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Heritage Structure Rehabilitation Tax Credit

During the 2016 Legislative Session, the legislative evaluation committee created by the Tax Credit Evaluation Act of 2012 was required to review the Sustainable Communities Tax Credit.  The credit was amended and renamed the Heritage Structure Rehabilitation Tax Credit.  

A refundable credit may be allowed to homeowners for renovating historic homes and to business taxpayers for a portion of substantial expenditures incurred to rehabilitate certified structures in Maryland on or after June 1, 2010, but before July 1, 2022. In addition, the Maryland Historical Trust certifies “Small Commercial Projects,” which will help fund modest rehabilitation projects such as roof repair and façade restoration. Business taxpayers who begin their work prior to January 1, 2015 will not be eligible for certification.

Homeowners of single-family, owner-occupied residences may be eligible for a tax credit for up to 20 percent of eligible rehabilitation costs, including repairs such as:

  • Roof repair and replacement
  • Chimney repair and lining
  • Window restoration
  • New storm doors/windows
  • Masonry repointing
  • Floor refinishing

Owners of income-producing properties may be eligible for a state income tax credit for renovating historic buildings. The program offers property owners a tax credit up to 20 percent of eligible expenses, up to a total $3 million, for substantial rehabilitation projects. An additional 5 percent credit may be earned for high performance properties that achieve a LEED Gold certification or equivalent.

The credit may be taken against the corporate income, personal income or insurance premium tax.

Sole proprietorships, corporations, tax-exempt non-profit organizations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit.

To qualify for the credit:

A homeowner must undertake the rehabilitation of a single-family, owner-occupied residential structure; and the rehabilitation expenses must exceed $5,000. The buildings that are being rehabilitated must be certified as historic, defined as having at least one of the following designations:

  • Individually listed in the National Register of Historic Places; or
  • A contributing resource within a National Register Historic District; or
  • A locally designated structure or contributing resource to a local historic district that the Maryland Historical Trust (MHT) determines to be eligible for the National Register

The credit for homeowners is capped at $50,000 in a 24-month period.

Businesses must undertake substantial rehabilitation of income-producing buildings. “Substantial rehabilitation” means the greater of the adjusted basis of the structure or $25,000. The same expenditures may not be used to qualify for a credit in any other tax year. In addition, these buildings must be certified as historic, defined as having at least one of the following designations:

  • Individually listed in the National Register of Historic Places; or
  • A contributing resource within a National Register Historic District; or
  • A locally designated structure or contributing resource to a local historic district that MHT determines to be eligible for the National Register; or
  • Located within and certified as contributing to the significance of a Certified Heritage Area.

Some businesses may qualify as a “small commercial project.” Businesses must undertake the rehabilitation of income-producing buildings and contain no more than 75 percent residential rental use. A main street business with a top floor apartment is an example of a small commercial property. In addition these buildings must be certified as historic, defined as having at least one of the designations above for business taxpayers.

Small commercial rehabilitations cannot exceed $500,000 in expenses, and the credit is capped at $50,000 in a 24-month period. 

The business must receive certification from the Maryland Historical Trust (MHT). A credit will not be approved if work has already begun on a project prior to submission of the application, or if the applicant for a commercial rehabilitation has previously submitted three or more applications for commercial rehabilitations exceeding a total of $500,000 in the same year.

How the credit is calculated:

An individual or business may claim a tax credit for: 

  • 20% of the qualified rehabilitation expenditures; plus
  • 5% of the qualified rehabilitation expenditures if the certified rehabilitation is a certified historic structure and a high performance building..

Small Commercial Projects do not qualify for the additional 5% credit for being a high performance building.

For certified commercial rehabilitation projects, the credit is limited to $3 million. For all other certified rehabilitation projects, the credit is limited to $50,000. The amount of the credit that exceeds tax liability in the year the credit is claimed may be refunded.

Recapture Provision:

A pro-rated percentage of the credit is subject to recapture if disqualifying work is performed, or the certified rehabilitation is disposed of, during a five-year period that begins with the year in which the certified rehabilitation was completed.

Documentation required:

Within 18 months of a credit certificate being issued, the business or individual undertaking the rehabilitation must notify the Maryland Historical Trust that work on the project has begun. In general, without additional approval by the MHT, commercial rehabilitations must be completed within 30 months of the issuance of the initial credit certificate.

Corporations: For Tax Years beginning after December 31, 2012 Maryland Corporations must file their Maryland corporation return electronically and complete the Heritage Structure Rehabilitation Credit Form 502S and Form 500CR sections of the electronic corporation return and submit a pdf of the Maryland Historical Trust certification to claim this refundable credit.

Pass-Through Entities: For Tax Years beginning after December 31, 2012 Maryland Pass-Through Entities(PTEs) must file their Maryland Form 510 electronically and complete the Heritage Structure Rehabilitation Credit Form 502S and Form 500CR sections. PTEs must submit a pdf of the Maryland Historical Trust certification to pass this credit on to its members. In addition the PTE must provide Form 510 Schedule K-1 which separately states each member's distributive or pro rata share of the credit, and the MHT certification to each member.

Individuals (including fiduciaries): Form 502S must be completed and submitted with the income tax return (Form 502, Form 505 or Form 504) along with the MHT certification. For Tax Year 2013 and 2014, individuals are not required to file electronically to claim the Heritage Structure Rehabilitation Credit if they have no other business tax credit. Individuals will also complete and attach Form 502CR when filing Form 502S.

Insurance premium tax: Documentation of the credit shall be maintained by the taxpayer in their files and be made available to the Insurance Commissioner, upon request, in accordance with COMAR 31.06.04.03. The documentation should include documents from the agency granting the credit, and a list of the names and telephone numbers for the taxpayer’s staff who are directly involved in granting the credits. All information shall be retained for a minimum of three years from the date of the filing of the final tax return on which the credit is taken.

Contact:

Maryland Historical Trust
100 Community Place
Crownsville, MD 21032-2023

 
For information about the Homeowner and Small Commercial Project Tax Credit:
Contact: Megan Klem, megan.klem@maryland.gov, 410-514-7688
mht.maryland.gov/taxcredits_homeowner.shtml
mht.maryland.gov/ taxcredits_small_commercial.shtml

For Commercial Rehabilitations:
Contact: Collin Ingraham, collin.ingraham@maryland.gov, 410-514-7671
mht.maryland.gov/ taxcredits_competitive_commercial.shtml



 
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