Historic Tax Credit Tips
By Earl Cantwell
Did you know that most Parkside homeowners are eligible to receive a 20% New York State tax credit for qualifying expenses associated with the repair, maintenance, and upgrade of their homes?
I’m Earl Cantwell, a Director-at-Large with the Parkside Community Association. My family and I moved to Parkside in 2019, and in each tax year since, we have been able to successfully claim the New York State Historic Homeownership Rehabilitation Credit (the “Tax Credit”). While this certainly does not make me an expert, I really enjoy spreading awareness of this truly incredible program, and I have picked up some tips and tricks along the way that I hope can help more neighbors take advantage of the wonderful Tax Credit.
Step One: The first step in the Tax Credit process is identifying the scope of your project. The Tax Credit program requires that the project exceed a total of $5,000 and that at least 5% of that expense be for exterior work. The eligible qualifying expenses for the Tax Credit are quite broad, but, in general, landscape, hardscape, and outbuilding rehabilitation (e.g., garages) are excluded (click here for more information on qualifying expenses). For work performed by the homeowner, only the materials are eligible for the Tax Credit; there is no credit available for “sweat equity.” If you are considering an expensive renovation like a kitchen or bathroom, I recommend also completing work on the exterior of your home (totaling 5% of the overall cost), as this will allow for a 20% tax credit on all spending, including the interior renovation.
Step Two: Once you have identified the scope of your Tax Credit project, the next step is submitting to the New York Office of Parks, Recreation, and Historic Preservation (“OPHRP”) forms called "Application: Part 1 & 2 Historic Homeownership Rehabilitation Credit.” The main portion of the Part 1 & 2 Application is the Project Work Sheet, on which applicants will provide “before” photos of the areas to be renovated/restored, a description of the existing condition, the proposed renovation/restoration work, and the estimated cost. Applicants also must provide photos of all exterior elevations as well as a rough home floor plan with the “before” photos keyed to the floor plan. I recommend that, once you draw your rough floor plan sketch, make a copy of it to use for Step Four as well as future years’ Tax Credit applications. While OPHRP prefers that project work not begin until after project approval, I have found OPHRP very reasonable in approving work that has already begun, so long as the explanation (an explanation is required) is reasonable, e.g., emergency repair. For applicants with an AGI over $60,000, there is a $25 processing fee for Parts 1 & 2. Also, Parts 1 & 2 can be amended at any time using this form, but an amendment is needed only to add additional project items, not subtract. You can find your AGI (adjusted gross income) on the first page of your most recent tax return.
Step Three: Shortly after submitting the Part 1 & 2 Application, OPHRP will respond with an approval, an approval with conditions, or a denial. I’ve found OPHRP to be very responsive and easy to work with. OPHRP may seek to confirm that the proposed project will meet certain historic preservation guidelines before issuing a final approval. Once the project is approved by OPHRP, it’s time to get the project completed!
Step Four: Once the project is complete, the applicant must submit to OPHRP a form called “Application: Part 3.” The Part 3 application is very similar to the Part 2 application, except that the applicant is providing the “after” photos of the project. For Part 3, you must again submit photos of all exterior elevations as well as a rough home floor plan with the “after” photos keyed to the floor plan. One important thing to note is that you are not required to complete 100% of the proposed project to receive Part 3 approval. So long as what you have completed is within the scope of the approved project and meets the basic Tax Credit requirements—total cost of $5,000 with 5% exterior work—OPHRP will approve the Part 3 application. I like to submit my Part 3 application by no later than December 31, even if I have not completed all of the project work, so that I can have approval from OPRHP in the current tax year. For uncompleted aspects of the project, I then submit those for approval on the next year’s application. After you submit your Part 3 application to OPRHP, OPRHP will, within 30 days, provide a completion letter. For applicants with an AGI over $60,000, there are fees ranging from $25 to $475 to submit a Part 3 application, depending on the overall cost of the project.
Step Five: Congratulations, it’s time to claim the Tax Credit! The New York tax credit claim form is Form IT-237. One thing to note is that, recently, TurboTax stopped supporting this form, and I don’t have any information as to whether other self-preparation platforms support the form. The Tax Credit is a dollar-for-dollar tax credit equaling 20% of the qualified expenses. New York State does not require receipts or other proof of expenses, and the OPRHP Part 3 approval is sufficient documentation in support of the credit. That being said, I recommend keeping the receipts in case of an audit. The form of the Tax Credit is dependent on whether the filer’s AGI exceeds $60,000. For filers with an AGI under $60,000, the Tax Credit will first cancel out any New York State taxes due and then the remainder will be refunded to the taxpayer. For filers with an AGI over $60,000, the Tax Credit will first cancel out any New York State taxes due and then will carry over to future years until exhausted, but it will not be refunded.
In closing, I want to hit a few additional points that did not fit nicely into the steps discussed above. First, the Tax Credit applies to most of the area served by the Parkside Community Association, with the exception of Vernon Triangle and Agassiz Circle (although Agassiz Circle is designated as “eligible”). Second, although OPRHP does allow for the Tax Credit for income-producing properties that are also owner-occupied, that process is outside of the scope of this newsletter.
Finally, within reason, I am willing and happy to help Parkside residents with any questions about the Tax Credit program, and you can direct any questions to PCADirector@gmail.com and using “Tax Credit OPRHP” in the subject line. If you’ve found value in this newsletter or in any one-on-one advice provided, I encourage you to become a member of and make donation to the Parkside Community Association.
Disclaimer: This article does not constitute legal, tax, or accounting advice, and the information provided is intended to be general in nature.