Historic Rehabilitation Tax Credits – Can Individual Taxpayers Claim Them?

Passive Activity Rule Limitations

The Historic Rehabilitation Tax Credit (HTC) is most often generated from a passive rental real estate activity. Accordingly, individual taxpayers may be limited or prevented from claiming HTC under the passive activity rules unless one of the following applies:

1. The taxpayer has taxable income from this activity or other passive activities. The HTC may then be utilized to offset the tax on the passive income only.
2. The taxpayer qualifies as a Real Estate Professional and materially participates in the activity. An election to group real estate activities is available to assist taxpayers with meeting material participation requirements.
           a. The HTC claimed may not exceed $25,000 plus 75% of the excess over $25,000.
3. The taxpayer’s adjusted gross income is less than $200,000. The HTC may then be utilized to offset tax liability up to an amount equal to the tax liability reduction on $25,000 of losses (limitation amount). The limitation amount is reduced for taxpayer’s whose adjusted gross income is between $200,000 – $250,000.
           a. This same limitation applies to passive activity losses available to the taxpayer.

Claiming Historic Rehabilitation Tax Credits

Historic Rehabilitation Tax Credits (HTC) may be utilized to offset regular income tax and alternative minimum tax, but not self-employment tax. Unused HTC may be carried back one year and carried forward 20 years. If any unused HTC remains upon sale of the property or ownership interest, the taxpayer may elect to increase the basis of the property by any unused HTC.

To learn more about how you can utilize Historic Rehabilitation Tax Credits (HTC) for a project, contact Trent Senske, CPA or the Real Estate Team at Mahoney to assist you with your questions.