Every day, Lynne Puckett enjoys the view of the harbor through new glass doors that open from the third floor of her historic home in Butchers Hill.
The doors, along with the rest of the renovation work she has done, have added value and comfort to her 1870s rowhouse -- and they opened a way to reduce her state income tax bill this year.
More owners of historic properties in Baltimore are taking advantage of two tax credit programs:
One is a city program that freezes property taxes at pre-rehab rates; the other, operated by the state, allows owners to regain 25 percent of their rehabilitation costs in the form of a credit on their Maryland income tax.
The number of applications to Baltimore's Commission for Historical and Architectural Preservation (CHAP) -- the organization that must approve an owner's rehab plans -- has risen in the last year.
Of 100 applications received, 33 have been completed with a total rehabilitation cost of almost $6 million and $936,526 in tax credits issued to owners.
"The most applications have come from Federal Hill and Fells Point, followed by Roland Park," said Brigitte Fessenden, a preservation planner and administrator of the program.
According to Kathleen Kotarba, executive director of CHAP, it now pays to improve your historic home.
"In the past, there was no financial incentive to improve an historic property," she said. "In fact, you were punished because your property tax assessment would go up; but now you're actually rewarded for the rehab work."
The purpose of the state and city tax credit programs is to encourage preservation and restoration of the 49,000 eligible historic structures in Maryland. It is especially important in Baltimore, which has 21,000 of those homes.
"The programs not only encourage preservation but are an important inducement to bring folks into the city," said Martin P. Azola, president of the Home Builders Association of Maryland and a trustee of the Maryland Historical Trust, which oversees the state program.
The city program, which began in 1996 and is called the Property Tax Credit for Historic Restorations and Rehabilitations, works like a 10-year tax abatement.
If an owner does $20,000 worth of work on a historic structure, for example, the property tax bill could rise $600, from $1,200 to $1,800, to take into account the value of the added improvement to the house. But under the program, the owner's tax bill would be frozen at $1,200 for 10 years, giving him a tax savings of $6,000.
To be eligible, the property can either be an owner-occupied residence or an income-producing property, such as an apartment building or a business in a locally designated historic district or a National Register Historic District. The build- ing can also be individually listed on the National Register of Historic Places or the Baltimore City Landmarks List.
The owner must also follow a procedure to ensure that the work is certified by CHAP. Without CHAP's approval, there can be no property tax credit. Work done on a historic building must meet CHAP's historic preservation guidelines.
In general, the work cannot damage, destroy or cover up important architectural features on either the exterior or the interior. An intricately carved fireplace mantel, for instance, cannot be covered by a new wall, nor could elaborately carved woodwork on a porch be torn down.
Before an owner proceeds with a project, CHAP must precertify the work. This involves submitting "before" photos and an application in which a summary of the proposed work is required.
"Some people finish the entire project and come in and ask to be certified, which is a problem," Fessenden said.
At the project's end, the owner must submit all cost documentation, such as contractor and material invoices, as well as photos of the finished work and a copy of the building permit to CHAP.
The final certification is based on an inspection that verifies the correctness and completion of the work.
CHAP then notifies the state Department of Assessments and Taxation that the owner has been certified for the tax abatement. If an owner decides to sell the house, any unused credit can be transferred to the purchaser.
As an added benefit, CHAP will provide technical assistance to the homeowner throughout the project, which can include a preliminary visit to the project if there are major questions.
About half the projects use professional architectural or interior services that qualify as part of the eligible rehab costs, Fessenden said. An owner's labor costs can be included as well. The rehab work requires a building permit from the city, which is the responsibility of the owner.
The restoration cost must be at least 25 percent of the pre-rehab full cash value of the property. The size and scope of the rehabs range from a new kitchen with appliances to a complete restoration of a building. Additions also qualify, but landscaping and movable furnishings do not.
Meanwhile, the state's Heritage Preservation Tax Credit for the Rehabilitation of Historic Property program involves the Maryland income tax. The state offers a tax credit, a dollar-for-dollar reduction of one's state income-tax liability, as compared with a deduction that lowers the amount of income subject to taxation.
To qualify for the credit, a residential rehab's cost must exceed $5,000 in a 24-month period. If an owner puts $20,000 of work into a house, the state will provide a 25 percent or $5,000 tax credit.
If the owner owes $6,000 in state taxes, that $5,000 credit can be applied against it, reducing the tax bill to $1,000. The credit can be carried forward for 10 years. If the tax liability, for example, is $2,000 in a given year, the credit reduces the tax to zero with $3,000 available the next year.
