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Income Tax Credits for Barn Rehabilitation

There are a number of ways to receive credits for barn rehabilitation on your state and/or federal income taxes. Federal incentive programs are available for some income-producing barns—both “historic” or and “non-historic”. State incentive programs are for all barns built before 1937 and historic barns of any age. In all cases, these credits can substantially help offset the cost of barn improvements.

To qualify as an income-producing barn, the building must have a function that is part of a business (commercial, industrial, or rental). For example, the barn may serve the business through the storage of produce, equipment, or materials. To qualify as “historic,” the barn must be individually listed on, or eligible for listing on, the National Register of Historic Places or a contributing part of a National Register-listed or eligible farmstead district.

Federal Tax Credit Programs

There are two Federal tax credit programs that apply to income-producing barns. A 20-percent credit is available for historic barns of any age, and a 10-percent credit is available for non-historic barns built and placed in service before 1936. To receive the 20-percent credit, the barn must eventually be listed on the National Register of Historic Places, either individually or as a contributing structure in a farmstead historic district.

For both federal tax credits, there must be “substantial rehabilitation” of the barn within a 24-month period. This means that the amount invested into the rehabilitation must exceed the “adjusted basis” or depreciated value of the building. In some instances, the substantial rehabilitation for 20-percent tax credits may extend up to 60 months and across several phases.

Historic Barns – 20% federal income tax credit

To qualify for the 20-percent federal investment tax credit, the barn must be historic and considered income-producing, the cost of the work must meet the “substantial rehabilitation test,” and the scope of work must be approved at the state and federal level as meeting the Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings (in other words, the work must be approved as being consistent with the historic character of the building). To have the work approved, you need to provide a three-part application documenting the “historic” status of the barn and describing the proposed and completed work (including “before” and “after” photos). The application is sent to the State Historical Society of Iowa for review and recommendation to the National Park Service in Washington, D.C. The National Park Service assesses fees for these reviews based on the cost of the project.

Although the barn does not need to be on the National Register when the project starts, the first part of your tax credit application must be submitted before the work is completed and the barn must be formally listed on the National Register within 30 months of taking the income tax credit. To find out more about the National Register of Historic Places, please review our information on the National Register of Historic Places.

If all of these requirements are met, then you may receive tax credits in the amount of 20% of the qualified rehabilitation expenditures. For example, an approved roof and sill repair project costing $10,000 might allow you to reduce your federal income taxes by $2,000. As with all tax credits, there are a number of circumstances that may affect your eligibility for this credit. For additional information, please review our information on Federal Tax Credits and consult with your tax advisor.

Non-historic Pre-1936 Barns – 10% federal income tax credit

To qualify for the 10-percent federal investment tax credit, the barn must have been placed into service before 1936 and considered income producing (but not residential). It must be in its original location and cannot be listed on the National Register of Historic Places or contributing within a National Register-listed historic district. In addition, the cost of the project must meet the “substantial rehabilitation test” and the following test for physical retention of exterior walls and interior structural framework:

  1. at least 50% of the building’s walls existing at the time rehabilitation began must remain in place as external walls at the time work concludes; and
  2. at least 75% of the existing external walls must remain in place as either external or internal walls; and
  3. at least 75% of the building’s internal structural framework must remain in place.

If all of these requirements are met, then you may receive tax credits in the amount of up to 10% of the qualified rehabilitation expenditures. For example, a roof and sill repair project costing $10,000 might allow you to reduce your Federal income taxes by $1,000. All you need to do is file Federal Form 3468 (Investment Credit) with your federal income tax return; NO OTHER APPROVALS ARE NEEDED. You do not need to consult with the State Historical Society to receive this credit and the work does not need to meet the Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings. As with all tax credits, there are a number of circumstances that may affect your eligibility for this credit. Please review our information on (*insert link to Tax Incentives—Federal Tax Credit page) and consult with your tax advisor.

http://www.nps.gov/history/hps/tps/tax/download/intro_barns.pdf
A "first-time user's guide" to the Federal tax incentives program and sample application specifically targeted to barn owners.

State Tax Credit Programs

The State Historic Preservation and Cultural and Entertainment District Tax Credit Program provides a state income tax credit for the sensitive rehabilitation of historic buildings, including barns. When funding is available, the program provides an income tax credit of 25-percent of qualified rehabilitation costs. Two types of barns are eligible for the State tax credit program: any barn built and placed into service before 1937 and any historic barn regardless of when it was placed in service.

To be eligible for the credit, the value of the work on the barn must be at least $25,000 or 25% of the fair market value of the property (excluding the land), whichever is lower.

The scope of work must be approved by the state as meeting the Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings (in other words, the work must be approved as being consistent with the historic character of the building). To have the work approved, you need to provide a three-part application documenting the barn’s eligibility in the program and describing the proposed and completed work (including “before” and “after” photos). The application is sent to the State Historical Society of Iowa for review and approval. The State assesses fees for these reviews based on the cost of the project.

If all of these requirements are met, then you may receive tax credits in the amount of up to 25% of the qualified rehabilitation expenditures. For example, an approved project costing $40,000 might allow you to reduce your state income taxes by $10,000. As with all tax credits, there are a number of circumstances that may affect your eligibility for this credit. For additional information, please review our information on State Tax Credit and consult with your tax advisor.

 

Additional information and applications for these programs can be found on the Tax Incentives for Rehabilitation page.

Contact

For additional information, please contact:

Elizabeth Foster Hill,
Tax Incentives Program Manager
600 E. Locust
Des Moines, IA 50319-0290
515.281.4137
Beth.Foster@iowa.gov

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