Norton Gets Tax Breaks of Historic Homeowner Grants (6/29/09)
Norton Gets Tax Break for Recipients of Historic Homeowner Grants
June 29, 2009
WASHINGTON, D.C. - The Office of Congresswoman Eleanor Holmes Norton (D-DC) today announced that she has secured a determination letter from the Internal Revenue Service that the District of Columbia Historic Homeowner grants are not federally taxable, relieving low and moderate-income homeowners of a burdensome and unintended tax consequence. The tax was levied against owners of historic homes who received grants to assist with the rehabilitation of their historic property. The tax grant meant to reduce the costs of repairs and preservation to the homeowner, ironically, could have cost them an unanticipated, unexpected additional tax bill upwards of $8,000.
The District's program gave grants of up to $35,000 to low and moderate-income households to repair, restore, or replace exterior features of historic homes that are the primary residence of the grant recipients, giving preference for improvements to the appearance of the house from the street, and improvements that retain original historic features and materials. The intention of the program was to help low and moderate-income homeowners with potentially higher repair and preservation costs imposed by the D.C. code designed to protect the District of Columbia's architectural heritage. However, after receiving the grants, the District's Office of Tax Revenue determined that the original structure of the grant made it taxable as gross income, and the Council changed D.C. law to exempt these grants. But the District was told by the IRS that it would only issue individual letters about federal liability after each owner contested the additional tax. The Congresswoman doubted this interpretation and believed that D.C. residents might benefit under the General Welfare Exception of the U.S. Tax Code or another tax exception that could be applied. "I suspected that the initial interpretation was not the best that could be offered," Norton said. "I appreciate that the IRS is willing to review the matter. We don't usually help low and moderate-income people by offering a grant, and then taxing it away. The federal tax code encourages such grants, which I am particularly pleased with because they benefit our homeowners, but also add value to the neighborhood and the city where those houses are located."
"The District of Columbia did its part and exempted recipients of the grant from paying local taxes and we sought to prevent an unintended, burdensome federal tax consequence of residents," Norton said. "It would have been incongruous for these recipients to nevertheless be liable for a larger federal tax." Norton said she appreciated the work of the IRS in reviewing the matter and issuing a new opinion.
The District passed the Targeted Historic Preservation Assistance Amendment Act of 2006 to authorize the Mayor to establish a program that gives up to $35,000 grants to individuals and families for preservation of their historic homes. Residents in 12 neighborhoods were eligible. Owners of historic houses in Anacostia, Blagden Alley/Naylor Court, Capitol Hill, LeDroit Park, Mount Pleasant, Mount Vernon Square, Mount Vernon Triangle. Shaw, Striver's Section, Takoma Park, and on U Street and 14th Street were eligible. Sixty-nine home owners received grants, and 60 more applications are pending.
Norton's bill will make the tax exemption time-limited and income-specific to address the low and moderate income individuals and families the program was designed to assist.