Like the city's program, the property must be historically designated to be eligible.
The program began in the mid-1970s by giving owners planning a rehab a simple tax deduction. But then the General Assembly in 1977 switched to a 10 percent credit -- a more lucrative incentive -- and increased it to 15 percent in 1998. As of Jan. 1, the credit increased to 25 percent.
"Maryland is very lucky to have such a program; only eight states have one," said William J. Pencek Jr., deputy director of the Maryland Historical Trust.
"Now there's tremendous potential to preserve buildings in the state, especially Baltimore," Pencek said. "And it dovetails with the state's Smart Growth policy, which advocates development in existing neighborhoods."
The state's program can be used along with the city's for a residence, but requires a separate certification from the Maryland Historical Trust, the state's preservation office.
Separate application
"A certification from CHAP does not mean an automatic state certification," Fessenden cautioned. An owner must submit a separate application that describes the project in detail in order to get a rehabilitation certified by the Maryland Historical Trust.
The state's program applies to any historic structure in Maryland.
The scope of work done on historical houses by owners runs the gamut.
Canton, a National Register Historic District in Baltimore, has seen many owners using the historic tax credit to help with renovation.
John Mariani came across an abandoned building in Canton that had been a telephone exchange in the early 1900s. He made the owner an offer and bought what was essentially a brick shell in December 1997.
"I restored the exterior and designed a completely new interior," said Mariani, an architect. Although any historic features on the interior of a house must be retained, a contemporary design -- like Mariani's -- was acceptable to CHAP and the Maryland Historical Trust. Mariani designed it as a residence and an interim workplace.
"This is a terrific thing for the city," Mariani said. "I am a big supporter of the city, and you need to have incentives like this."
Puckett, an attorney who lived on Capitol Hill in Washington before coming to Baltimore, completed the rehab of her Butchers Hill home in 1997.
"I knocked out the third-floor back wall and installed the sliding glass doors that open onto an existing deck," Puckett said.
She also repaired the marble floor in her vestibule, installed central air conditioning, opened up existing fireplaces and put the glass back in her front door.
She used the credit on her 1997 and 1998 tax returns.
"I can tell you, I wouldn't have been willing to do it without the tax incentives. They made it feasible," she said.
Jeff Spokes used the state program to improve his single-family home in Sudbrook Park -- founded in 1887 -- in northwest Baltimore County in Pikesville.
Spokes, who bought the house in 1996, renovated the kitchen, installed central air conditioning and added insulation. Spokes used the tax credits on his 1997 and 1998 state returns.
Kotarba's office has printed 20,000 brochures explaining the city program, but she says word of mouth is the best way to inform owners.
The benefit of the program isn't lost on Puckett. "Now there's a chance of hope that people will stay and reclaim historic houses," Puckett said. "These beautiful homes deserve to be redone."
How it works
The following is an example; actual circumstances will vary. Mr. and Mrs. Smith have lived in their city home in a National Register District for more than 20 years. Time has come for them to decide whether to attempt improvements or to sell their home. They decide to stay and undertake the rehab work, taking advantage of the tax incentives as follows:
REHAB COSTS:
New kitchen: $7,000
New bathroom: $5,000
New roof $3,000
New heating and air conditioning: $5,000
Total: $20,000
Tax savings using the state income tax credit: $5,000 * (25% of $20,000)
Baltimore City property tax credit: $3,680 (10 years at $368 ** per year)
Total credits: $8,680
Net cost of improvements: $11,320
* Amount that can be used to offset state income tax liability
** Difference in pre-rehab and post-rehab annual property tax bill
SOURCE: Maryland Historical Trust
Eligible neighborhoods
Baltimore City residents may be eligible for a tax credit if they complete rehabilitation of a historic property located in:
National Register Baltimore City Historic District -------------------- Historic District
Barre Circle Bancroft Hill
Bolton Hill Bolton Hill
Brick Hill Butchers Hill
Business and Government Dickeyville
Butchers Hill Eutaw Place/Madison Ave.
Canton Loft
Cathedral Hill Madison Park
Charles Village/Abell Mount Royal Terrace
Dickeyville Mount Vernon
Druid Hill Park Mount Washington
Dundalk Otterbein
Federal Hill Ridgely's Delight
Fells Point Seton Hill
Franklin Square Sterling Street
Loft Union Square
Little Montgomery Street Upton's Marble Hill
Old Goucher Washington Hill
Ridgely's Delight Waverly
Roland Park St. Paul Street
Seton Hill
Union Square
SOURCE: Commission for Historical and Architectural Preservation