Tax Deductions for Restoring a Historic House Into a Bed and Breakfast Business
- The federal government provides a tax credit to those who acquire and renovate antique or historic structures. Specifically, the tax credit equals 10 percent of the acquisition costs of the company for those who are renovating structures dated prior to 1936, and 20 percent for those designated as historical sites or structures. To claim the credit, fill out IRS Form 3468.
- The IRS also allows you to deduct an approximation of the gradual wear and tear of the structures and equipment on your property through a process called depreciation. You cannot take a deduction for the depreciation of land, but you can deduct for the depreciation of your buildings and capital equipment and improvements or renovations to the buildings.
- While your long-term capital investments in durable property must generally be deducted over time through depreciation and amortization, you can deduct certain expenses in the current year, including fees paid for business legal, financial and tax advice, mileage driven for business purposes of 55.5 cents per mile, as of 2011, and the costs of food for your customers. You can also deduct the costs of advertising, marketing and commissions you pay to sales agents and wages you pay to employees. However, you cannot deduct wages you pay to construction workers renovating your property. Instead, you must add these labor costs to your capital investment in your property, and deduct them gradually over the useful life of the property through the amortization process.
- You can deduct the costs of paying state and local taxes to establish and run your business, including state income taxes, business license and franchise taxes, filing fees to establish your corporation, and any other payments to state and local officials for business purposes. Additionally, your state or local governments may provide additional tax concessions and incentives to rehabilitate historic sites.