Owning a listed property

The 20% federal rehabilitation tax credit, explained with a worked example

John HarrisonUpdated October 2026

The federal historic rehabilitation tax credit equals 20% of the qualified cost of rehabilitating a certified historic structure that will be used to produce income. The National Park Service (NPS), which keeps the Register, certifies the building and the work; the IRS decides which costs count and how the credit is claimed. Since the 2017 tax law the credit is taken over five years, not one.

Figures below are as of October 2026. The NPS and IRS both say the credit’s value to a particular owner depends on income and other limits, so a tax adviser should check the numbers before a project is planned around them.

Four eligibility tests

The NPS eligibility page and the Form 3468 instructions set out the same four conditions, in slightly different language.

1. Certified historic structure. The building must be individually listed in the National Register, or be a contributing building in a registered historic district (or a certified state or local district) and be certified by the NPS as such. Being inside a district boundary is not enough; a building outside the district’s period of significance may not qualify. Certification is requested with Part 1 of the application. Use the address lookup to see whether a property is individually listed or sits in a district.

2. Income-producing, depreciable use. After rehabilitation the building must be used in a depreciable way for at least five years: commercial, industrial, agricultural or rental residential. The NPS states plainly that owner-occupied residential properties do not qualify, and that the credit cannot be used on a private residence, although the business or rental portion of a home may qualify. Only buildings count; structures, objects and sites are excluded.

3. Substantial rehabilitation. Qualified rehabilitation expenditures (QREs) in a 24-month measuring period ending in the tax year must exceed the greater of $5,000 or the adjusted basis of the building and its structural components. A 60-month period is allowed for phased projects completed under a written architectural plan, and 36 CFR 67.6(b)(8) says the initial Part 2 must identify the project as phased.

4. The Secretary of the Interior’s Standards for Rehabilitation. All work, interior and exterior, is reviewed against the ten Standards in 36 CFR 67.7, applied “in a reasonable manner, taking into consideration economic and technical feasibility.” In short: a use needing minimal change to defining features, retention of historic character and materials, no conjectural features, repair before replacement with matching replacements, no damaging treatments such as sandblasting, and additions that are differentiated, compatible and reversible. Under 67.6(b)(1) the whole project is certified or denied; failing portions cannot be carved out.

Adjusted basis, with the NPS’s own numbers

The NPS eligibility page gives a formula: A − B − C + D, where A is the purchase price of building and land, B is the land value at purchase, C is depreciation already taken, and D is capital improvements since purchase. Its example: A = $150,000, B = $70,000, C = $41,000, D = $1,500, so adjusted basis is $40,500. A $50,000 project exceeds that basis and is substantial; if certified, the credit is 20% of $50,000, or $10,000.

What counts as a QRE comes from the IRS. Per the Form 3468 instructions and the IRS FAQ, QREs are capitalised costs of depreciable property incurred in connection with the rehabilitation, depreciated straight-line. Excluded: acquiring the building, enlarging it, costs allocable to tax-exempt use property, related facilities such as sidewalks, parking lots and landscaping, and interest on acquisition debt (construction-loan interest for qualified work is not treated as acquisition cost).

The three-part application

The NPS application process page describes a three-part Historic Preservation Certification Application, submitted electronically only, on the June 2023 forms.

• Part 1, Evaluation of Significance. Documents the building’s significance and appearance. It is the request for certified historic structure status for buildings in districts. The NPS charges no fee for Part 1.
• Part 2, Description of Rehabilitation. Describes the building’s condition and the planned work, evaluated against the Standards. Approval before work starts is the safe course; the HPCA instructions warn that owners who proceed without NPS approval do so at their own risk. Substantive changes after approval must be submitted in writing as amendments; 36 CFR 67.6(d) says oral approvals are not valid.
• Part 3, Request for Certification of Completed Work. Filed after completion, with photographs, to show the work matches what was approved. NPS approval of Part 3 makes the project a “certified rehabilitation.”

Each part goes first to the State Historic Preservation Office, which checks it, may visit the site, and forwards it to the NPS with a recommendation. The NPS bills a review fee for Parts 2 and 3 on receipt; under 36 CFR 67.11 no decision issues until it is paid and fees are nonrefundable. The schedule is set by Federal Register notice and is not reproduced here. The HPCA instructions say a complete application generally takes about 30 days at the SHPO and 30 at the NPS. The NPS may inspect a completed project for up to five years and revoke a certification, after 30 days for the owner to comment, if the work was not done as represented (67.6(e)).

The Form 3468 instructions require the NPS project number and the date of final certification on the return. If Part 3 approval has not arrived by the time the credit is first claimed, the instructions describe a 30-month rule: the filer attaches the first page of the Part 2 showing receipt by the Department of the Interior or the SHPO and must receive final certification within 30 months.

Claiming it: five years, Form 3468, basis

Public Law 115-97 (December 22, 2017) changed two things. It repealed the separate 10% credit for pre-1936 non-historic buildings, and it required the 20% credit to be taken ratably over five years. The Form 3468 Part VII instructions say the line for the rehabilitation credit “represents the 4% credit” allowed each year over a five-year period, beginning in the year the building is placed in service, and warn filers not to enter the full 20%. The transition rule that let some older projects claim the credit in one year was removed from the 2025 instructions.

Other mechanics from the IRS pages:

• Basis is reduced by the full credit determined; if recapture occurs, basis is increased by the recapture amount.
• A pass-through entity cannot claim the credit itself. It files Form 3468 to pass the QREs to partners, shareholders or beneficiaries, who claim it if they qualify. A lessor may elect to treat the lessee as having acquired the property.
• Recapture applies if the property is disposed of or stops being investment credit property within five years, or if an owner’s interest in a pass-through drops by more than one third. Partially damaged property that is repaired and returned to service does not trigger it.
• The credit is part of the general business credit; carrybacks and carryforwards go on Form 3800.

A hypothetical worked example

The numbers below are invented round figures to show the arithmetic. They are not a real project and do not include NPS fees, which vary.

A buyer pays $600,000 for a vacant 1920s commercial building, individually listed in the Register, intending to rent out the ground floor as a shop and the upper floors as apartments.

Had the buyer spent only $400,000, the project would have failed the substantial rehabilitation test and earned no credit, however good the work. Had the building been the owner’s own home with one basement rental unit, only costs allocable to that unit could count. Whether $32,000 a year is usable depends on the owner’s tax position, which is why both agencies say to talk to a tax professional first.

Buildings like these

The NPS reports that since 1976 the incentives have leveraged $127.12 billion in private investment across more than 50,000 properties, at about 1,200 approvals a year. Examples with pages on this site, chosen only because they are hotels, mills, banks or apartment houses and not because any has used the credit:

• Hotel Kaskaskia, a 107-room 1915 hotel in LaSalle, Illinois.
• Alwyn Court Apartments, a twelve-storey terracotta-clad apartment house in Manhattan.
• Union Mills, a Fall River, Massachusetts textile complex whose first granite mill dates from 1859.
• Chapin National Bank Building, a 1917 cast-stone bank in Springfield, Massachusetts.
• Daniel Boone Hotel in Boone, North Carolina, opened 1925.

Many states layer their own credit on top; see state historic tax credits. What listing requires of an ordinary homeowner is in what listing means for homeowners.

Not covered here

NPS review fee amounts, the rules for tax-exempt use property and condominiums, and the coordination of the five-year claim with other investment-credit rules are left to the IRS pages and a tax adviser.

General information, not legal or tax advice. Researched from the sources above and drafted with AI assistance; published under the editor's name, corrections welcome. See the editorial policy.