How do South Carolina's credits for rehabilitating certified historic and owner-occupied historic structures work?

Plain-English summary

South Carolina Revenue Ruling #24-6 explains two nonrefundable credits under § 12-6-3535 for rehabilitating historic property in South Carolina.

The first is for a certified historic structure that qualifies for the federal rehabilitation credit under I.R.C. § 47. The normal South Carolina credit is 10% of expenditures qualifying for the federal credit. A taxpayer may elect a 25% state credit, capped at $1 million per certified historic structure. Federal approval automatically establishes eligibility for this state credit; there is no separate South Carolina application before the tax return.

The second is for a certified historic residential structure that is owner-occupied and does not qualify for the federal credit. It equals 25% of approved rehabilitation expenses, but those expenses must exceed $15,000 within a 36-month period. The structure may be a historic house or another historic building converted into the taxpayer's residence. It cannot be actively used in a trade or business, held to produce income, or held for sale in the ordinary course of business.

Both credits begin in the year the completed rehabilitation is placed in service and are taken in three equal annual installments. An unused portion of an installment carries forward for five years. Neither credit is refundable, and neither can be carried back. South Carolina law does not require a basis reduction for the state credit.

What this means for you

Income-producing historic projects

Complete the federal Historic Preservation Certification Application through the State Historic Preservation Office and National Park Service. NPS approval of Part 3 certifies the rehabilitation. Use Schedule TC-21 in the placed-in-service year and retain or attach federal Form 3468 and the SHPO/NPS approval and fee documentation as the ruling directs.

Qualifying expenditures generally must be capitalized costs tied to rehabilitating a qualifying depreciable building and its structural components. Acquisition cost, enlargement, uncertified work, tax-exempt-use property costs, and certain short-term lessee expenditures do not qualify.

Owner-occupied residential projects

Submit the S1 and S2 applications to SHPO before work begins. Work not reviewed and approved in advance does not qualify. After completion, submit S3; the placed-in-service year shown there controls when the credit begins, even if SHPO certifies the form in the next calendar year. Calculate the credit on Schedule TC-22.

Eligible residential work can include exterior preservation, historic structural repairs, historic plaster restoration, specified energy-efficiency measures, HVAC, electrical and plumbing rehabilitation, and architectural and engineering fees. Acquisition, marketing, new construction beyond the existing volume, owner labor, personal property, wall insulation, appliances, and fixtures are excluded.

Passthrough entities and investors

An S corporation uses the credit first against corporate-level income tax and may elect to use it against license fees; the balance passes through by stock ownership. A partnership must pass the credit through and may allocate it as agreed among partners under the ruling's rules. The owner-occupied residential credit is generally earned by an individual resident-owner and cannot be passed through in the same way.

Common questions

Q: Can the same property use both historic credits?
A: A mixed-use property can apply the credits separately to distinct business and owner-occupied portions, but the same expenditure cannot support both credits.

Q: Can historic rehabilitation and solar credits overlap?
A: For an owner-occupied historic residence, a qualifying solar system can support both credits when it meets each statute's requirements. For the federal-linked historic credit, the solar cost must be capitalized and included in the rehabilitated property's basis to qualify as a rehabilitation expenditure.

Q: Can a taxpayer also claim an abandoned-building, textiles, or low-income-housing credit?
A: The ruling says § 12-6-3535 does not bar those combinations when the separate credit's requirements are met. It specifically permits pairing the historic credit with the abandoned-building or textiles credit and explains that federal and state rehabilitation and low-income-housing credits can coexist.

Q: Can the credit be sold or transferred?
A: The statute does not authorize a sale. Business-project credits can pass through an S corporation or partnership under the stated allocation rules. A sale of the property does not transfer the seller's remaining installments or carryforwards to the buyer.

Q: What happens if later work violates rehabilitation standards?
A: Additional work performed by the taxpayer during the credit period, up to five years, must remain consistent with the Secretary of the Interior's standards. Noncompliant work can forfeit unused credit and carryforwards.

