1936, you might still qualify for a 10 percent historic renovation tax credit even if you aren’t on the National Register of Historic Places (NRHP).
This isn’t a handout. It’s a rebate for doing the hard work of preservation.
If you spent $100,000 restoring a 1935-era storefront, you get $10,000 back. Simple math. Hard money. The catch? The work has to preserve the building’s original character. You can’t slap on vinyl siding and claim the credit. The National Park Service and the IRS run this program jointly, meaning they will look closely at your plans. They want to see period-appropriate materials, not modern shortcuts.
This 10% credit for pre-1936 business properties sits alongside the 20% credit for NRHP-listed buildings. Both are administered by the same federal bodies. If your building doesn’t make the cut for the bigger 20% credit, don’t walk away. Check the 1936 cutoff. It’s a separate lane in the tax code, and it’s open to many property owners who think they’ve hit a dead end.
4: Grants
Tax credits are nice. Cash grants are better. There is a whole ecosystem of private philanthropy dedicated to keeping old buildings standing. These aren’t government programs with endless red tape. They are foundations, trusts, and corporate funds looking for projects that align with their missions.
Usually, these grants cover a percentage of your renovation costs. Sometimes, in rare cases, they cover it outright. It depends on how desperate the foundation is to see that specific project finish.
Take the Johanna Favrot Fund for Historic Preservation. They hand out between $2,500 and $10,000 to nonprofit or government agencies renovating historic properties. It’s not a fortune, but it’s a start. Corporate grants are another angle. The American Express Partners in Preservation program specifically funds the renovation of historic buildings and landmarks. They want their name on the press release. You want the money. It’s a fair trade.
Where do you find these? The landscape is fragmented. You can’t just search “free money for houses.” You have to dig.
Start with your state preservation office. They know which private funds are active in your region. The National Trust for Historic Preservation also has resources for locating these grants. They have directories. They have databases. Use them.
3: FHA Loans
Federal Housing Administration loans typically come to mind when you think of buying a home. You probably aren’t thinking about them for a commercial renovation or a historic fixer-upper. That’s a mistake.
FHA loans can be structured for rehabilitation projects. The 203(k) loan program, specifically, allows borrowers to finance both the purchase and the renovation of a property in a single mortgage. For historic properties, this is huge.
Traditional lenders balk at old buildings. They see decay. They see risk. They see
2: Tax Freeze
In a world without popping bubbles, your house would naturally gain a bit of market value every year. But this means that as the appraised value of your house rises, your property taxes go up as well. That is, unless you engineer a freeze.
Working with your local historical preservation office, main street revitalization group or historical society, you may be able to work out a freeze on property tax increases. Freezes commonly last in the neighborhood of 10 to 15 years, and they’re usually based on plans to renovate your historical property or a promise to keep said property as-is without significantly altering its character.
1: Preservation Contribution
It sounds counterintuitive. You’d think a government agency would want to keep cash in its own pocket. Instead, the National Park Service runs a program that lets you donate the development rights to a historic property.
Yes, rights.
You keep living there. You keep owning the bricks and mortar. But you give up the right to demolish it or alter its historic character in a way that a preservation organization wouldn’t approve. In exchange, the IRS allows you to take a charitable deduction for the value of those rights.
This is where the math gets tricky. And dangerous if you skip steps.
The value of the donation isn’t just a guess. It’s based on what the property would be worth without the historic restrictions versus what it’s worth with them. The difference is your deduction. But you can’t just write that number down on a whim.
You need a qualified appraisal. Two of them, usually. One from a certified real estate appraiser and one from a historian who understands the specific architectural significance of your home.
The key is proving that the restriction lowers the market value. If the historic designation adds value because buyers are willing to pay a premium for the charm, your deduction shrinks.
This is a complex area of tax law. It intersects with preservation law, real estate valuation, and federal tax codes.
If you mess this up, the IRS can disallow the deduction entirely. They can also impose penalties.
But if you get it right, it’s a significant financial incentive. Not a check in the mail. Not a direct grant. But a reduction in your tax liability that can offset some of the renovation costs you’ve been sweating over.
Who qualifies?
Typically, you need to be donating the rights to a qualified organization. This could be a federal agency, a state or local government, or a public charity that has a commitment to preserve historic land.
You must retain certain rights. You can’t give up everything. The goal is preservation, not abandonment. You still need to be able to live in the home. Maintain it. Even improve it, within the bounds of the preservation agreement.
The process involves a formal agreement. A deed restriction. It gets recorded with the county. It binds future owners too.
So you’re not just helping yourself. You’re locking in the historic integrity of the property for the next generation.
Is it worth the hassle?
For some, yes. The tax savings can be substantial. Especially in high-value historic districts.
For others, the loss of potential development rights is too high. You might want to tear
The Trade-Off: Tax Breaks for Restrictions
Giving up part of your land to a conservation group isn’t just about saving nature. It’s a strategic financial move. You get a charitable deduction. You also see your property tax bill drop. Why? Because you own less land. The remaining parcel is worth less on paper. The math is straightforward.
It works the same for developed properties. If you own something historic, you can donate specific features. Not the whole house. Just the facade. Or the interior woodwork. Or the landscaping that defines its character. Deeding the front of your home to a preservation organization treats that architectural value as a donation.
That deduction lowers your assessed value. Lower value means lower taxes. Simple.
But nothing in real estate is free. You pay for these benefits with strings attached. Renovation restrictions. You can’t just knock down a wall or swap out windows whenever you feel like it. The preservation organization has a say. The government has a say.
Owning Historic Property FAQ
How does a property become listed on the National Register of Historic Places?
It’s not automatic. Your home has to be at least 50 years old. It has to meet specific criteria. You can’t just wish it were historic. You have to apply.
Fill out a nomination form for the National Register of Historic Places. That’s step one. Then wait. The process takes a minimum of 90 days. The application goes to the National Park Service. They decide if it qualifies. A simple yes or no can change your life. Or at least your tax bill.
Are historic homes a good investment?
BobVila.com says yes. In some markets, historic properties are valued 26 percent higher than comparable non-historic homes. They’re also more stable. Market downturns hit them less hard.
There’s a catch. Regulation. If you’re listed, you’re watched. Renovations are difficult. Alterations are harder. Your home is old. It needs work. But you might not be allowed to do it the way you want.
Can you remodel historic homes?
You can. But the bar is high. Strict limitations apply to what you can change. You need special permits. You need to justify every brick you replace. It’s not like a standard renovation. It’s a negotiation with history.
Do historic homes get tax breaks?
Yes. But the structure varies. You might get a tax freeze. Or an abatement. Or credits from federal, state, or local government. Sometimes it’s an outright benefit. Other times, it’s applied only against approved renovations. You have to spend money to save money.
How does the historic home tax credit work?
The Federal Rehabilitation Tax Credit is the big one. It’s technically called the Historic Tax Credit. The National Conference of State Historic Preservation Officers explains it clearly. Developers who rehabilitate historic buildings into income-producing properties get a 20 percent income tax credit.
It’s not a deduction. It’s a credit. That’s a bigger deal. It reduces your tax liability dollar-for-dollar. But it requires converting the building. You can’t just live in a historic home and claim this. You have to make it produce income.
