Rehabilitation Tax Credits

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Overview of Rehabilitation Tax Credits:

A Historic Rehabilitation Tax Credit is a voluntary, dollar-for-dollar credit toward a property owner's income taxes (which can be used, transferred, or sold), based on the cost to Rehabilitate a Historic Property.  To qualify, you must own a property that is listed on the National Register of Historic Places​. Next, your project must meet the federal definition of a Rehabilitation. The Rehabilitation Tax Credit program is a three-Part application process, whereas Parts 1 and 2 are submitted before the project begins and Part 3 is submitted after the work is complete. Staff is available to help property owners identify if their property qualifies, what project scopes are considered Qualifying Rehabilitation Expenses, and how to submit the application forms (located on this website, under "Applications & Forms," and submitted via our Payment and Application Portals, above). Contact us today and learn more, below! 

We are currently accepting, reviewing, and approving 2024 Project Applications! The deadline for a project to submit their application materials and receive funding from our 2024 Budget is April 29th, 2024. Applications received thereafter will be allocated tax credits from our 2025 Budget. 

​​Pullen Building in Georgetown, before and af​ter the ​Rehabilitation Tax Credit project​

Updates (8/15/23):

The​ National Park Service will be hosting weekly training sessions, every Wednesday at 3pm, on the electronic submission process for Federal Tax Credit applications. If you're interested in attending one of these virtual trainings, please use this link to register.​

What Tax Credits are available​? ​

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: 

• ​For​ income-producing buildings only. Subject to monitoring and enforcement for 5 years after the Federal credit is awarded, applied to the property owner ​​who claims the income tax credit. ​
  
• The project's Qualified Rehabilitation Expenses ("QREs") must exceed the building's Adjusted Basis (which in summary, is the pre-rehabilitation value of the building, not including the land value).  
• Offers a 20% credit on the total QREs for a dollar-for-dollar reduction in the Federal Income Taxes owed by the building's owner(s).
  
• Consists of a three-part application, a required "Transmittal Log" each time materials are submitted, and photo documentation within the Photo Form. All necessary applications and forms are located on this webpage, with instructions. 
  

​2. ​​​​The State Rehabilitation​ Tax Credit Program:

• ​For various Structure types (in this case, "structure" is not interchangeable with the Federal definition of "building," 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 various Use types:​
  
• Offers up to a 30% credit* for owner-occupied residential buildings. For these applications, the project's Qualified Rehabilitation Expenses ("QREs") must exceed $20,000. Per project, the maximum eligible credit is capped at $120,000, based on a project with QREs totaling $400,000 ​(KRS 171.397(3)(a).pdf). 
  
  
• Offers up to a 20% credit* for all other eligible structures (income-producing, tax-exempt, etc. that are listed on the National Register). For these applications, the project's QREs must exceed $20,000 or the building's Adjusted Basis, whichever is greater. Per project, the maximum eligible credit is capped at $10Million (KRS 171.397(3)(b).pdf). 
  


Consists of a three-part application with photo documentation requirements. All necessary applications and forms are located on this webpage, with instructions. ​​

*“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. As of April 30th, 202​2, the Kentucky Heritage Council has an annual fund of $100 Million to allocate for Rehabilitation Tax Credit 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). 

​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%.*​

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. ​

The Kentucky Heritage Council (KHC) processes both the State and Federal Rehabilitation Tax Credit applications, so all applications and questions related to the Tax Credit programs should be submitted to KHC. 

Does m​​y property qualify?

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.​

Does my project qualify?

​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!

What are QREs?

"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.  

How do I apply?

​Both State and Federal Rehabilitation Tax Credit programs consist of a three-part application process. All applications and forms necessary to complete your project are located on this webpage, under "Application Forms."

• PART 1  - Evaluation of Significance is the preliminary application to determine if the proposed property is historic and listed in the National Register or in a National Register district. There is no associated fee for a Part 1 application for the State or Federal reviews. If the Part 1 is submitted without a Part 2 accompanying it, photos are required. 
  
  
• PART 2 - Description of Rehabilitation outlines proposed rehabilitation work, the estimated costs, and provides lots of "Before Rehabilitation" photos that are keyed to a Photo-Key Plan (we have a Photo Form to helps applicants format their photos correctly. Any work done prior to submitting and receiving a approval of the Part 2 Application is done at the applicant's own risk and may result in disqualification of the project. Please submit payment through our Payment Portal (located at the top of this page) with your Part 2 application. Projects shall not be processed, assigned, or reviewed (and as such, shall not receive an Allocation Letter) until payment is received.  
  
