Properties Within the Kensington Historic District
are Entitled to Financial Benefits
Residents of Montgomery County have only a few
areas remaining where they can show the development
of their local heritage. The "best"
of these areas have been designated by the County's
Historic Preservation Commission (HPC) as historic
districts and receive special protection and
benefits, including tax advantages. Within the
Town of Kensington we have the Kensington Historic
District. Kensington Town Hall has a street by
street listing of the homes and business within
the Kensington Historic District. Because of
our historic district, Kensington was named in
the Wall Street Journal, along with Annapolis,
as one of two areas in the State of Maryland
as the best potential for appreciation. Kensington
Historic District was specifically designated
as an historic district because it retains a
large area exemplifying a Victorian-era
garden community. Not only has Kensington's
unique character received local recognition from
the HPC, but it also has received national recognition
by being placed on the National Register of Historic
Places. It is this beautiful historic garden
district of Kensington that make it an attractive
place to live. All of the homeowners of Kensington
benefit from this link with the past.
For novice renovators in the historic district,
the paperwork and detailed accounting may seem
overwhelming but the economic rewards can indeed
be significant.
The following information is intended
to give a homeowner a general feel for potential
tax deductions. Each homeowner must be responsible
for contacting the appropriate organization and
your own specifics.
 Maryland Rehabilitation Tax Credits:
10% for 1997, 15% for 1998 and 25% for 1999
By virtue of their location within a district
listed on the National Register of Historic Places,
all property-owners in the Kensington district
are potentially eligible for participation in
the Heritage Preservation Tax Credit Program,
administered by the Maryland Historical Trust.
These tax credits allowed for Preservation of
Historic Property are covered under Section 281A
of Maryland Income Tax Law. These credits are
for expenditures exceeding $5,000 (cumulative)
over a twenty-four month period and are taken
on Maryland State income tax form 502-H, resulting
in a lowering of Maryland state income tax.
Costs for rehabilitation (restoring a structure
in accordance with its period appearance) and
stabilization (preserving a structure and arresting
further deterioration) are generally deductible.
Moreover, much of the rehabilitation repair work
that goes on in Kensington is also eligible.
Although repairs as part of normal maintenance
may be excluded, structural repairs or reworking
of decorative finishes (such as plaster, wainscoting,
mantles, molding, clapboard, etc) may be eligible
if the work is intended to stabilize or restore
the structure. Deductions for rehabilitation
may include interior and exterior work, as well
as some landscaping and restoration of gardens
if they are an integral part of the original
historic setting. Necessary upgrades
of wiring, plumbing, HVAC, kitchens, and bathroom
(provided such items do not negatively impact
historic elements of the interior or exterior
of the structure in the period for which it is
historically significant) may qualify for tax
deductions.
Expenditures for modernization, ordinary modernization,
environmental comfort, or additions not consistent
with the structure do not qualify. Hence, modernization
of a kitchen, adding a new bathroom, or replacing
a modern furnace would generally not qualify.
On the other hand, re-exposing and putting into
working order an original fireplace, waterproofing
a crumbling foundation, or rebuilding a turret
previously removed are general eligible expenditures.
The costs for eligible work may be amortized
and deducted over a period of not less than sixty
months. The amortization begins either in the
month after the work is completed or in the year
after the work is completed (at the taxpayers'
election). Using the straight-line method of
depreciation evenly over the sixty months = 5
years. As an added bonus, this deduction does
not reduce the property's basis or result
in any recapture of excess amortization. Thus
capital gains tax due at the time the property
is sold are not increased by taking rehabilitation
tax deductions.
For more information on state and federal tax credits or to request a Heritage
Preservation Certification Application, contact the Maryland Historic Trust's
Office of Preservation Services at 410-514-7627 or 410-514-7628 or visit the
Maryland Historical Trust
Web site (off-site).
Maryland Now Has a New Rehab Tax Credit
A new, and the nation's first, mortgage credit certificate option became
effective on October 1, 1999. This new program permits the property owner to
transfer the credit to their lending institution in return for a reduction in
the principal or in the interest rate of the loan on the rehabilitated property.
Using this new option, property owners can take full advantage of the credit
immediately instead of having the benefit spread out over a ten-year period.
This mortgage credit certification is most significant for moderate income owners
who often do not incur enough state income tax liability to use the entire credit
within the required ten-year time frame. Developers who rehab properties may
transfer the credit to the new owner. For more information or to request a Preservation
Certification Application, call the Maryland Historical Trust (MHT) Office of
Preservation Services (410-514-7627 or 7628). Applications are also available
on the MHT
Web site (off-site) under documents.
Montgomery County 10% Property Tax Credit
Montgomery County offers the homeowner a property
tax credit worth 10% of the total cost of approved
restoration work, to houses in the Kensington
Historic District. This tax credit does not apply
to interior work or to new construction. Most
of the repairs that require a Historic Area Work
Permit, other than new additions, are eligible
for this credit. But the real beauty of this
program is that ordinary maintenance items cumulatively
costing more than $1,000 (such as painting, re-roofing,
gutters and downspouts) in any calendar year
are also eligible. This provides additional encouragement
to homeowners to keep up their homes.
Ordinary maintenance not requiring a HAWP because
there has been no change in design or material
is eligible. As an example, the rebuilding of
a wrap-around porch with like materials does
not require a HAWP because it does not constitute
"substantial alteration." Since this
repair kind of a repair can easily run several
thousand dollars, it is worth applying for the
HAWP in order to get the credit. Applications
are simple two-page forms, but must be postmarked
by April 1.
The Maryland Historic Trust requests that the
state tax credit application be submitted before
work begins. The county tax credit application
is submitted before April 1st in the year after
the expenditure is made.
The Montgomery County Historic Preservation
Commission staff can provide you information
on all of these programs. Call 301-563-3400,
fax 301-563-3412, or write to: Historic Preservation
Commission of Montgomery County, Maryland-National
Capital Park and Planning Commission, 8787 Georgia
Avenue, Silver Spring, MD 20910.
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