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SEPTEMBER 18, 2006
Preservation Instinct Hankering to live in an historic property? Federal and state incentives can help pay for repairs The house, an imposing 77-year-old stone structure with arched entryways, had not aged well. Its beautiful vaulted ceilings and crown moldings were encased in countless layers of paint. Asbestos lurked in every nook and cranny. The appliances dated back decades. It desperately needed a loving owner to restore it to glory. Enter Tracy Bacigalupo, a partner in the international law firm DLA Piper US in Baltimore. Three years ago she paid $675,000 for the 6,000-square-foot, 10-room fixer-upper, and she has been making it over from top to bottom ever since. By the time she's finished later this year, Bacigalupo will have sunk about $500,000 into the restoration. But not all of that will come out of her pocket. Because the house is in Baltimore's historic Homeland neighborhood, designed in 1924 by famed landscape architect Frederick Law Olmsted, the state of Maryland is helping her out. Bacigalupo has received one tax credit of $50,000 and expects to get another $50,000 credit under a state program that encourages people to rehabilitate historic properties. If you have a weakness for old houses, you, too, may be eligible for state or federal preservation incentives. Tax credits are only one option. Some homeowners qualify for property tax reductions. Others can get a federal income tax write-off if they take steps to ensure no changes will ever be made to the property that are incompatible with its historic character. Maryland is one of more than two dozen states offering tax credits, including New York, which passed a new law this year. For a list, visit the National Trust for Historic Preservation's Web site, nationaltrust.org/funding. To see if local incentives are available, check with your county or municipality. PUMP UP THE VALUE The feds also offer assistance for income-producing properties -- not residences. There's a tax credit for 20% of the cost of rehabbing a government-certified historic property, or 10% for any structure built before 1936. Cris Reynolds, a physician in Edenton, N.C., is claiming about $154,000 in federal and state credits over five years after spending $385,000 to fashion an office out of a decrepit 1907 Colonial Revival-style house he bought in 2004 for $2,000. Among the improvements he made -- after moving the house half a block to the historic main street of town -- were repairing the ravages of water damage, closing up holes in the walls, and replacing a rusted metal roof. Tristan O'Connell, a Baltimore tax attorney, figured out a way to live in the house and still take advantage of federal largesse. He arranged for his parents to create a limited liability company (LLC) to buy and fix up an 1892 home in the city's Federal Hill district. His parents recouped 40% of the rehab costs of $180,000 from federal and state tax credits. In the meantime, O'Connell moved in and paid a market rent of $1,400 a month. Complying with federal law, he purchased the house from the LLC five years later. If you buy a historic home for, say, $100,000 and turn it into one worth a million, you're primed for a big property tax hit. To soften the blow, some states offer abatements. Georgia freezes real estate taxes for eight years on historic properties that have increased at least 50% in value. The regular tax rate phases back in over the next two years. The other strategy for defraying the cost is donating a property "easement" to a nonprofit historic trust in return for a federal income tax deduction. The easement ensures that the owner, and future owners, won't change the exterior without the trust's permission. Joseph Nacmias, a CPA who rehabilitated a 1912 town house in the Brooklyn (N.Y.) neighborhood of Park Slope, says he'll reap $80,000 to $100,000 in charitable deductions for donating the easement to the facade to the National Architectural Trust in Washington. It's one of hundreds of organizations created for this purpose. Nacmias, working with an architect, had to get approval of his renovation plans from both the Park Slope Historic District and the New York City Landmarks Preservation Commission. There are other restrictions if you donate an easement, and they just got stricter. In response to publicity about abuses, President George W. Bush on Aug. 17 signed a law that tightens requirements for valuing a property; strengthens the definition of a "qualified appraiser," who certifies the property value; and limits your charitable deduction if you're also claiming the federal rehabilitation tax credits. Most people who fix up an historic property will tell you they do it for personal satisfaction and to preserve our architectural heritage. Basil Whiting, a community development consultant who renovated his historic home in Brooklyn, is a good example: For donating the facade of his house to a preservation group, he's getting a charitable deduction of some $40,000. What will he do with the money? Spend it on the last rehab project waiting to be done: restoring the facade.  By Ellen Hoffman
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