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What Are Historic Tax Credits?

Historic Tax Credits are financial incentives designed to encourage the preservation and rehabilitation of historic buildings. These credits are available for various types of properties:

✅ Income-Generating Properties (e.g., rental properties, commercial buildings)

✅ Owner-Occupied Residences
✅ Nonprofit-Owned Properties

Available Tax Credits

For Income-Generating Properties (Commercial or Rental)

• Federal Credit: 20% of Qualified Rehabilitation Expenses (QREs) — Taken over five years. Non-refundable. Federal applications are submitted to the Kentucky Heritage Council (KHC) for preliminary review and recommendation, but the final determination for all Federal applications will be completed by the National Park Service, in coordination with the IRS.

• State Credit: Up to 20% credit on the project’s QREs — Refundable, meaning you receive a refund from the Kentucky Department of Revenue if your credit exceeds the amount you owe in income taxes.

• Minimum QRE Investment: $20,000 or the building’s adjusted basis (whichever is greater).

• Maximum QRE Eligible for State Credits: $50 Million.

For Owner-Occupied Residences

• State Credit: 30% credit on the project’s QREs — Refundable, so if your credit exceeds the amount you owe in income taxes, you’ll receive a refund of the difference.

• Minimum QRE Investment: $20,000.

• Maximum QRE Investment, Eligible for Credits: $400,000.

For Nonprofit-Owned Properties

• Although nonprofits do not pay income tax, they may still obtain a state historic tax credit of up to 20% of QREs for a project with a minimum investment of $20,000. These organizations can “syndicate” these credits to financial institutions in the state, which (as of 2025) are paying 85-90 cents on the dollar for them. Please contact the Blue Grass Trust for a list of potential credit transferees.

• State Credit: Up to 20% of QREs.

• Minimum Investment: $20,000.

• Syndication Available: Nonprofits can “sell” their credits to financial institutions to fund their projects.

What is a Qualifying Rehabilitation Expense (QRE)?

Qualified Rehabilitation Expenses (QREs) are project expenses related to restoring and preserving historic structures that are eligible for Rehabilitation Tax Credits. These may include:

 ✅ Labor and material fees related to a capital improvement that meet the Standards for Rehabilitation (i.e. Roof repairs, foundation work, structural improvements)
✅ Work items that are essential to a building’s functions are eligible; these include repairs to the envelope, systems, lighting, flooring, and interior finishes (i.e. HVAC systems, electrical, and plumbing upgrades)
✅ Interior and exterior finishes that contribute to the building’s historic character
✅ Architectural and engineering fees

 ✅ Costs incurred in moving threatened historic buildings (consult with the KHC for specifics)

Although your application should outline ALL work proposed at the property, not all expenses may be eligible for the credits. Non-qualifying expenses include:

❌ Temporal Features: Appliances, technological upgrades (such as AV systems), furniture, taxes and utilities, and window coverings. 

❌ Driveways, landscaping and new construction that do not contribute to the preservation of existing historic material and features. 

❌ Fees associated with acquisition and financing.

What’s the Process?

1. Part 1: Evaluation of Significance

• Confirm your property is listed on the National Register or located within a National Register district.

• No fee is required for a Part 1 application.

• If Part 1 is submitted without an accompanying Part 2, photos are required.

2. Part 2: Description of Rehabilitation

• Outline your proposed rehabilitation work, enumerate the estimated costs, and provide “Before Rehabilitation” photos that are keyed to a Photo-Key Plan. 

• Submit for approval before starting work. Plan. Any work done prior to submitting and

• receiving an approval of the Part 2 Application is done at the applicant’s own risk and may result in the disqualification of the project.

3. Part 3: Request for Certification of Completed Work

• Submit “After Rehabilitation” photos showing the completed rehabilitation work from the same angles as the “Before Rehabilitation” photos.

How We Can Help

The Blue Grass Trust offers consulting services to help you navigate the tax credit process from start to finish. Whether you’re seeking designation on the National Register, preparing tax credit applications, or conducting basic property research, we can assist you at every step. Reach out to us through our Consulting Services Inquiry Form below if you’re interested in our services. We look forward to helping you preserve your piece of Kentucky’s history!

Information provided by Kentucky Heritage Council, compiled by BGT in January 2025.