How Do Virginia Historic Tax Credits Work for a Commercial Building in Richmond?

A Virginia historic tax credit on a commercial building is worth 25% of eligible rehabilitation expenses, and an income-producing building can also earn the 20% federal credit, for up to 45% combined. To qualify, the building must be a certified historic structure, the spending must clear minimum thresholds, and the Virginia Department of Historic Resources (DHR) and National Park Service (NPS) must certify that the work meets the Secretary of the Interior’s Standards for Rehabilitation.

Richmond is one of the places where this matters most, because so much of its older commercial and industrial stock sits in listed historic districts. If you are weighing a rehab as an investment alongside stabilized income property, see our Richmond net lease investment guide for the other side of the comparison. This article is not tax or legal advice; DHR, NPS, and your tax counsel have the final word.

What does a Virginia historic tax credit commercial building have to qualify as?

Both programs require a “certified historic structure,” but the definitions differ slightly, according to DHR’s program FAQ:

Locally designated City of Richmond historic districts are not the same thing. DHR notes that National Register and Virginia Landmarks Register districts can differ from local districts, and only the register listing counts for credits. Whether a building “contributes” to a listed district is decided through the Part 1 review, not by the owner.

How much do you have to spend to qualify?

For the federal credit, the IRS requires a “substantial” rehabilitation: qualified expenditures during a 24-month measuring period must exceed the greater of the building’s adjusted basis or $5,000. Adjusted basis is roughly purchase price minus land value and prior depreciation, plus earlier capital improvements, so a recent buyer of an expensive building has a higher bar. A phased project can use a 60-month period, but for the federal credit the phasing plan must be in place before work begins.

For the Virginia credit, Code of Virginia § 58.1-339.2 requires a “material” rehabilitation: for a commercial building, eligible expenses of at least 50% of the building’s assessed value for local real estate tax purposes in the year before work began.

Eligible costs generally include structural work, new mechanical, electrical, and plumbing systems, fire suppression, and soft costs such as architectural and engineering fees, construction interest, and reasonable developer fees. Acquisition costs, additions or enlargements, personal property, and syndication legal fees are out. Federal rules also exclude site work and landscaping.

How do the Part 1, Part 2, and Part 3 applications work?

Richmond owners work through DHR, Virginia’s state historic preservation office and the first point of contact for both programs; NPS certifies federal projects. Each program uses the same three steps:

1. 1Part 1, evaluation of significance. Certifies that the building is historic and contributes to its district. Required for anything but a single individually listed building with no outbuildings. Include photos of pre-rehab conditions.
2. 2Part 2, description of rehabilitation. Describes each significant architectural feature and the proposed work on it. This is where storefronts, windows, masonry cleaning, and interior layouts are negotiated. Get approval before construction.
3. 3Part 3, request for certification of completed work. Documents the finished project with photos and an independent CPA’s review of expenses (agreed-upon procedures under $500,000 of project cost, an audit-style report at $500,000 or more).

The whole project must meet the Standards; you cannot claim credits on only the compliant portions. NPS can inspect for five years after completion and DHR for three, and certification can be revoked for unapproved work.

Is there a cap on Virginia historic tax credits?

Virginia limits how much credit one taxpayer can claim in a year. Under § 58.1-339.2, the limit was $5 million per taxable year for 2017 through 2024. The 2024 General Assembly (Chapters 462 and 512) raised it to $7.5 million for taxable years beginning on or after January 1, 2025, including carryover amounts. Unused credit carries forward up to 10 years.

DHR’s program pages and 2023 FAQ still cite the $5 million figure as of this writing. The statute controls, but confirm with DHR and your tax counsel which limit applies to your taxable year.

How are historic tax credits sold or syndicated?

Most developers can’t use all the credits themselves, so they bring in investors. DHR’s position is that the credits cannot be sold outright but can be syndicated through a partnership or LLC structure, which must be in place before the project is completed. The federal credit follows ownership percentages; the Virginia credit may be allocated among partners by written agreement, which is what allows a small ownership interest to carry a large share of state credits.

That flexibility has limits. In Virginia Historic Tax Credit Fund 2001 LP v. Commissioner (4th Cir. 2011), the court held that investors who paid roughly $0.74 to $0.80 per dollar of state credit, with refund guarantees and a near-nominal buyout, had bought the credits in a taxable disguised sale rather than invested as partners. Investor pricing, risk allocation, and exit terms need a tax attorney who does these deals. Federal credits also carry recapture: sell the building or stop using it for income within five years and part of the credit comes back, 20 percentage points less for each full year held.

Where in Richmond are eligible commercial buildings concentrated?

Virginia is one of the most active states in the federal program. The NPS FY 2025 annual report shows 67 completed-project (Part 3) approvals in Virginia in fiscal 2025, with about $405 million in estimated qualified expenditures, and 363 approvals totaling about $1.58 billion over fiscal 2021–2025. In Richmond, listed districts with commercial and industrial stock include:

• Scott’s Addition Historic District (listed 2005), an early-20th-century industrial and commercial district where large plants and warehouses are the dominant building type. See our Scott’s Addition retail and flex space guide.
• Manchester Industrial Historic District (listed 2000, expanded 2004 and 2011), mostly 1880–1950 commercial and industrial buildings between the James River and Commerce Road.
• Broad Street Commercial Historic District (listed 1986–87, expanded 2004 and 2007), downtown three- and four-story commercial buildings from the late 19th and early 20th centuries.

Listing dates and descriptions are from DHR’s register pages. A building inside a district boundary can still be non-contributing, so check the nomination and file a Part 1 before you price credits into an offer.

Talk through a Richmond historic rehab

Historic credits can close the gap on a building that otherwise would not pencil, but they add time, approvals, and design constraints. I can help you find candidate buildings, check listing status, and frame the acquisition while your consultant, architect, and tax counsel handle certification. See my services, read our Richmond net lease guide for a stabilized alternative, or get in touch.