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Tax credits are not the same as tax deductions—they are even better. A tax credit is subtracted from your tax liability after you calculate your taxes.
For example, a $1,000 tax credit will reduce your taxes for the year by $1,000. There are many different types of federal income tax credits, but only two can be used by owners of residential rental property: - the rehabilitation tax credit, available to owners of the historic property, and
- the low-income housing tax credit.
There are no federal income tax credits for the cost of eliminating lead paint, asbestos, or mold contamination. However, your state may offer tax credits or other tax incentives for such environmental remediation. Historic property Tax Credit The rehabilitation tax credit can be used only by owners of residential rental property that is listed on the National Register of Historic Places or located in a Registered Historical District and determined to be “ significant” to that district. Moreover, the Secretary of the Interior must certify to the Secretary of the Treasury that the project meets their standards and is a “Certified Rehabilitation.” The property owner obtains this certification by filing an application with the National Park Service. Obviously, not many rental properties are registered historic sites. But, if you own a property that qualifies, you can receive a tax credit equal to 20% of the amount you spend to rehabilitate your historic building, up to certain limits. You can nominate your building for historic status, if you think it qualifies, by contacting your state historical officer. Low-income housing Tax Credit Congress enacted the low-income housing tax credit to encourage new construction and rehabilitation of existing rental housing for low-income households. The IRS and state tax credit allocation agencies jointly administer the low-income housing tax credit, which is used mostly by large real estate developers to build new low-income housing projects. |
Income Tax Guide