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A "Rehabilitation" project is work done to a historic property (listed on the National Register of Historic Places) which prioritizes repair and preservation of historic character, with alterations that allow for contemporary use. The expenses that qualify for this program are known as "Qualifying Rehabilitation Expenses" or "QREs." A percentage of your QREs (20%, 30% or 40%) may be awarded to the property owner after the work is complete, in the form of a Tax Credit.
A "Tax Credit" is a dollar-for-dollar credit toward the income taxes you owe, reducing the amount of money a taxpayer must pay in income taxes for the given year; unlike a tax deduction, which reduces your income subject to being taxed.
The review of a rehabilitation project is completed by the Kentucky Heritage Council (KHC) and National Park Service (NPS), but the issuance of the final awarded tax credits is overseen by the Kentucky Department of Revenue (KyDoR) for State Tax Credits, and the IRS for Federal Tax Credits.
The entire process includes three application forms, a photo-plan, and lots of photos. All application forms necessary to complete your project are located on our Application & Forms page. The program's three-step process includes:
PART 1 - Evaluation of Significance is the preliminary application to determine if the proposed property is "certified historic" and listed on the National Register or within a National Register historic 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 and a photo-key plan 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. Projects shall not be processed, assigned, or reviewed (and as such, shall not receive an Allocation Letter) until payment is received. State Review Fees are calculated by the Payment Portal and are based on your Qualified Rehabilitation Expenses. Parts 1 and 2, are typically submitted simultaneously, although it is not a requirement. Allocation: When a State Tax Credit project has an approved Part 1 and Part 2 application, KHC will allocate funding from the available funding pool to that project in the fiscal year the Part 2 was approved. The project's Allocation Amount will be provided to the applicant in an Allocation Letter.
PART 3 - Request for Certification of Completed Work must be submitted once all of the rehabilitation work is complete, 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. Award: Approved Part 3 applications are awarded tax credits to the tax year that the project was completed in, which is not necessarily the same year the Part 3 application is submitted and/or approved. You'll include your awarded tax credit amount when you file your KY tax return, using Schedule ITC or ITS. For questions regarding the tax-filing process, you should refer to the Department of Revenue's Tax Credit website and/or contact the Department of Revenue: DORTaxCredits@ky.gov. For Federal Tax Credits, you'll itemize using Form 3468 and can find more information on Federal filing on the IRS's website.
Once you submit an application to our website's Application Portal (located on the main Tax Credit website), you'll receive confirmation of your materials' transmittal within two business days. KHC's review is typically 30 days from the date of a complete application. For projects that also have Federal applications, there is an additional 30 day review period for the NPS.
Please note: If your application is submitted in April, it is not guaranteed to be allocated funding in that fiscal year (May and June). Only projects that contain complete and comprehensive materials by April 29th will be considered for a Allocation Letter in that year.
Any work done prior to submitting and receiving an approval of the Part 2 Application is done at the applicant's own risk and may result in disqualification of the project. Retroactive applications are encourage to reach out for a preliminary review prior to submitting any applications.
KHC accepts and reviews both State and Federal Tax Credit applications. The property's Proposed Use determines what project category and program you may be eligible to apply for. In the graph below, you'll first identify the best fit for your property's proposed use (circles). Your property's use establishes which Tax Credit program (State and/or Federal) that you may be eligible for, and the subsequent "Qualifying Rehabilitation Expenses" (QRE) requirement.
If you have questions about the Adjusted Basis, please reference the IRS's resources here and here!
The SOI Standards for Rehabilitation are the criteria used to determine if a project qualifies as a “certified rehabilitation” for the purpose of receiving State and/or Federal Historic Rehabilitation Tax Credits. To be certified, a rehabilitation project must be determined by the Secretary to be consistent with the historic character of the structure(s) and, where applicable, the district in which it is located. The following Standards are to be applied to specific rehabilitation projects in a reasonable manner, taking into consideration economic and technical feasibility.
There are (10) Standards for Rehabilitation:
A property shall be used for its historic purpose or be placed in a new use that requires minimal change to the defining characteristics of the building and its site and environment.
The historic character of a property shall be retained and preserved. The removal of historic materials or alteration of features and spaces that characterize a property shall be avoided.
Each property shall be recognized as a physical record of its time, place, and use. Changes that create a false sense of historical development, such as adding conjectural features or architectural elements from other buildings, shall not be undertaken.
Most properties change over time; those changes that have acquired historic significance in their own right shall be retained and preserved.
Distinctive features, finishes, and construction techniques or examples of craftsmanship that characterize a historic property shall be preserved.
Deteriorated historic features shall be repaired rather than replaced. Where the severity of deterioration requires replacement of a distinctive feature, the new feature shall match the old in design, color, texture, and other visual qualities and, where possible, materials. Replacement of missing features shall be substantiated by documentary, physical, or pictorial evidence.
Chemical or physical treatments, such as sandblasting, that cause damage to historic materials shall not be used. The surface cleaning of structures, if appropriate, shall be undertaken using the gentlest means possible.
Significant archeological resources affected by a project shall be protected and preserved. If such resources must be disturbed, mitigation measures shall be undertaken.
New additions, exterior alterations, or related new construction shall not destroy historic materials that characterize the property. The new work shall be differentiated from the old and shall be compatible with the massing, size, scale, and architectural features to protect the historic integrity of the property and its environment.
New additions and adjacent or related new construction shall be undertaken in such a manner that if removed in the future, the essential form and integrity of the historic property and its environment would be unimpaired.
The NPS has an online library of resources and guides for interpreting the SOI Standards of Rehabilitation for common project challenges. These resources are located on NPS's website and linked for your convenience, below.
A - Z Index of NPS's Preservation Resources and Guides: This website contains information on (almost) every building component and preservation challenge that you may face! Search by topic using the NPS's link, below:
Example Federal Applications for common building types:
The NPS has recorded a five-part webinar series focused on the Federal Historic Preservation Tax Incentives Program. These trainings are intended for consultants, architects, developers, and other advanced and frequent program users who are already familiar with the certification requirements.
If you have questions about the program(s), applications, or your proposed project, please reach out!