Kentucky Tax Credit for Rehabilitation of Historic Structures

Federal tax law has long provided for an incentive tax credit for the rehabilitation of income-producing historic properties. In 2005, Kentucky added a rehabilitation tax credit that is available for both income-producing properties and for owner-occupied residential properties.

For owner-occupied residential properties, the Kentucky credit, which is capped at $60,000, is 30% of qualifying expenditures (see below for definition). Owners must invest a minimum of $20,000 in the rehabilitation within a 24-month period to qualify for the credit.

For all other properties, the Kentucky credit is 20% of qualifying expenditures. Owners must invest a minimum of the greater of $20,000 or the property’s adjusted tax basis (before the rehabilitation) within a 24 month period to qualify for the credit.

Qualifying buildings are those listed on the National Register of Historic Places or located within a historic district that is so listed. To qualify, the rehabilitation must be in accordance with standards set by the U.S. Department of the Interior.

Qualifying expenditures are capital costs, including those for architectural and engineering services, rehabilitating (but not expanding) the structure, new heating, plumbing, and electrical systems, restoring landscaping and fencing that contributes to the historic significance of the structure, and updating kitchens and bathrooms. Costs for removable items, such as refrigerators and stoves, generally don’t qualify.

The Kentucky credit program is administered by the Kentucky Heritage Council. Applying is a 3-part process: (1) determining that the property qualifies; (2) describing the planned rehabilitation to ensure that it qualifies; and (3) requesting certification of completed work. Taxpayers who are interested in qualifying for the credit should go through the first two steps before beginning work to make sure their project qualifies.

The Kentucky legislature has set an annual cap on the credits provided to all taxpayers of $3 million. To the extent that qualifying applications exceeding this amount are received, the credit will be prorated among applicants.

Taxpayers have the year the project is completed and 7 subsequent years to use the credit. Unused credits remaining after that time are lost.

Additional information and applications are available at: www.state.ky.us/agencies/khc/tax_credit_files/Instructions.pdf

Leigh McKee
lmckee@ddfky.com