What You Need to Know About Buying a Historic Property

You can't get something for nothing. And while there are many, many benefits of owning property that has been designated historic, there are also some potential drawbacks. However, let's take a look at the plus sides first.

Along with the technical definition of "historic" used by the government to designate properties of historical significance is a real estate agent's use of the adjective "historic," which can be a nice way of saying "fixer-upper." If your historic property is both, the U.S. Department of Housing and Urban Development (HUD) can help. The Federal Housing Administration's 203k program helps prospective buyers write up to $35,000 of additional monies into mortgages specifically for the purpose of fixing up historic properties.

Additionally, your historic property may qualify for a tax freeze, tax abatement or tax credits -- either outright or applied against proposed renovations. And these can come from the federal, state, county or local levels. At the federal level, most of these tax breaks require your historic property to be "income-generating," meaning no dice on the 20 percent renovation credit if you're fixing up your own home. But if you're fixing up a business, the money may be yours.

One of the most attractive options for residents of historic homes is the preservation easement. An easement is an agreement between the owner of a historic property and a government, nonprofit or private historic preservation agency. Effectively, you agree to either renovate or preserve the historic property in exchange for tax breaks. Many states, counties and cities have done this in the past, so they should have a system set up to evaluate and accommodate your proposal. But because each state, county and city is different, you'll need to check with your local historic preservation office for the specifics.

Next up, we'll take a look at some of the downsides of purchasing a historic property.

Do you remember that part about the impossibility of getting something for nothing? Well, in exchange for tax breaks, historic properties are commonly required to self-impose some restrictions on use and (especially!) renovations.

For example, take the facade easement. In this case, the owner of a historic property effectively donates the property's facade to a historic preservation organization. This donation counts as a charitable contribution and thus a tax write-off, and without the property's facade, the easement should reduce the selling price of the historic property. So you'll certainly want to check for any easements filed with the deed of any potential historic property you're thinking about buying. Ask if easements are indefinite or for a fixed period of time, and also ask about the tax implications of any easements you find.

Again, this might be a good thing -- you get the home at a lower price, so you'll pay lower property taxes and live in a property with a guaranteed historic facade. Or it can be a bad thing -- if you want to renovate that facade significantly, you're going to have to jump through some significant, potentially fiery hoops. Depending on the type of easement filed, it may apply to the property's facade, interior, structural characteristics, landscaping or -- really -- anything that makes the property historic.

The moral of the story is that historic properties require one extra level of checking before you buy. What's riding along with the house's title? If nothing, you're good to go. (Perhaps you should explore the tax advantages of historic properties yourself!) But if there are riders, weigh the pros and cons of these attachments to make sure the headache of owning the historic property is worth the benefits.

For more information on historic property and taxes, check out the links on the next page.