SEAN BRYANT / JANUARY 23, 2020
The idea of buying a historic home can be very appealing to some people. However, it’s important to understand what you’re getting yourself into before submitting your offer. Older homes can have a lot of charm, but they can also require a lot of work. No matter if you’re buying a 30-, 60-, or 100-year-old house, the foundation could have structural issues or it might have old electrical wiring that isn’t compliant with current building code. Issues like these can quickly end up costing you thousands of dollars. Additionally, depending on where you live, there might be certain restrictions in place on the type of work you can do to a historic home. Some cities will allow you to renovate the inside of the house but restrict anyone from altering or making updates to the structure of the home. Before you jump in and buy a historic home, it’s important to understand everything that’s involved. Here’s what you need to know.
A frequent complaint of many people going through the home buying process is that all the houses look the same. Too many of today’s newer housing developments are filled with cookie-cutter-looking houses. With a historic home, there is character that’s unmatched. Most of these homes are decades, if not centuries, old. They have floor plans and exterior designs that look like no other house on the street or even the neighborhood. Additionally, historic homes are typically located in older, more developed neighborhoods. These tend to contain mature trees and beautiful landscaping. Not only can this improve the appearance, but it can also provide privacy for the home. Finally, historic homes also come with several tax breaks for homeowners. We’ll talk more about these later, but they can help offset the cost to maintain the home over time.
When you purchase a historic home, you’re buying a piece of your city’s history. But that also comes with some tradeoffs. Historic homes are far from being maintenance-free. Most gain their charm from being built with natural materials. Unfortunately, these materials rot, grow mildew and even become home to termites. Plus, there has been plenty of time for the plumbing, electrical or heating system in the home to deteriorate. Simply put, over time older homes will require work to maintain. There are also limitations to the work you can do on a historic home. Because a lot of cities will restrict you from making changes to the exterior of the home, updates can be a challenge. It could mean you’re stuck with old drafty windows and higher energy bills throughout the winter. Plus, if you’re thinking about adding on to the house to create extra space, that’s not as simple as you might think. Depending on where the house is located, some cities will only allow you to build an addition if it doesn’t change the view of the home from the street.
Generally, the National Register of Historic Places requires a home to be at least 50 years old to be officially historic. It also would ideally have some special piece of history attached to it. Maybe it was the home to a president, inventor or some other person of importance in local or national history.
As we mentioned earlier, one of the benefits of owning a historic home is the tax breaks you can receive. There are 35 different states that offer state tax credits for purchasing and rehabbing a historic home. Virginia, for example, offers a 25% tax credit for the rehabilitation costs incurred. Because tax credits directly lower your tax liability, this can be substantial savings come tax time. To help explain how this tax credit can benefit you, let’s assume you purchase a home on your state’s historic registry. At the end of the year, you have a tax liability of $5,000, however, you’re also going to receive a tax credit of $5,000 from the rehab work you put into the home.
This would mean you’d owe $0 in taxes that year. Now let’s assume you still owed the same $5,000 in taxes, but your tax credit ended up being $7,500. In this case, you’d actually receive a refund of $2,500. There are also federal tax credits available, but these are typically not available to owner-occupied homes. Tax credits on historical homes tend to be reserved for income-earning properties. If you are planning on opening a business through the home, you can receive up to a 20% tax credit from the federal government.
Deciding whether to purchase a historic home doesn’t have a clear-cut answer. You’ll be buying a home that’s full of unmatched character, but it might require some renovations. If you decide this is something that works for you, buying a historic home can be a great choice.