In the Middleburg area, we are lucky enough to be surrounded by historic homes and historic districts. Many of these homes require a substantial investment into renovation and may be eligible for the rehabilitation tax credit.

Financial Aspects of Rehabilitation Tax Credit

The rehabilitation tax credits are reductions in income tax liability for home owners or investors who rehabilitate historic buildings. The credit is available for certified historic structures, which are about to undergo a substantial renovation. Private homes are eligible for the state credit, which is 25% of qualified construction costs. Commercial structures are eligible for the state and federal credit, which is an additional 20% for the qualified construction costs. Combined, an owner can realize 45% of qualified construction costs as a tax credit.

Qualified construction costs include all capital expenses associated with the rehabilitation. Essentially, this means all hard cost as well as some soft costs including architectural and engineering fees, construction period interest and taxes, and general contracting fees. Acquisition costs, cost attributed to additions or expansions, or landscaping costs are not eligible construction expenses.

What Buildings Qualify for the Tax Credit?

"Certified" historic structures qualify for the rehabilitation tax credit. A certified structure is one that is listed on the Virginia or National Register or is certified as a contributing structure in an historic district. The villages of Middleburg, Upperville, Delaplane and Aldie Mill are historic districts and many of the villages' older structures are contributing resources to these districts. In addition, there are many surrounding rural historic districts including, the Goose Creek Rural Historic District, and proposed Unison Battlefield Historic and Little River Historic Districts.

What Work Qualifies for the Credit?

The rehabilitation work for the entire project must meet the Secretary of Interior Standards for Rehabilitation, which are ten standards that guide property owners in restoration. The Standards embody common sense; preserve historic character, retain distinctive features and don't create a false sense of history.

How do I Claim the Credit?

In order to claim the credit, the property owner must make a 'substantial investment.' Under the state program, for an owner-occupied home, the owner must invest 25% of the home's assessed value into the restoration. For income producing properties, the owner must invest 100% of the structure's adjusted basis. This investment must be met within the first 24 months. For long term renovations, construction can be phased over five years and the credit may be claimed at the end of each phase. The state credit may be claimed immediately at tax time. Owners who claim the federal credit must take the credit in equal amounts over a five year period.

Jane Covington is an expert in the historic rehabilitation tax credit. Jane Covington Restoration LLC is LEED certified with the US Green Building Council and is a Class A General Contracting firm. For more information, call Jane at 434-960-4678 or refer to www.janecovington-restoration.com.