Q: Can a residential owner claim another credit on the same structure soon afterward?
A: The same taxpayer cannot take another historic-residential credit on that structure within 10 years after first claiming the credit. The ruling says that restriction does not carry over to a new owner.

Citations and references

• S.C. Code Ann. § 12-6-3535 — certified historic structure and historic residential structure credits
• I.R.C. § 47 — federal rehabilitation credit
• I.R.C. § 42 — federal low-income housing credit discussed by the ruling
• 36 C.F.R. § 67 — Secretary of the Interior's Standards for Rehabilitation
• S.C. Code Ann. § 12-2-100(B) — specified South Carolina passthrough allocations

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR24-6.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC REVENUE RULING #24-6

SUBJECT:

Rehabilitation Credits for Historic Structures and Historic Residential
Structures
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

REFERENCES:

S.C. Code Ann. § 12-6-3535

AUTHORITY:

S.C. Code Ann. § 12-4-320
S.C. Code Ann. § 1-23-10(4)
S.C. Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public.
It is an advisory opinion issued to apply principles of tax law to a set of
facts or general category of taxpayers. It is the Department’s position
until superseded or modified by a change in statute, regulation, court
decision, or another Department advisory opinion.

S.C. Code Ann. § 12-6-3535 provides tax credits as incentives for rehabilitating certified historic
structures and historic residential structures located in South Carolina. This document provides an
overview of the two available credits and answers questions taxpayers frequently ask about these
credits.
This document is broken into five different sections as follows:
I. Credit for Certified Historic Structures Qualifying for Federal Credit
II. Credit for Historic Residential Structures
III. Application Fees
IV. Certification of Additional Work
V. Frequently Asked Questions

1

I. Credit for Certified Historic Structures Qualifying for Federal Credit
Credit Overview
S.C. Code Ann. § 12-6-3535(A) provides a nonrefundable tax credit against state income taxes
and license fees for taxpayers who qualify for the federal income tax credit under I.R.C. § 47 for
making qualified rehabilitation expenditures for a certified historic structure located in South
Carolina. The South Carolina credit amount is 10% of the expenditures that qualify for the federal
credit. Taxpayers can elect to take a 25% South Carolina credit instead of 10%, but the 25% credit
is limited to $1 million for each certified historic structure. The credit is taken in equal installments
over a three-year period beginning with the year in which the property is placed in service. 1 Any
unused portion of a credit installment may be carried forward for five years.
Definitions
I.R.C. § 47 and the applicable treasury regulations define the terms “qualified rehabilitation
expenditures” and “certified historic structures.”
Qualified rehabilitation expenditures 2 (QRE) include any amounts properly chargeable to
capital accounts, and therefore added to the basis, of depreciable property which is:

1. Nonresidential real property;
2. Residential rental property;
3. Real property with a useful life of more than 12.5 years; or
4. An addition or improvement to property in 1, 2, or 3.
   Expenditures must be incurred in connection with the rehabilitation of a qualified rehabilitated
   building, including its structural components.
   As defined in Treas. Reg. § 1.48-1(e), a building is generally any structure or edifice enclosing a
   space within its walls and usually covered by a roof that provides shelter or housing or working,
   office, parking, display, or sales space. It does not include a structure which is essentially an item
   of machinery or equipment or used solely to house an item of machinery or equipment. Structural
   components include parts of a building such as walls, partitions, floors, and ceilings; windows and
   doors; central air conditioning or heating system components; plumbing and plumbing fixtures;
   electric wiring and lighting fixtures; chimneys; stairs, escalators, and elevators; sprinkler systems;
   fire escapes; and other components relating to the operation or maintenance of the building.
   Qualified rehabilitation expenditures do not include:
5. Expenditures that are not depreciated using straight line depreciation over the recovery
   period in I.R.C. § 168;
   “Placed in service” means the rehabilitation is completed and allows for the intended use. S.C. Code
   Ann. § 12-6-3535(C)(1)
   2
   I.R.C. § 47(c)(2)
   2
   1

2. The cost of acquiring a building or interest in a building;

3. Expenditures for the enlargement of an existing building;
4. Expenditures for a rehabilitation that is not certified;
5. Expenditures allocated to the portion of the property which is tax-exempt use property;
6. Expenditures of a lessee if the remaining term of the lease on the date the rehabilitation
   is completed is less than the recovery period for the property.
   Certified historic structure 3 is any building, and its structural components, which is:
7. listed in the National Register; or
8. located in a registered historic district and certified by the Secretary of the Interior as
   being of historic significance to the district.
   Application Process
   Taxpayers applying for the federal credit complete the Historic Preservation Certification
   Application (HPCA) provided by the National Park Service (NPS). Applications are submitted
   electronically to the State Historic Preservation Office (SHPO) at the South Carolina Department
   of Archives and History (SCDAH). The SHPO reviews the completed applications and makes
   recommendations to the NPS on whether the project meets the Secretary of the Interior’s Standards
   for Rehabilitation (Standards). After the SHPO review, the application is forwarded to the NPS
   along with the SHPO’s comments. The NPS makes the final decision on whether the building is a
   certified historic structure and whether the rehabilitation meets the Standards.
   The Application consists of three parts. Part 1 is the evaluation of significance and appearance of
   the building; Part 2 is a description of the condition of the building and the planned rehabilitation
   work to be done; and Part 3 is the request for certification of completed work. NPS approval of
   Part 3 certifies that the project meets the Standards and is a certified rehabilitation for the credit.
   Taxpayers who are approved for the federal credit automatically qualify for the state credit. There
   is no separate state application to complete before claiming the credit on a South Carolina tax
   return.
   Claiming the Credit on South Carolina Returns
   In the tax year the property is placed into service, the taxpayer who completed the rehabilitation
   uses the Schedule TC-21 to calculate the South Carolina Credit for a Certified Historic Structure.
   Taxpayers filing a paper return must attach a copy of the federal Form 3468 showing the qualifying
   expenditures and credit claimed on the federal return 4 and must also include documentation from
   the SHPO and the NPS showing the rehabilitation project was approved and any applicable fees
   were paid. Taxpayers who file electronically and cannot attach the documentation to their return
   3
   4

I.R.C. § 47(C)(3)
S.C. Code Ann. § 12-6-3535(A)(1)
3

should keep the documents available with their tax records to submit if requested by the
Department of Revenue. Taxpayers should not send receipts or invoices supporting the
rehabilitation expenses to the Department of Revenue unless they are requested as part of an audit
or review of the credit.
Taxpayers filing paper returns should include a copy of the TC-21 each year they claim a credit
installment or carryforward on a South Carolina income tax return. Taxpayers filing electronically
should complete the TC-21 and attach it to their electronic return submissions, if possible, or keep
a copy with their tax records.
Pass-through Credit Allocations

1. S Corporations
   Credits earned by an S Corporation owing income tax at the corporate level must be used first at
   the entity level. 5 S Corporations may elect to use the credit against their corporate license fee, but
   are not required to do so. Any remaining credit that was not used against a corporate-level income
   tax or license fee passes through to each shareholder in a proportion equal to the shareholder’s
   percentage of stock ownership.
2. Partnerships
   Credits earned by a partnership 6 must be passed through to its partners 7 and may be allocated
   among partners in any manner agreed to by the partners or members. This includes, without
   limitation, an allocation of the entire credit or unused carryforward to any partner who was a
   member or partner at any time during the year in which the credit or unused carryforward is
   allocated.
   For projects placed in service after January 1, 2020 but before January 31, 2030, allocations of the
   South Carolina credits are allowed without regard to any Internal Revenue Code provision or
   regulation that may be interpreted as contrary to the allocation. 8 For example, an allocation that
   would be treated as a disguised sale under the Internal Revenue Code might be allowed for South
   Carolina purposes.
   Taxpayers who receive the credit from a partnership or S Corporation enter the name and tax
   identification number of the entity at the top of the TC-21 and enter the amount received from the
   partnership or S Corporation as the annual installment amount. Taxpayers receiving a pass-through
   credit are not required to enter the qualifying expenditures amounts when completing the TC-21
   but should include a copy of the SC K-1 received from the partnership or S Corporation showing
   the amount of credit passed through.

S.C. Code Ann. § 12-6-3535(C)(2)
“Partnership” includes a general partnership, limited partnership, limited liability company, or other
pass-through entity as defined in Section 12-6-545. S.C. Code Ann. § 12-6-3535(C)(2)
7
“Partner” means a partner, member, or owner of an interest in the pass-through entity. S.C. Code Ann. §
12-6-3535(C)(2)
8
S.C. Code Ann. § 12-2-100(B)
4
5
6

II. Credit for Historic Residential Structures
Credit Overview
S.C. Code Ann. § 12-6-3535(B) provides a nonrefundable income tax credit for taxpayers who are
not eligible for the federal credit under I.R.C. § 47 (so are also ineligible for the credit in Section
12-6-3535(A).) Subsection (B) creates a credit for rehabilitation expenditures for a certified
historic residential structure located in South Carolina. The credit is for 25% of the rehabilitation
expenses. The credit is taken in equal installments over a three-year period beginning with the year
in which the property is placed in service. 9 Any unused portion of a credit installment may be
carried forward for five years.
Definitions
A certified rehabilitation 10 means repairs or alterations consistent with the Secretary of the
Interior’s Standards for Rehabilitation and certified by the State Historic Preservation Officer
before work commences.
Rehabilitation expenses must exceed $15,000 within a 36-month period. This does not mean that
the entire project must be completed within 36 months, but projects that take longer than 36 months
must have at least $15,000 of expenses within any 36-month period during the rehabilitation
project.
The following examples demonstrate the 36-month period for four separate taxpayers each
completing a different rehabilitation project. Unless stated otherwise, the examples assume project
expenses were incurred evenly throughout each year.
Taxpayer
A
B
C
D

Year 1
Expenses
$12,000
$1,000
$4,000
$12,000

Year 2
Expenses
$3,000
$2,000
$4,000
$4,000

Year 3
Year 4
Expenses
Expenses
$1,000
$1,000
$10,000
$4,000
$4,000
$4,000
Property placed in service.

Total
Expenses
$17,000
$17,000
$16,000
$16,000

Taxpayer A has $16,000 of qualifying rehabilitation expenses within the 36-month period
making up Years 1 through 3. Taxpayer A qualifies for the credit.
Taxpayer B has $16,000 of qualifying rehabilitation expenses within the 36-month period
making up Years 2 through 4. Taxpayer B qualifies for the credit.
Taxpayer C has $16,000 of total rehabilitation expenses but does not have more than
$15,000 of qualifying rehabilitation expenses within any 36-month period. Taxpayer C
does not qualify for the credit.

“Placed in service” means the rehabilitation is completed and allows for the intended use. S.C. Code
Ann. § 12-6-3535(C)(1)
10
S.C. Code Ann. § 12-6-3535(B)(2)
5
9

Taxpayer D has $16,000 of qualifying rehabilitation expenses in Years 1 and 2 before
placing the property in service in Year 3. Taxpayer D qualifies for the credit.
A certified historic residential structure 11 is an owner-occupied residence that is:

1. Listed individually in the National Register of Historic Places;
2. Considered by the State Historic Preservation Officer to contribute to the historic
   significance of a National Register Historic District;
3. Considered by the State Historic Preservation Officer to meet the criteria for individual
   listing in the National Register of Historic Places; or
4. An outbuilding, such as a barn or garage, of an otherwise eligible property if considered
   by the State Historic Preservation Officer to contribute to the historic significance of
   the property.
   An owner-occupied residence 12 is a building, or portion of a building, in which the taxpayer has
   an ownership interest that is, after being placed in service, the residence of the taxpayer and is not:
5. Actively used in a trade or business;
6. Held for the production of income; or
7. Held for sale or disposition in the ordinary course of the taxpayer’s trade or business.
   A building can be a house or another type of historic building, such as a school or store, that the
   taxpayer is rehabilitating to use as his or her residence.
   The ownership interest may be in whole or in part, in fee, by life estate, or as the income beneficiary
   of a property trust. For South Carolina tax purposes, a single member LLC not taxed as a
   corporation is not regarded as an entity separate from its owner. 13 Therefore, property owned by a
   single member LLC may be considered to be an owner-occupied residence if its single member is
   an individual who uses the property as his or her residence. 14
   Rehabilitation expenses 15 are those incurred by the taxpayer in the certified rehabilitation of a
   certified historic residential structure that are paid before the credit is claimed and include:
8. Preservation and rehabilitation work done to the exterior of a certified historic
   residential structure;
9. Repair and stabilization of historic structural systems;
   S.C. Code Ann. § 12-6-3535(B)(1)
   S.C. Code Ann. § 12-6-3535(B)(5)
   13
   S.C. Code Ann. § 12-2-25(B)(1)
   14
   CFRE, LLC v. Greenville County Assessor, 395 S.C. 67, 716 S.E.2d 877 (2011)
   15
   S.C. Code Ann. § 12-6-3535(B)(3)
   6
   11
   12

3. Restoration of historic plaster; 16

4. Energy efficient measures such as insulation in the attic or crawlspace, storm windows,
   storm doors, weather stripping, solar energy systems, and geothermal heat pumps; 17
5. Repairs or rehabilitation of heating, air-conditioning, or ventilating systems;
6. Repairs or rehabilitation of electrical or plumbing systems; 18 and
7. Architectural and engineering fees.
   Rehabilitation expenses do not include:
8. The cost of acquiring or marketing the property;
9. The cost of new construction beyond the volume of the existing certified historic
   residential structure;
10. The value of an owner’s personal labor;
11. The cost of personal property;
12. Insulation in frame walls;
13. New electrical appliances; or
14. Electrical or plumbing fixtures.
    Expenses for elevating a structure beyond the building’s historic volume do not qualify for the
    credit.
    Site work or drainage correction expenses are only eligible if they directly involve work to the
    building, such as gutter installation or a retaining wall that is part of the building’s foundation.
    Well installation does not qualify for the credit.
    Abatement of lead paint or asbestos may be able to qualify if the abatement is part of the
    rehabilitation of the building, such as removal of flaking exterior paint containing lead or
    replacement of asbestos siding with a compatible wood siding.

This does not include replacing damaged plaster with skim-coated sheetrock or replacing plaster
cornices or medallions with substitute materials such as fiberglass.
17
See Question 1 in V. Frequently Asked Questions below for more information about eligible expenses
for energy efficiency measures.
18
Plumbing expenses are only eligible from the point of water connection to the plumbing fixture.
7
16

For a condominium building, only those expenses related to personal residential spaces will
qualify. Expenses for portions of a condominium building that fall under the common ownership
of the condominium complex do not qualify for the credit for historic residential structures. 19
Application Process
The Certified Rehabilitation Application has three parts. Taxpayers submit the S1: Evaluation of
Significance Application and S2: Description of Rehabilitation Application to the SHPO before
beginning work on the project.
The SHPO reviews the application, including the rehabilitation plans, to ensure the project meets
the Standards for Rehabilitation. The SHPO must review and approve all proposed project work,
including expenditures that will not qualify for the credit. Expenses do not qualify for the credit if
the work was not reviewed and approved by the SHPO in advance. The date of approval is the date
on which the first page of the S2 application, and any associated conditions, was signed by the
SHPO, not the date the application is received from the applicant.
Taxpayers complete the S3: Documentation of Completed Work Application after the project has
been completed and placed into service. SHPO will review and certify the completed project.
Taxpayers claim the credit for the tax year in which the building was placed into service as
provided on the S3 form. SHPO receipt of the S3 in a later calendar year does not affect the timing
of claiming the credit. For example, a calendar-year taxpayer who places a project into service in
December 2023 will qualify for the credit for the 2023 tax year, even if the S3 application is
certified by SHPO in 2024.
Taxpayers who file a paper return must attach a copy of the completed and approved S3 application
to their return. Taxpayers filing a return after the property is placed into service but before the final
approval by the SHPO should include a copy of the S3 application submitted to the SHPO. If a
taxpayer claims the credit for a property and the S3 application is rejected by the SHPO, the
taxpayer should amend any South Carolina returns to remove credits claimed in error. Taxpayers
who file electronically and cannot attach the application to their return should keep a copy with
their tax records to submit if requested by the Department of Revenue.
A taxpayer cannot take more than one credit on the same certified historic residential structure
within 10 years. The credit is considered taken, and this 10-year period started, in the first year the
credit is claimed on a South Carolina income tax return. The taxpayer can have another qualifying
project begin within the 10-year period, but the taxpayer will only qualify for another credit if the
project is completed and placed into service outside of the 10-year window. If the taxpayer sells
the property within the 10-year period, the new owner can apply to SHPO for a credit for a new
rehabilitation project on the historic residential structure within 10 years of when the credit was
taken by the original owner. The 10-year period does not carry over to the new owner of the
property.

See Question 4 in V. Frequently Asked Questions below for more information about mixed-use
projects that include both an income-producing use and an owner-occupied residence.
8

19

Claiming the Credit on South Carolina Returns
In the tax year the property is placed into service, the taxpayer uses the Schedule TC-22 to calculate
the Certified Historic Residential Structure Credit. Taxpayers filing a paper return must include
the approved S3 application and documentation from the SHPO showing that the rehabilitation
project was approved, and any applicable fees were paid. 20 Taxpayers filing electronically who
cannot attach the documentation to their return should keep the documents available with their tax
records to submit if requested by the Department of Revenue. Taxpayers should not send receipts
or invoices supporting the rehabilitation expenses to the Department of Revenue unless they are
requested as part of an audit or review of the credit.
III. Application Fees
As of the publication date of this Revenue Ruling, the fees have been suspended each year by
way of budget provisos. The fees described below may be required beyond June 30, 2025 if the
relevant budget provisos are not renewed by the Legislature each fiscal year.
S.C. Code Ann. § 12-6-3535(G) provides a fee schedule for projects where rehabilitation expenses
are greater than $500,000.
Taxpayers will pay a preliminary fee based on the estimated qualified rehabilitation expenses and
a final fee based on the actual rehabilitation expenses. The fee is paid to the Department of
Archives and History for the State Historic Preservation Grant Fund.
Taxpayers will pay the preliminary fee before review of the Historic Preservation Certification
Application, Part 2, or Certified Rehabilitation Application, S2, as follows:
Estimated Qualified Rehabilitation Expenses
Less than $500,000
At least $500,000 but less than $2,000,000
At least $2,000,000 but less than $4,000,000
$4,000,000 or greater

Preliminary Fee
0% of estimated expenses
0.1% of estimated expenses
0.25% of estimated expenses
0.5% of estimated expenses

Taxpayers will pay the final fee, less any amount paid as a preliminary fee, before review of the
Historic Preservation Certification Application, Part 3, or Certified Rehabilitation Application, S3,
as follows:
Actual Qualified Rehabilitation Expenses
Less than $500,000
At least $500,000 but less than $2,000,000
At least $2,000,000 but less than $4,000,000
$4,000,000 or greater

20

S.C. Code Ann. § 12-6-3535(B)
9

Final Fee
0% of actual expenses
0.25% of actual expenses
0.5% of actual expenses
1.0% of estimated expenses

IV. Certification of Additional Work
For both historic structures and historic residential structures, any additional work done by the
taxpayer while the credit is being claimed, for a period of up to five years, must be consistent with
the Secretary of the Interior’s Standards for Rehabilitation. 21 The State Historic Preservation
Officer will review additional work submitted for review by the applicant and has the right to
inspect certified historic structures and certified historic residential structures. If additional work
is not consistent with the Standards for Rehabilitation, the State Historic Preservation Officer will
notify the taxpayer and the Department of Revenue in writing, and any unused portion of the credit,
including carry forwards, is forfeited.
If the property is sold to another taxpayer who completes work that is not consistent with the
Standards for Rehabilitation, the work done by the other taxpayer will not cause the credits earned
by the original owner to be forfeited.
V. Frequently Asked Questions

1. Can taxpayers who claim a South Carolina credit for historic rehabilitation also claim
   the South Carolina solar energy credit for systems installed as part of the
   rehabilitation?
   The federal rehabilitation credit requires that qualifying expenses be capitalized and
   included in the basis of the property. Therefore, costs of solar energy systems, hydropower
   systems, or geothermal machinery and equipment that are not capitalized and included in
   the basis of the rehabilitated property where they are installed will not qualify for the
   federal rehabilitation credit under I.R.C. § 47 or for the state credit for rehabilitating
   historic structures under S.C. Code Ann. § 12-6-3535(A).
   The South Carolina credit for rehabilitating historic residential structures under S.C. Code
   Ann. § 12-6-3535(B) does not limit the qualifying expenses to those that are capitalized
   and included in the basis of the property. Qualifying rehabilitation expenditures include
   energy efficiency measures as well as repairs to or rehabilitation of heating, airconditioning, or ventilating systems and repairs to or rehabilitation of electrical systems.
   Section 12-6-3535(B) does not reference the solar energy credit or provide limits on taking
   both credits. Therefore, a solar energy system that qualifies for the solar energy credit in
   S.C. Code Ann. § 12-6-3587 and improves energy efficiency, heating, air-conditioning,
   ventilating, or electrical systems will also qualify for the credit for a historic residential
   structure in S.C. Code Ann. § 12-6-3535(B).

21

The Secretary of the Interior’s Standards for Rehabilitation are found in 36 C.F.R. § 67.
10

2. Will the same rehabilitation expenses qualify for the abandoned building credit or the
textiles mill credit?
Section 12-67-140(B)(4) provides that a taxpayer may only claim one of the Abandoned
Building Credit, the Textiles Rehabilitation Credit, or the Retail Facilities Credit (since
repealed) for a single property, but that a taxpayer is not disqualified for claiming any other
tax credit in conjunction with those credits.
Section 12-65-30(C)(4) provides that a taxpayer who qualifies for both the Textiles
Rehabilitation Credit and the credit in S.C. Code Ann. § 12-6-3535 for rehabilitating a
historic structure may take both credits.
Section 12-6-3535 does not limit other credits a taxpayer can take along with the historic
structure credits. Therefore, a taxpayer can take the abandoned building credit or the
textiles rehabilitation credit along with the credit for historic structures.
For more information about the Abandoned Building Credit, see SC Revenue Ruling #157, and for more information about the Textiles Rehabilitation Credit, see SC Revenue
Ruling #15-8.

3. Can expenses incurred in rehabilitating a property qualify for both the rehabilitation
   credit and the South Carolina low income housing credit?
   Yes. There is no prohibition in the Internal Revenue Code against the federal rehabilitation
   credit under I.R.C. § 47 being used in conjunction with the federal low-income housing tax
   credit under I.R.C. § 42. The South Carolina credits are based on the federal credits, so a
   property qualifying for both federal credits would similarly be able to qualify for both
   South Carolina credits.
   See SC Revenue Ruling #21-5 for more information on the South Carolina Low Income
   Housing Credit.
4. Can rehabilitation expenses at a single property qualify for both credits in S.C. Code
   Ann. § 12-6-3535?
   A historic property rehabilitation may be a “mixed-use project” which includes both an
   income-producing use and an owner-occupied residence. In these cases, the credits are
   mutually exclusive and cannot be combined, but they may be applied separately to the
   distinct portions of the historic property that relate to the particular use. The same
   rehabilitation expenditures cannot be used for both credits.
   The credit in S.C. Code Ann. § 12-6-3535(A) is based on the expenditures qualifying for
   the federal credit. When a personal residence is also used for business, only the business
   11

use portion would be eligible for the federal credit and the credit in S.C. Code Ann. § 126-3535(A).
Expenditures not used exclusively for business would not qualify for the federal credit or
for the credit in S.C. Code Ann. § 12-6-3535(A) but may qualify for the credit in S.C. Code
Ann. § 12-6-3535(B). The owner must use the personal portion of the property as his or
her residence for the expenditures from that portion to qualify for the credit.
Taxpayers with mixed-use projects will need to complete the federal application for the
income-producing use portion and the state application for the owner-occupied residence
portion.

5. Is the basis of the property reduced by the South Carolina credit?
   No. There are no requirements in S.C. Code Ann. § 12-6-3535 that the basis of the property
   be reduced by the South Carolina credit.
6. What is a nonrefundable credit?
   Both credits are nonrefundable, which means the amount of credit that can be taken in a
   year is limited to the tax liability of the taxpayer qualifying for the credit. Taxpayers will
   be unable to take advantage of the credit in a year in which they have no tax liability.
   Unused credits can be carried forward for up to five years.
7. Can unused credits be sold or transferred to other taxpayers?
   Section 12-6-3535 does not include any provisions allowing the credit to be sold to another
   taxpayer.
   Taxpayers may invest in a partnership or an S Corporation completing a rehabilitation
   project qualifying for the credit under S.C. Code Ann. § 12-6-3535(A). Credits earned by
   a S Corporation can be passed through to shareholders in a percentage equal to the
   shareholder’s percentage of stock ownership after use by the S Corporation, if applicable.
   Credits earned by a general partnership, limited partnership, limited liability company, or
   other pass-through entity are passed through to the partners and may be allocated in any
   manner agreed to by the partners. 22 A taxpayer who makes a passthrough election under
   I.R.C. § 50(d) may elect to pass the South Carolina credit to the tenant of the eligible
   structure or to retain the credit. 23
   Since the credit for historic residential structures in S.C. Code Ann. § 12-6-3535(B) is
   earned by the owner occupying the residence, it is generally earned by individual taxpayers,

See Pass-through Credit Allocations in I. Credit for Certified Historic Structures Qualifying for
Federal Credit above for more information about allocating credits to shareholders and partners.
23
S.C. Code Ann. § 12-6-3535(C)(2)
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22

not pass-through entities, so is not able to be passed through or transferred to another
taxpayer.
The credits are earned in the year the property is placed in service. If the property is sold,
the credit is not transferred to the new owner. The taxpayer who earned the credit continues
to take any remaining credit installments or carryforwards.

8. Is the credit limited by passive activity restrictions?
   No. S.C. Code Ann. § 12-6-3535 does not provide any restrictions based on passive
   activity. Taxpayers whose federal credit may be limited by passive activity rules in I.R.C.
   § 469 will be able to take the South Carolina historic structure credit.
9. Is there credit recapture if the property is disposed of or use changes?
   If additional work is done by the taxpayer that is not consistent with the Standards for
   Rehabilitation, any unused portion of the credit, including carryforwards, will be forfeited.
   There are no other provisions for South Carolina credit recapture if the property is disposed
   of or the use of the property changes.
10. Can a lessee of a building, or portion of a building, claim a credit?
    A lessee, or renter, cannot claim the credit for historic residential structures because, to
    qualify, the building must be owner-occupied.
    A lessee may be able to take the credit for historic structures if the lessee’s expenditures
    also qualify for the federal rehabilitation credit, as described in Treas. Reg. § 1.48-4(a).
11. Can the South Carolina credit be carried back to prior tax years?
    No. S.C. Code Ann. § 12-6-3535 does not include any provision allowing a carryback of
    the credit. S.C. Code Ann. § 12-6-3535(C)(1) does provide that unused credits may be
    carried forward for up to five years.
    SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
December 16
, 2024
Columbia, South Carolina

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