  
• PART 3 - Request for Certification of Completed Work must be submitted once the rehabilitation work is completed, with "After Rehabilitation" photos, taken from the same vantage point as those submitted in the Part 2 application. Please submit payment with your Part 3 application. Projects shall not be processed, assigned, or reviewed (and as such, shall not be awarded their Tax Credits) until payment is received.  
  

Parts 1 and 2, are typically submitted simultaneously, although it is not a requirement. 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. 

What's the timeline?

​Projects may​​ be submitted any time of the year. *The typical review turnaround time is 30-60 days.* 

1. Project Received:

When a project's Part 1 and Part 2 applications are submitted, KHC reviews the applications and determines if any information is missing (including the Part 2 Fee). If any components of the application is missing, the applicant will be notified via email of the missing or insufficient information​, and given a deadline to submit missing elements. Incomplete applications will not be accepted. Incomplete applications will not be stored by the KHC beyond 30-days; if the applicant would like to retrieve their incomplete application materials, they can do so by visiting our office (see Section 4(4)(a) of KAR 300.006.011 for more information).​​

2. Project Accepted:

Once the Project has been deemed accepted (meaning, it has all of the necessary submittal materials and fee paid), it will be assigned to a Site Development Project Manager. Applications are equitably assigned based on their accepted date and Project Manager's caseloads. Those projects which were accepted first, shall be assigned first, when one of the Project Managers has capacity for an additional project. The assigned Project Manager will review the Tax Credit application and be in contact if any questions or comments arise. The Project's Part 1 and Part 2 applications will receive preliminary approval by the Kentucky Heritage Council once the Project Manager has completed their analysis of the project, regardless of the Allocation Letter's issuance.

3. Project Approvals:

Part 1 & 2 Application approvals allow the applicant to begin the Rehabilitation Project. These can be issued at any time, regardless of the Allocation Letter's timeline (see "Step 4. Project Allocations," below, for additional information).  

Once approval has been issued, an applicant has a consecutive 24-month period to charge and itemize their Qualifying Rehabilitation​n Expenses ("QREs") and a consecutive 36-month period to submit a Part 3 Application (certifying the work is complete and outlining the QREs for Tax Credit approval). 

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," so each State Tax Credit project's eligible expenses should be self-contained within a 24-month period, and at least one expense must take place within the project's Allocation Year. In some cases, Federal applications can have a "phased" option. Ask KHC staff if you have additional questions.  ​​

4. Project Allocations:

An Allocation Letter informs the applicant how many Tax Credit dollars have been set aside for their project, based on their Part 2 "Estimated QREs," from the annual funding. If the KHC receives more QRE requests than funding allows, ALL projects' allocated tax credits will be portioned equitably (i.e. no one gets left out, but everyone gets a slightly smaller slice of the pie).

The deadline to be within a certain Allocation Year (which may be important for the project's 24-month expense period), is April 29th of that year. The State's annual funding (of $100 Million per year) is divided up to each project that is accepted within the fiscal calendar. 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 (see example below for clarification). Applicants will have "Allocation Letters" sent to them on June 29th of the fiscal year they apply within, informing them of how much credit has been set aside for their specific project from the annual fund.

• For example: Applications submitted between April 30th, 2019 - April 29th, 2020 are considered "2020 Applicants" for funding purposes.
  Those "2020 Applicants" received Allocation Letters, with their maximum eligible Tax Credit amount set aside for them, on June 29th, 2020. 
  
  
• Using the same example as above, if an application was received by the Kentucky Heritage Council​ on or after April 30th, 2020, it would be considered part of the "2021 Allocation Year" and would receive an Allocation Letter on June 29th, 2021. However, the project will be processed and can be approved prior to the Allocation Letter going out. 
  
  
• If you have any questions, please contact: Katie Wilborn​, the Site Development Program Administrator. 
  

​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. 

HOWEVER, it is NOT recommended that you begin work prior to receiving a Part 1 and Part 2 approval for the proposed project. 

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. 

It is the standard process - and ALWAYS recommended - to apply for a Historic Rehabilitation Tax Credit and receive approval PRIOR to beginning ANY WORK.  

Please contact the Site Development staff if you have any questions. 

When can I claim my awarded Tax Credits?

​A project must have all three applications (Parts 1, 2, and 3) approved by the Kentucky Heritage Council before the awarded tax credit amount may be applied to your tax return. ​The awarded credit amount can be applied to the year the project was completed. The Kentucky Heritage Council does not provide any tax-related advice beyond the (above) statement. 

Any tax-related questions should be directed to your tax-preparing professional and/or to the Department of Revenue's Tax Credit staff, at: DORTaxCredits@Ky.Gov.