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As of April 30th, 2022, the Kentucky Heritage Council has an annual fund of $100 Million to allocate for Rehabilitation Projects! Of that annual funding, 25% is reserved for owner-occupied residential projects, and the remaining 75% is allocated for all other qualifying property types (KRS 171.396.pdf). Individual allocation caps apply and are outlined in the "Overview" section, below.
As of April 30th, 2022, the Kentucky Heritage Council has an annual fund of $100 Million to allocate for Rehabilitation Projects! Of that annual funding, 25% is reserved for owner-occupied residential projects, and the remaining 75% is allocated for all other qualifying property types (KRS 171.396.pdf).
Pullen Building in Georgetown, before and after the Rehabilitation Tax Credit project
Historic Rehabilitation Tax Credits are voluntary, financial incentives to encourage private investment in historic properties. Historic Rehabilitation Tax Credits offer a dollar-for-dollar reduction in income taxes owed by the historic property owner, based on the Qualifying Rehabilitation Expenses (see more on "QREs", in sections below). Therefore, you must be the building's owner to apply. Property owners that receive the tax credit(s) are subject to monitoring, property inspection, and repeal of the Rehabilitation Tax Credits for up to five years after the credit is awarded. Tax-exempt property owners are eligible for the State Tax Credit through the sale or transfer of their credits.
There are two Historic Rehabilitation Tax Credit programs available, and your property may be eligible for one or BOTH Rehabilitation Tax Credit programs!
1. The Federal Historic Rehabilitation Tax Credit program:
2. The State Rehabilitation Tax Credit Program:
For various Structure types (in this case, "structures" is not interchangeable with the Federal definition of "buildings," as the State's program offers more flexibility on eligibility than the Federal Tax Credit application does). Subject to monitoring and enforcement for 3 years after the State credit is awarded, applied to the property owner who claims the income tax credit.
For income-producing buildings, the applicant can apply for BOTH State and Federal Tax Credit programs, qualifying for a total tax credit up to 40%.*
*“Up To" is used in the State Historic Tax Credit percentages because Kentucky has yearly allocation caps; meaning, if the Kentucky Heritage Council (KHC) receives more applicants than funding allows that year, everyone's allocated credit is equitably prorated. Our annual allotted funding is $100 Million.
For tax-exempt entities (such as churches and non-profits), the applicant can transfer or sell the credits received to an eligible bank, who would apply it to their tax returns. If you have questions about the sale or transfer options for Tax Credits, reach out to our partnered agency at the Department of Revenue for clarification.
For a property to qualify, it must be listed on the National Register of Historic Places (or in some cases, can qualify for preliminary Federal Tax Credit approval if the building is in the process of being listed), either as an "Individual Resource" or as a "Contributing Resource" within a National Register Historic District. If you have questions on determining if your property is on the National Register, or eligible for listing on the National Register, contact our National Register Coordinator, Marty Perry, for assistance.
For the project to qualify for a Historic Rehabilitation Tax Credit (State and/or Federal), it must follow the Secretary of the Interior's Standards for Rehabilitation. "Rehabilitation" is defined in the National Park Service's regulations as: "The process of returning a building or buildings to a state of utility, through repair or alteration, which makes possible an efficient use while preserving those portions and features of the building, and its site and environment, which are significant to its historic, architectural, and cultural values" (codified in 36 CFR Sect. 67). The intent of the Standards for Rehabilitation is to maintain and celebrate a property's significance through the preservation of historic materials and features, while allowing sensitive changes for contemporary occupation.
The National Park Service has many great resources on Interpreting the Standards for specific features, Planning Successful Tax Credit Projects, and Avoiding Incompatible Work, to help guide you on the appropriateness of alterations. If you have any questions about your project's compliance with the Standards for Rehabilitation, reach out to the Site Development team (contact information is located at the bottom of this page) for more information!
"Qualifying Rehabilitation Expenses" or "QREs" are project expenses that are eligible for Rehabilitation Tax Credits. QREs include labor and
material fees related to a capital improvement, which meets the Standards for
Rehabilitation, and goes toward the basis of the historic building or structure.Your application should outline ALL work proposed at the property, but not all expenses may be eligible for the credit(s). See below.
