Qualifying for Federal Investment Tax Credit

As an investor, you must spend at least your adjusted basis on your rehabilitation during a twenty-four month period in order to qualify for the program.

There is no limit on the amount of credit you can receive from the Federal Investment Tax Credit.

Additionally, once a tax credit recipient, you are required to keep the building for which you received a credit in compliance with the Secretary of the Interior’s Standards for Rehabilitation for five years. If after receiving a tax credit, you do something to the building that does not adhere to these Standards, you must give back a portion of the tax credits that you received, this is known as recapture. The credit vests twenty percent (20%) every year for five years. So if you received a $100,000.00 credit in 2001 and you violated the Standards with new work you did to the building in 2003, two years after you received the credit, you will be required to return sixty percent (60%) of the credit to the IRS.

Important note about recapture FOR THE FEDERAL INCOME TAX CREDIT: If you were to sell the building before the five year period expires, it will be the same as if you had done work to the building as listed above that does not adhere to the Standards. You would be required to give back a portion of the credits. Should you choose to sell the building before the five year period is up, however, the buyer will NOT have to adhere to the Standards when renovating, tearing down, or making alterations to the building.

See also Qualifying for Maryland Heritage Rehabilitation Tax Credit as an Investor

Important note about recapture for the Maryland Credit Only:

Last, it is important to consider that this program is an all or none program. What that means is that you can't just decide to do some renovations on your property that qualify and receive the credit on those items and not other renovations that would not qualify. All renovations must qualify and meet the Secretary of the Interior's Standards for Rehabilitation. If you complete 100 tasks in your renovations and 1 of the completed tasks violates the Standards, you will not receive credit for the other 99 tasks that met the Standards. This is one reason why we recommend using a consultant to help assist you in completing this process so as to remove the guess work.