rehabilitation tax credit - Botwinick & Company LLC

Is your business planning to relocate, expand, or renovate a commercial property—especially one with historic value? If so, you may be eligible for the Rehabilitation Tax Credit, a powerful federal incentive that can offset the costs of improving a qualified building. At Botwinick & Co., we help businesses across industries take full advantage of available tax credits, including this valuable opportunity for historic building renovations.

What Is the 20% Rehabilitation Tax Credit?

The Rehabilitation Tax Credit allows business owners to claim 20% of qualified rehabilitation expenditures (QREs) for the restoration of a certified historic structure. These buildings must be:

Depreciable commercial buildings placed in service before the start of rehabilitation
Substantially rehabilitated (QREs must exceed the greater of $5,000 or the purchase cost of the existing building)
Certified historic structures listed by the National Park Service

After rehabilitation, the building must be used for business or income production—not held for resale.

What Expenses Qualify?

To be eligible, expenses must meet the definition of Qualified Rehabilitation Expenditures (QREs). These include:

Capital improvements directly related to restoring or reconstructing the building
Costs associated with interior and exterior structural improvements
Expenditures on real property only (land costs and building enlargements are not eligible)

Important: Acquisition costs, landscaping, and any additions that increase the building’s size are not QREs.

How Is the Tax Credit Applied?

Thanks to updates under the Tax Cuts and Jobs Act (TCJA), the 20% tax credit must now be claimed ratably over five years, rather than all in the year the building is placed into service. That means you can apply 4% of your QREs per year for five years, starting the year your rehabilitated property goes into service.

Even better, the credit can be used to offset both regular federal income tax and alternative minimum tax (AMT) liabilities.

Key Changes to the Credit

The TCJA of 2017 made permanent updates to the rehabilitation credit, including:

Mandatory five-year credit allocation (no more claiming the full 20% in one year)
Elimination of the 10% credit for non-historic pre-1936 buildings

Unlike other individual tax cuts under the TCJA, these changes to the rehabilitation credit are not set to expire after 2025—they’re here to stay.

Maximize Your Tax Savings with Botwinick & Co.

At Botwinick & Co., our experienced real estate tax advisors help clients evaluate and optimize tax strategies related to commercial property investments. Whether you’re restoring a historic downtown storefront or repurposing an industrial building, we’ll guide you through the technical requirements to ensure your project complies with federal regulations and qualifies for all available tax benefits.

We’ll help you:

Determine if a property meets the criteria for the rehabilitation tax credit
Identify all eligible QREs during the construction and renovation process
Work with architects, developers, and contractors to ensure compliance with federal standards
Explore additional tax credits related to green building upgrades, location-based incentives, or energy efficiency
Monitor and document project costs for IRS audit readiness

Are There Other Incentives Available?

Absolutely. Depending on the building’s location and your long-term plans, you might also qualify for:

State or local historic preservation grants or tax credits
Energy-efficient building credits under Section 179D or the Investment Tax Credit (ITC)
Opportunity Zone incentives, if the property is located in a designated zone

Every property and business plan is different. That’s why it’s essential to work with a tax advisor who understands the intersection of tax law, real estate, and business strategy.

Let’s Talk About Your Project

If you’re considering rehabilitating an older or historic commercial building, Botwinick & Co. is here to help you navigate the process from start to finish. We’ll ensure you capture the full value of the 20% rehabilitation tax credit—while also identifying additional savings opportunities that can dramatically improve your bottom line. Contact Botwinick & Co. today to schedule a consultation and see how your real estate improvements can lead to substantial tax advantages.

If your business occupies substantial space and needs to increase or move from that space in the future, you should keep the rehabilitation tax credit in mind. This is especially true if you favor historic buildings.

The credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified rehabilitated building that’s also a certified historic structure. A qualified rehabilitated building is a depreciable building that has been placed in service before the beginning of the rehabilitation and is used, after rehabilitation, in business or for the production of income (and not held primarily for sale). Additionally, the building must be “substantially” rehabilitated, which generally requires that the QREs for the rehabilitation exceed the greater of $5,000 or the adjusted basis of the existing building.

A QRE is any amount chargeable to capital and incurred in connection with the rehabilitation (including reconstruction) of a qualified rehabilitated building. QREs must be for real property (but not land) and can’t include building enlargement or acquisition costs.

The 20% credit is allocated ratably to each year in the five-year period beginning in the tax year in which the qualified rehabilitated building is placed in service. Thus, the credit allowed in each year of the five-year period is 4% (20% divided by 5) of the QREs with respect to the building. The credit is allowed against both regular federal income tax and alternative minimum tax.

The Tax Cuts and Jobs Act, which was signed at the end of 2017, made some changes to the credit. Specifically, the law:

Requires taxpayers to take the 20% credit ratably over five years instead of in the year they placed the building into service
Eliminated the 10% rehabilitation credit for pre-1936 buildings

Contact us to discuss the technical aspects of the rehabilitation credit. There may also be other federal tax benefits available for the space you’re contemplating. For example, various tax benefits might be available depending on your preferences as to how a building’s energy needs will be met and where the building is located. In addition, there may be state or local tax and non-tax subsidies available.

Getting beyond these preliminary considerations, we can work with you and construction professionals to determine whether a specific available “old” building can be the subject of a rehabilitation that’s both tax-credit-compliant and practical to use. And, if you do find a building that you decide you’ll buy (or lease) and rehabilitate, we can help you monitor project costs and substantiate the compliance of the project with the requirements of the credit and any other tax benefits.

Unlock the 20% Rehabilitation Tax Credit for Business Property Renovations