For example: Driveways, yard features, and new construction that does not contribute to the preservation of existing historic material and features would not be considered
QREs. Similarly, temporal features are not eligible, such as, but not limited to: appliances
(stoves, washers, etc.) or window coverings (blinds and drapery).
Another example: Window repair (material and labor) would be considered a Qualifying Rehabilitation Expense. However, removal and replacement of historic windows that are in repairable condition, would not be considered a Qualifying Rehabilitation Expense, as this
does not meet the Standards for Rehabilitation's guidance for repair over replacement, where possible. In fact, removal of
historic windows without prior approval in a Part 2 application from the
Kentucky Heritage Council is subject to a
project's disqualification or denial.
Both State and Federal Rehabilitation Tax Credit applications consist of a three-part process. State Application Forms (Part 1 through 3.2) and the Federal Application Forms (Parts 1 through 3) are located on this webpage, under the "Historic Tax Credit Resources" section.
Parts 1 and 2, are typically submitted simultaneously, although it is not a requirement. However, both the Part 1 and Part 2 applications must be submitted prior to an Allocation Letter being issued to the applicant. See more about the Allocation Letters, below, in the "What's the Timeline?" section.
The Kentucky Heritage Council (KHC) administers both the Kentucky Historic Rehabilitation Tax Credit, in partnership with the Kentucky Department of Revenue, and the Federal Historic Rehabilitation Tax Credit, in partnership with the National Park Service (NPS) and IRS. Therefore, any applications or questions related to the Tax Credit programs should be directed to Kentucky Heritage Council and/or its office.
410 High StreetATTN: Rehabilitation Tax CreditFrankfort, KY 40601
Electronic submittals are in progress, but not available at this time. However, applicants will receive their final, approved State Tax Credit forms via encrypted email.
Once the project's Part 1 and Part 2 applications are submitted, the Applicants shall be notified via email if any application materials are missing or insufficient, will be given ten (10) days to submit missing elements; otherwise, the project shall be placed on hold and removed from the Allocation Pool until KHC certifies that the Part 2 constitutes a complete and adequately documented application (see Section 4(4)(a) of KAR 300.006.011 for more information).
Once the Project's Part 1 and Part 2 application have received preliminary approval by the Kentucky Heritage Council, the applicant has a consecutive 24-month period to charge and itemize their Qualifying Rehabilitation Expenses. An applicant has 36-months to submit a Part 3 Application (certifying the work is complete and outlining the QREs for Tax Credit approval) or they will be given written notice that their Allocation Credit is being recaptured by the agency (see Section 6 of KAR 300.006.011 for further information). Only the qualifying expenses within the
24-month consecutive period are eligible for Tax Credits.
No allowances are made in the State Tax Credit for "phased projects" longer than 24-months, so each State Tax Credit project should be self-contained within that period. In some cases, Federal applications can have a "phased" option. Ask KHC staff if you have additional questions.
The State's annual funding is divided up to each project received, within each fiscal year. Because of the state's budget and associated fiscal calendar, applications received between April 30th and April 29th of the following year will be considered part of the latter-year's pool of applicants. Those applicants will have Allocation Letters sent to them on June 29th, informing them of how much credit has been set aside of the total funding for their specific project.
Projects will be received, reviewed, and can have preliminary approval given (Part 1 and Part 2 Applications, to begin the Rehabilitation work) at any point throughout the year prior to an Allocation Letter being sent out. Applicants can expect to receive an Allocation Letter on June 29th of the fiscal year they've applied within.
If a project has already begun within 24-months of an Allocation Letter deadline (April 29th; see "What's the Timeline" section, above), an applicant can technically apply for a Tax Credit Application retroactively.
By starting work prior to receiving your Tax Credit approvals, you are placing your Tax Credit eligibility in jeopardy and assuming the risk of a potential project denial (at the Part 3 level) or disqualification from the program (at the Part 2 level) if the work does not meet the federal Standards of Rehabilitation.
Please contact the Site Development staff if you have any questions.
Please note that the KHC is following the National Park Service's efforts to go digital. From March 1, 2023 henceforth, the Site Development Program will issue all State Historic Tax Credit Approvals (Parts 1, 2, and 3; also known as Forms: TC-1, -2, -3, and -4, respectively) by an encrypted email to the applicant(s). The National Park Service shall provide their documents to the applicant for Federal Historic Tax Credit applications. The only documents that shall be sent to the applicant via written notice in the mail, shall be: