The Commercial Historic Preservation Tax Credit helps rehabilitate historic, owner-occupied commercial properties.
This program can award up to $10 million in credits per year. Half of the money is designated for smaller projects up to $2 million and the other half of the money is designated for larger projects over $2 million.
The maximum tax credit that can be reserved or issued for a property in any calendar year is $1 million. Every year, approved projects receive at least a:
- 25% tax credit for expenses up to $2 million
- 20% tax credit for expenses of $2 million or more up to $1 million in tax credits
Depending on your property’s location, you may be eligible for a larger tax credit. Buildings located in rural or disaster areas receive larger tax credit rates.
Type: Tax credit
For: Anyone planning to rehabilitate a historic commercial building
Amount: 20% to 35% of rehabilitation expenses up to $1 million in tax credit per property per year
Application deadline: Rolling
OEDIT division: Business Funding and Incentives
The tax credit rate available to the project depends on the location of the commercial structure as well as the project’s start and application date.
Disaster status is placed on a county and is declared by the federal or state government. Once declared the status remains in effect for projects that begin within six years of the declaration date.
Rural is defined as either:
- a municipality with a population of less than fifty thousand people that is not located within the Denver metropolitan area
- an unincorporated area of any county the total population of which county is less than 50,000 people that is not located within the Denver metropolitan area
|Location type||Rate for projects up to $2 million||Rate for projects over $2 million|
*Project work must have commenced while the disaster designation is in place.
**Project work must have commenced in 2020 or later.
You need to be either the property’s:
- tenant with a lease of at least 39 years in urban areas or 5 years in rural areas
- holder with a property under contract
You must also be a tax-paying entity or an entity that is exempt from federal income taxation subject to section 501(c). Governmental entities that are not a 501(c) or taxpaying entities are not eligible for the credit.
Your project needs to meet:
- the Secretary of the Interior's Standards for Rehabilitation
- substantial remodel criteria (outlined below)
- timeliness requirements (outlined below)
Applications submitted on or after January 1, 2020 require qualified expenses of at least $20,000. Applications submitted prior to January 1, 2020 must have qualified expenses of 25% of the original purchase price less the current value of the land.
If the rehabilitation project is already complete when you apply for reservation of the tax credit, your application must be submitted within 120 days from the project’s end date to be eligible.
Project costs are qualified if those costs were incurred no more than 24 months prior to submission of the application for reservation of the tax credit.
The application for issuance of the tax credit must be submitted within 1 year of the project’s end date. At least 20% of the estimated project cost must be incurred within 18 months after the project is reserved. If unmet, the application will be revoked.
Your property needs to:
- produce income
- be at least 50 years old
- be listed on the State Register of Historic Properties or landmarked by a certified local government
If multiple rehabilitation projects are proposed for a single property and the tax credit value will exceed $1 million for all of the projects, the first project needs to be completed with the property open for business before a new project can be started.
Qualified rehabilitation expenditures are expenses necessary to restore a building for commercial use. Qualified rehabilitation expenditures include but are not limited to:
- exterior improvements and repair
- structural improvements
- mechanical improvements
- electrical improvements
- sprinkler systems for fire protection
- roofing and flashing
These expenses are not qualified rehabilitation expenditures:
- engineering and interior design fees
- legal, accounting, and realtor fees
- loan fees
- sales and marketing
- closing costs
- building permits
- use and inspection fees
- project signs and phones
- temporary power
- bid bonds
- rent loss during construction
- interior furnishings
- new additions, except as may be required to comply with building and safety codes
- total demolition followed by new construction
- repairs to outbuildings
You may estimate your qualified rehabilitation expenditures during pre-certification. To calculate the final tax credit amount for certification, a Certified Public Accountant (CPA) that is not affiliated with the owner or qualified tenant needs to approve the expenses.
If your certified expenses are more than the amount of tax credits you reserved during pre-certification, we will issue an overage for the difference. This is subject to annual limits and property limits up to the $1 million allowable per property per year. If your certified expenses are fewer than the tax credits you reserved during pre-certification, we will calculate your tax credit based on your actual expenses.
We reserve tax credits for projects on a first-come, first-served basis. We recommend applying for the tax credit reservation when you are planning the project and will be starting work within a year.
We recommend you contact History Colorado’s Office of Archaeology and Historic Preservation as early as possible to be sure your project meets the requirements for this tax credit.
The application fee is paid when you reserve the tax credit and is based on the estimated tax credit:
- $250 to reserve tax credits less than $250,000
- $500 to reserve tax credits for $250,000 or more
The issuance fee is paid when your project is complete and is 3% of the approved tax credit amount.
The application process includes:
1. Complete and pass the qualifying questionnaire in the OEDIT application portal.
We encourage you to complete the qualification questionnaire before starting the project or during the early stages of the project.
Log in or create a new account. To protect your personal information, we manually add users to the portal, so it may take several days to activate your account.
If your answers to the questionnaire qualify your project, the OEDIT application portal will automatically give you access to the Commercial Historic Preservation Tax Credit reservation application when you refresh the webpage.
2. Complete the reservation application in the OEDIT application portal and submit all application materials.
We alongside History Colorado will review your project plan. History Colorado will ensure that your project follows the Standards for Rehabilitation and is or will qualify as an historic structure. The project scope cannot be changed or added to once the reservation application is approved. We will:
- confirm ownership or minimum lease-term requirements
- evaluate the qualified rehabilitation expenses to make sure that the substantial remodel requirements are met
- make sure that the project plan is clear
- review your project work plan
- review your photos that document the structure prior to rehabilitation
3. After you complete your rehabilitation project, you need to apply for the issuance of the reserved tax credit. This needs to occur within one year from the conclusion of the project.
Complete the issuance application in the OEDIT application portal and submit all issuance application materials:
- photos that document the rehabilitation work
- your project cost worksheet
- a third-party audit letter completed by a Certified Public Accountant (CPA). The audit certifies that:
- the expenses associated with the rehabilitation project plan are outlined in the full/reservation application (work outside of the approved project plan cannot be submitted)
- the expenses were paid by the applicant
- the expenses are categorized appropriately as qualified or non-qualified following the Secretary of the Interior’s Standards
- it accurately describes the scope of testing conducted in accordance with General Auditing Standards and declares that the project costs comply with the standards for rehabilitation adopted by the Department of the U.S. Interior and Colorado Revised Statutes 39-22-514.5 certificate of occupancy, a certificate of competition, or a placed in service date
We alongside History Colorado will review your project materials. Once we verify the qualified rehabilitation expenses, you will need to pay the issuance application fee. If your project meets all requirements, the tax credit will be issued up to the amount reserved. The tax credit is issued via email from the OEDIT application system.
4. You may claim the tax credit on your Colorado income tax return as early as the tax year that the project concluded and the property was placed in service. You have up to 10 years to use or transfer the credit.
Transfer a tax credit
You will need to complete a transfer application in the OEDIT application portal and submit a tax credit agreement notarized by both the transferor and the transferee.
Under current law, this program expires on December 31, 2029, so you need to reserve your tax credit before that date.
You may carry forward this tax credit for up to 10 years. After 10 years, any unused and unsold credits will expire. You may transfer these tax credits, meaning you can sell them after you complete your project. Selling credits can bring in additional funds for your project for a cash match, grant, or loan. This tax credit is not refundable.
Colorado’s Commercial Historic Rehabilitation Tax Credit began in 1990. In 2014, House Bill 14-1311 passed with overwhelming bipartisan support to expand and update the credit. The legislature budgeted $10 million annually in state income tax credits. Half of the funding is for small projects and half is for large projects. This designation ensures representation for projects in rural communities and small projects.
In 2018, Colorado reauthorized the credit for $10 million per year with the same allocation for small and large projects. Changes in 2018 include:
- increasing the credit rate for projects in rural areas to 35%
- removing obstacles for small projects, including lowering the lease requirement for rural projects and replacing a cost basis formula for the substantial remodel criteria to a flat amount of $20,000.
- separating residential and commercial incentives in statute and clarifying the rules for each
- changing technical parts of the tax credit to increase efficiency and reduce the program cost