IOWA BARN FOUNDATION
Federal Tax Incentives for Barn Restoration
Those committed to restoring old barns usually have enough enthusiasm to see the project to its conclusion without tax incentives. But, there is an income tax credit available to help cover part of the cost. And there may be depreciation claimable after the restoration.
A credit is available for rehabilitation expenditures on buildings at least 50 years old in 1986 and buildings that are "certified historic structures." The credit is equal to 10 percent of expenditures for "qualified rehabilitated buildings" first placed in service before 1936. This ten percent credit is available only for non-residential property. A credit offsets calculated tax dollar for dollar so it is considerably more valuable than a deduction against income.
A 20 percent credit is available for certified historic structures (both residential and non-residential buildings) listed on the National Register of Historic Places or are located in a registered historic district and certified as being of historic significance to the district.
For both the 10 percent and 20 percent credits, the income tax basis must be reduced by the amount of the credit claimed, reducing the amount of depreciation that can be claimed on the property.
The credit is generally claimed in the year the property on which the expenditures are made is placed in service. Buildings must meet several requirements to be eligible.
To be eligible there must be a substantial rehabilitation of the building. The qualifying expenditures over the tax year and the preceding year must exceed the greater of the taxpayer's adjusted basis in the property or $5000.
For more information about Federal tax credits for rehabilitating barns, see Federal Tax Credits for Rehabilitating Historic Buildings.
If a restored or rehabilitated building has a business use, a depreciation deduction may be claimable to the extent of the taxpayer's basis in the property which includes the funds provided by the taxpayer for rehabilitation. Barns are generally depreciable over 20-years under IRS rules. If a credit is claimed, depreciation is usually limited to straight line depreciation -- the same allowance each year over the 20-year life. Otherwise, it may be possible to step up depreciation to one and one-half times the straight line rate.
Contributed by Neil E. Harl, Charles F. Curtiss Distinguished Professor in Agriculture and Professor of Economics, Iowa State University, Ames, Iowa; Director for the Center for International Agriculture Finance; Member of the Iowa Bar; charter board member of the Iowa Barn Foundation.