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Make history while creating your own tax shelter

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in Small Business Tax,Small Business Tax Deduction Strategies

Are you planning to renovate an older building in a historic area? Before you start tearing down the walls, plan ahead to cash in on a unique tax break from Uncle Sam.

Strategy: Have the building certified as a historic structure. It may take some time and energy, but the payoff is usually worth it. If the building qualifies, you can claim a tax credit — a dollar-for-dollar reduction of your tax bill — of 20 percent of your renovation costs.

This is one of the last great “tax shelters” left standing. It doubles the usual 10 percent tax credit for rehabilitating older buildings, and the requirements aren’t as stringent. In effect, the feds subsidize one-fifth of the cost of the work. On a renovation costing $500,000, you can slice $100,000 right off the bill.

Here’s the whole story: Unlike the rehab credit, the historic-structures credit doesn’t require you to bend over backward to qualify. Example: It carries no age or wall-retention restrictions. But you must meet two additional requirements:

  1. The building must be listed on the National Register of Historic Places (NRHP) or located in a registered historic district and certified by the U.S. Interior Department as being historically significant.
  2. The rehabilitation must also be certified. That means the finished product must retain the building’s original historic character.

Visit NRHP’s Web site — at www.cr.nps.gov/hps/tps/tax/hpcappl.htm#appl — for an application for certification.

Tip: The owner of a historic building must hold it for at least five years after completing the rehabilitation work, or repay all or part of the 20 percent credit.

Online resources:

To access IRS info on the historic structures credit, visit www.irs.gov/pub/irs-utl/faqrehab.pdf.

To find the historic preservation office in your state, visit http://grants.cr.nps.gov/shpos/shpo_search.cfm.

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