I was told that purchasing a home located in a historic district may be accompanied by tax benefits. Is this true? Are there any disadvantages to owning property in a historic district?
Properties in historic districts may have advantages and disadvantages that result from such designation. If the property is within a national historic district (as designated by the National Historic Preservation Act), certain federal tax credits are available for building renovations. These credits can be a significant offset to the substantial costs involved in renovating old buildings. (A tax credit is a direct reduction against tax liabilities, as compared to the less-impactful tax deduction, which is only a reduction in taxable income. Before making any purchase decisions, a buyer should always consult with a tax expert in this field.) Another advantage is market-based: If enough momentum has been created by enough historic renovation projects in a certain market, profit opportunities can be created and exploited by the knowledgeable and savvy developer-investor who is willing to take an above-average risk and earn a commensurate return
The primary disadvantages are: (1) Ownership of such a property implies contending with an additional and significant layer of governmental and bureaucratic regulations that restrict the property's use and renovation. Attendant costs can be offset by the federal tax credits referenced above. However, many cities have their own local historic districts that severely restrict the renovation or demolition of properties within. And if the properties are not in a national historic district, they are not eligible for federal tax credits. Some states might have their own tax-credit historic renovation programs, but they offer less relief than a federal tax credit. (2) Construction costs for the renovation of an old building can be higher than the costs of a new building. This is due mostly to a relative lack of supply of craftsmen skilled in such work, and to the time involved in complying with what can often be a myriad of conflicting and arbitrary set of rules and regulations imposed by the federal, state, and local historic jurisdictions and their enforcement personnel.
Scott Alderman, Broker and President, First Commercial Real Estate, Valdosta, GA