Historic Tax Credits in Virginia & Tennessee
Financing the restoration of a historic property can be much easier when you know which incentives apply. Below is a clear, practical guide—focused on Virginia and Tennessee—with links to official rules so you can plan with confidence.
The Federal Historic Rehabilitation Tax Credit (HTC) — Available in both states
What it is: A 20% federal income tax credit on qualified rehabilitation expenses for income-producing properties (commercial, rental, B&B, offices). Owner-occupied primary residences do not qualify for the federal credit. Administration runs through your state SHPO and the National Park Service (NPS).
Who reviews:
Virginia: Department of Historic Resources (DHR)
Tennessee: Tennessee Historical Commission (THC)
Application path: Three parts (Part 1: certify the building; Part 2: approve proposed work; Part 3: certify completed work). NPS now requires electronic submission for federal HTC materials.
Good to know (federal): If you sell or the building stops being income-producing within 5 years, a portion of the credit can be recaptured.
Virginia’s State Historic Rehabilitation Tax Credit (HRTC)
Virginia offers one of the most robust state programs in the country and—unlike the federal credit—it can be used on owner-occupied homes as well as income-producing properties.
How the Virginia Credit Works
Credit amount: 25% of eligible rehabilitation expenses (ERE). Projects that also qualify for the federal 20% credit can stack them for a combined up to 45% benefit.
Minimum spend (“material rehabilitation”) within a 24-month measuring period (60 months if phased):
Owner-occupied residences: ERE ≥ 25% of the building’s pre-rehab local-tax assessed value (structure only).
Income-producing / all others: ERE ≥ 50% of that assessed value.
Carryforward: Unused credit can be carried forward up to 10 years.
Per-taxpayer annual cap: For taxable years beginning on/after Jan. 1, 2025, the amount that may be claimed (including carryforwards) is capped at $7.5 million per taxpayer per year (previously $5 million).
Eligible costs include structural components, systems (HVAC, electrical, plumbing), code/ADA life-safety work, and certain soft costs (A/E fees, construction-period interest/taxes). Ineligible: acquisition, additions/enlargements, appliances; some site work is excluded under the federal rules.
Ownership/recapture: Virginia’s state credit does not require continued ownership after certification, but DHR can inspect within three years and revoke if work doesn’t match the approved scope. Federal 5-year recapture rules still apply when you also use the federal credit.
Entity allocations: Partnerships/S-corps can allocate credits among owners by agreement (often used in tax-credit syndications).
Process notes (Virginia):
Applications follow the Part 1/2/3 sequence and must meet the Secretary of the Interior’s Standards. DHR maintains current forms, guidance, and photo standards on its site.
Tennessee: What’s Available
Tennessee does not currently offer a statewide state income-tax historic rehabilitation credit
Multiple preservation organizations note the absence of a TN state HTC; owners typically pair the federal 20% credit (for income-producing properties) with local incentives and state grants (see below).
Local Property-Tax Relief Enabled by State Law
Tennessee law (T.C.A. § 67-5-218) allows communities to create historic property tax abatements/exemptions for approved improvements. Implementation is local—terms vary by city/county. Examples:
Nashville (Metro): A Historic Property Tax Abatement program administered under §67-5-218; guidelines define eligibility, caps, and review through the Historic Zoning Commission.
Other counties/cities (e.g., Rutherford County) run similar abatement programs under the same statute.
> Translation: In Tennessee, your biggest lever is often federal HTC + local property-tax abatement (where available), rather than a state income-tax credit.
State Grants That Often Pair Well with Federal HTC
Historic Development Grant Program (TNECD): Competitive grants that help renovate and preserve historic buildings to drive economic development; awards are announced periodically (millions allocated statewide each round).
Downtown/Facade Improvement (TN Main Street & Tennessee Downtowns): Grants administered through local Main Street programs; at least 50% of project budgets must be façade improvements and work must follow design guidelines. Local programs (e.g., Knoxville, Jonesborough) also run city-funded façade grants.
Eligibility Basics (Both States)
To use any HTC, the building must be a Certified Historic Structure (individually listed or contributing within a listed historic district). Virginia’s state credit will also accept properties formally found eligible for listing (not yet listed). All work must meet the Secretary of the Interior’s Standards.
What to Budget & How to Schedule
1. Confirm status early: Is the property listed (or eligible) and who’s the reviewer—DHR or THC?
2. Scope & drawings: Plan work that preserves significant features; gather contractor bids aligned to HTC-eligible cost categories.
3. Measure your spend: Virginia’s state threshold must be met within a 24-month period (or 60 months if phased). Federal projects must meet the IRS “substantial rehabilitation” test (generally exceed adjusted basis or $5,000, whichever is greater).
4. Expect reviews & inspections: State and NPS may visit during or after completion; keep photo documentation current.
Quick Comparisons
Feature Virginia State HRTC Tennessee State Program
Type 25% state income-tax credit; owner-occupied and income-producing eligible No statewide state HTC; pair federal HTC with local abatements and state grants
Min. Spend 25% (owner-occupied) / 50% (others) of pre-rehab assessed value N/A statewide; local programs set their own thresholds
Carryforward Up to 10 years N/A statewide
Per-Taxpayer Cap $7.5M/year (taxable years beginning 1/1/2025+) N/A statewide
Stack w/ Federal HTC Yes (potential 45% combined on income-producing projects) Yes—stack federal 20% with local abatements/grants
Local Sweeteners You Shouldn’t Miss
Virginia localities sometimes add property-tax abatements inside historic districts (example: Town of Abingdon offers an abatement/credit structure within its Old & Historic District).
Tennessee cities can authorize property-tax abatements under §67-5-218 and may offer façade grants through Main Street programs.
How I Help You Use These Tools
Up-front screening of your house for eligibility (district status, listing, or “eligible” finding).
Team assembly: HTC-savvy architects, contractors, and tax advisors.
Application strategy: Sequencing Part 1/2/3 with your construction loan and draw schedule.
Local programs: Matching you with city/county abatements and facade-grant windows in Southwest VA & Northeast TN.
Disclosures & Fine Print
Programs, caps, and submission rules change. The information above is for general education—not tax, legal, or lending advice. Always confirm with your CPA and the administering agency before you spend or file. (Virginia DHR maintains current guidance; Tennessee program details run through THC, NPS, and local governments.)