How to Save with a Historic Tax Credit

If you are looking to save money on fixing up your old house check if your state offers a Historic Tax Credit. We saved $5,000 on our first old house rehab and our state offers up to $50,000! At least 39 states offer a Historic Tax Credits which can be 20%-25% of project costs.

OUR REHAB STORY

When we bought our early 1900s Victorian farmhouse style home in Maryland we had an inspector walk through and list all the items that needed work. One of the major red flags was termite damage in the basement to structural floor joists under the first floor.

Someone had attempted to reinforce them by sistering the joists. Sistering means pairing the old joist with a new one. However, the sister joist should be at least 3′ past the termite damage. We did not have that, ours were too short, and therefore not structurally sound.

We knew straight away that we would have to invest in repairing the sistered joists. In addition to that we had other rehab projects in mind.

We wanted to relocate our washer and dryer out of the basement where my over 6 foot tall husband couldn’t even stand up. Then, we wished to close off the unfinished basement which just had a set of treacherous stairs leading down to a curtain. Also, we planned to replace our front door. It turns out it was an interior door (not original to the house) and not meant for exterior use. Finally, we wanted to repair our rotting porch.

How to afford all of this?! Well one thing that helped in a major way was the Maryland Historic Revitalization Tax Credit Program. That saved us 20% of our rehab which meant $5,000 straight back into our pocket. Plus the people at Maryland Historic Trust advised us on what was period appropriate for our home.

WHICH STATES HAVE HISTORIC TAX CREDITS?

I didn’t even discover the Maryland Historic Revitalization Tax Credit Program until the preservation society in our neighborhood organized a walking tour of historic houses in the area. When I fumbled through their website online I clicked on a link for tax credits and viola! There was the Historic Tax Credit which was perfect for our upcoming old house rehab.

The National Trust for Historic Preservation lists that there are 39 states that participate in some sort of tax credit rehab program. You can view their MAP of participating states.

Virginia, Maryland, and West Virginia all have programs, however, it is unclear if DC has a program based on this Washington Post article from 2019.

WHAT BUILDINGS QUALIFY?

There are Historic Tax Credits for both commercial and residential buildings. We used the residential Homeowner Tax Credit in Maryland. The building either needs to be in a historic district or needs to have some sort of historic designation, which I believe you can apply for.

The property must be the owner’s primary or secondary residence. It can be a residential unit in a cooperative owned by or leased to a cooperative housing corporation.

HISTORIC TAX CREDIT BUILDING DESIGNATIONS

National Register historic district
National Register individual listing
Local historic district
Local individual listing
Pending National Register or local designation (individual or district)

This list is from the Maryland Historical Trust Homeowner Tax Credit webpage.

WHICH WORK QUALIFIES?

One of the ideas behind this program is for homeowners to make their old houses comfortable for modern times. I look at this as another incentive to green your old house. The other goal is to provide financial support for repairs which you will inevitably need for any house.

HISTORIC TAX CREDIT PROJECT WORK

Roof repair and replacement
Chimney repair and lining
Window restoration
New storm doors/windows
Masonry repointing
Floor refinishing
Structural repairs
Plumbing, electrical and mechanical systems
Architectural/ Engineering/ Consulting fees
Tool/equipment rental
Repair of historic outbuildings

This list is from the Maryland Historical Trust Homeowner Tax Credit webpage.

HOW MUCH MONEY CAN YOU SAVE?

You can save $50,000 on an old house rehab, in a 2-year period, in the state of Maryland, and even more in other states. The total project amount you can apply for is $250,000, in a 2-year period, and you would receive 20% of that as a tax credit, which is $50,000. After the 2-year period you can apply again for more up to what your old house rehab costs.

In Maryland the tax credit is given to you the tax year your paperwork is approved showing completion of work. It is deducted from the tax you owe and any money over that is sent as a check to you that year. Some other states, I believe including Virginia, hold on to the money and it is deducted from the taxes you owe every year.

HOW LONG DOES IT TAKE?

The initial application process is pretty straightforward in Maryland and can be processed in 30-45 days to give you the green light to start work. YOU CANNOT START WORK BEFORE THE INITIAL PAPERWORK HAS BEEN APPROVED! If you do an of the rehab work prior to your application you cannot get a tax credit for it.

This is probably the hardest part because we all tinker with our old houses but believe me it is better to take a bit of time and get organized because it pays off.

Once you’ve been approved the 2-year clock does not start ticking until you start the actual rehab. We did not finish all the work we applied for in the 2-year timeframe, (we had a baby!) so I plan to apply again this year for the remainder of the work.

The final part of the application is to provide all your receipts or invoices plus proof of payment. If you are replacing your roof this will take you 10 minutes to put together! But, if you are going the DIY route you’ll need to keep track of all your receipts from Home Depot and the like and can take a longer time. We had a variety of contractors and purchased some items ourselves so this took me days to weed through and fill out all the documentation.

Once the paperwork was in it took a few weeks to receive comments and then just a bit more for approval and we got our tax credit for around $5,000 with our annual tax refund!

SHOULD YOU APPLY?

If you have a few big projects this is a great way to save, but if you need to get work done immediately to keep your house safe, then this will probably not benefit you.

The same goes for those who want unlimited time to work on their own house projects with each project taking more than a 2-year window. (Weekend fixer upper perhaps?!)

See below for more resources and restrictions. If you want to hear more about how we are applying for this next round or specifics about what we did in our last rehab that applied, please let us know in the comments below!

SUSTAINABLE RENOVATION FOR AN OLD HOUSE

Now that we finished our first round of renovations and receiving our tax credit, we’re working on the second round of renovation projects. Our goal – to make our house more energy efficient and upgrade it to be eco friendly too.

We are documenting the process. Sharing all that we learn from the experts along the way! So far we’ve installed a geothermal heating and cooling system, did an energy audit, and surveyed our trees. You can watch the series below and subscribe to follow along.