Understanding The Massachusetts Historic Rehabilitation Tax Credit
The Massachusetts Historic Rehabilitation Tax Credit (MHRTC) is a state tax incentive program that provides up to 20% of qualified rehabilitation expenditures in tax credits for income-producing historic properties. The program is administered by the Massachusetts Historical Commission (MHC) and has been instrumental in preserving historic buildings across the state.
Key Features of the Program:
- Credit equals up to 20% of qualified rehabilitation costs
- Annual program cap of $55 million
- Credits can be claimed over 5 years
- Credits are transferable and can be sold
- Properties must be income-producing after rehabilitation
Qualification Requirements:
- Property must be listed in the National Register of Historic Places or eligible for listing
- Building must be substantially rehabilitated
- Work must meet Secretary of Interior’s Standards for Rehabilitation
- Project costs must exceed $5,000
- Property must be income-producing for at least 5 years after completion
Application Process:
- Submit Part 1 – Evaluation of Significance
- Submit Part 2 – Description of Rehabilitation Work
- Submit Part 3 – Request for Certification of Completed Work
- Apply during one of three annual application rounds
Frequently Asked Questions:
Q: Can residential properties qualify?
A: Only if they are income-producing (e.g., rental properties). Owner-occupied residences do not qualify.
Q: How long does the application process take?
A: Typically 60-90 days for each part of the application process.
Q: Can the credits be combined with federal historic tax credits?
A: Yes, projects can utilize both state and federal historic tax credits.
Q: What happens if I sell the property within 5 years?
A: Credits may be subject to recapture if the property is sold within the 5-year compliance period.
Q: Is there a minimum investment requirement?
A: Yes, qualified rehabilitation expenditures must exceed $5,000.
Q: Are there application fees?
A: Yes, fees vary based on project size and are due with each part of the application.
Q: Can unused credits be carried forward?
A: Yes, unused credits can be carried forward for up to 5 years.
The Bottom Line:
The Massachusetts Historic Rehabilitation Tax Credit is a valuable tool for investors looking to rehabilitate historic properties while reducing their tax burden. While the application process is detailed and competitive, the potential 20% credit on qualified expenses can significantly improve project economics. Success requires careful planning, adherence to preservation standards, and thorough documentation throughout the rehabilitation process.