What Renovations and Construction Costs Qualify for the CHAP Tax Credit?

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Direct answer

To qualify for Baltimore's CHAP historic tax credit, your documented, CHAP-approved rehabilitation costs must reach at least 25% of the property's pre-renovation full cash value. Qualifying costs include materials and labor, architectural, engineering and appraisal fees, demolition and site preparation, permitted electrical, plumbing and mechanical work, and interior and exterior restoration. Property purchase costs, utility bills, property taxes and any work begun before approval do not count.

I am Ed Drost, a Maryland State Certified Residential Appraiser and FHA appraiser. I have appraised homes across Baltimore City and Baltimore, Carroll and Harford counties since 1989, and CHAP pre- and post-rehabilitation appraisals are part of my regular work. This article is part of our Baltimore appraisal Q&A series. For the full process, see our CHAP Historic Tax Credit Guide.

How does the 25% rule work?

The 25% rule is a hard threshold, not a sliding scale. The City's FAQ says you must invest a minimum of 25% of the property's full cash value, and the regulation (Section 5.0.4) defines a "significant improvement" as total documented, approved cost that equals or exceeds 25% of the full cash value before rehabilitation. The City's program summaries say "exceed," so I tell owners to clear the number with room to spare. Spend $39,500 against a $40,000 threshold and the credit is zero.

Minimum qualifying spend at 25% of pre-rehabilitation full cash value
Pre-rehabilitation full cash value	25% minimum spend
$120,000	$30,000
$160,000	$40,000
$250,000	$62,500
$400,000	$100,000

One question to settle before you budget: which value is the starting point? The regulation text points to the full cash value in the State assessment record when you apply, while the City's application materials just say full cash value and require a pre-improvement appraisal with your application. Ask CHAP and the Department of Finance which figure they will use for your property, and budget on the higher of the two. The credit itself is calculated from the pre- and post-improvement appraisals, which I explain below.

Which renovation and construction costs count?

The City's regulation (Section 3.1) defines the costs that count, and the list is broader than most owners expect. It covers soft costs as well as hard costs. Every item must be documented.

Costs that count toward the 25% requirement
Cost category	What the City's rules say counts	What I tell owners
Materials and labor	Material and labor costs, documented	Costs must be paid in full. Estimates are not accepted.
Professional fees	Architectural design, engineering and appraisal	Your pre- and post-improvement appraisals count toward the total.
Demolition and site preparation	Demolition and site preparation	Demolition is a cost that counts, but only if it happens after approval.
Electrical, plumbing and mechanical	All work required to be permitted under the Baltimore City Building, Fire and Related codes	New panels, rewiring, re-piping and HVAC all count when they are permitted.
Restoration and alteration	Restoration and alteration work, interior and exterior	Masonry, roofing, structural repair, windows and doors, if CHAP approves the work.
Finish work	Interior and exterior finish work normally associated with historic projects	Plaster, trim, flooring and similar finishes.
Work that needs CHAP approval	Any work of the type requiring a CHAP Authorization to Proceed	Exterior changes in a local historic district go through this review.

One rule runs through every row: the work has to meet CHAP's Historic Design Guidelines. A permitted, well-built job that ignores the guidelines still fails.

What does not count, and what can sink the whole project?

The City's cost documentation cannot include property acquisition costs, utility bills, property tax bills or other holding costs. Because the City requires costs paid in full and documented, and does not accept estimates, I tell owners not to count unbilled personal labor. Keep invoices and receipts for everything.

The bigger risk is not a disallowed receipt. It is timing and drift:

Starting work early. The application goes in for CHAP review before any work begins. Work started before the initial appraisal is not considered, and work between submission and CHAP's preliminary approval can make the property ineligible. CHAP can grant written permission for limited early items such as basement excavation, underpinning and formstone removal.
Changing the plan without telling CHAP. Any change in scope, plans, owner or applicant has to go to CHAP in writing as a project amendment. If you skip it, the credit can be revoked, and you then get 90 days to reverse the unapproved changes.
Doing extra work. Work beyond the approved plans, other than standard maintenance, can make the property ineligible.
Altering the house later. Within the 10-year term, removing a major historic feature or changing the property so it no longer meets the standards ends the credit.

Before you pay a contractor for anything unusual, ask CHAP. A short email costs far less than a lost credit.

Where does the appraisal fit?

This is my side of the table. For projects given preliminary approval after October 1, 2014, the City sets your credit from two appraisals, one before the work and one after, both at your expense. A Maryland Certified Residential or Certified General appraiser must prepare them, and the City's Department of Finance reviews each one.

Pre-improvement appraisal: part of your initial application. The regulation allows up to 90 days from submitting the application, but I would not wait.
Post-improvement appraisal: due within 90 days of the final Use and Occupancy permit, or of the last permit inspection if no U&O permit is required.
Scope: single-family reports follow the City's Appendix A. That means the market value definition, interior photos of every bathroom and the kitchen, and at least three settled comparable sales.
Cutoff: work finished after the final U&O permit or last inspection is not counted in the post-improvement value.

Because the appraisal fee is itself an allowable cost, it helps you reach the 25%. See our CHAP guide for what the appraisals must include, and our Appraisal Cost Guide for current fees.

What is the credit worth, and what is the deadline?

The credit covers City property tax only. It equals the City tax on the post-improvement value minus the City tax on the pre-improvement base value. The City computes it once and applies it for 10 tax years. For projects with construction costs up to $5.0 million, you receive 100% of that credit in each of the 10 years. Above $5.0 million, it drops to 80% for years 1 through 5, then falls from 70% to 30% over years 6 through 10.

In plain terms, if your appraisals show a house going from $160,000 to $300,000, you do not pay City tax on the $140,000 increase for a decade. The credit transfers to the next owner for the years that remain, which also helps at resale. It can be combined with the Homestead and Homeowners' credits.

The deadline matters now. Under the City's regulations, no new applications may be filed after December 31, 2027. Legislation has extended that date before, so confirm the current date with CHAP, but I would not plan around another extension. Projects take time, and approval comes before any work begins.

What are the steps, in order?

Confirm eligibility. The property must be individually listed on the National Register, sit in a National Register district or landmark, be a Baltimore City Landmark, or contribute to a City historic district.
Apply online first. Submit through the Department of Finance's tax credit system and pay the application fee. Do not start any work.
Order the pre-improvement appraisal. It goes in with your initial application.
Get CHAP's preliminary approval in writing. An application with no preliminary approval after 180 days expires.
Build to the approved plans. Send CHAP a written project amendment before any change in scope or plans. For projects up to $3.5 million, plan to finish within two years of preliminary approval; one two-year extension is available.
Close out permits. Final certification requires copies of all permits and inspection certificates.
Order the post-improvement appraisal. It is due within 90 days of the final U&O permit or last permit inspection.
File the final package. That includes a notarized statement of project costs, plus receipts on request.
Receive final certification. The 10-year credit starts with the first tax bill after final certification.

Common questions

Do HVAC, plumbing and electrical upgrades count toward the CHAP 25% threshold?

Yes. The City's regulation counts all electrical, plumbing, mechanical and related work that must be permitted under the Baltimore City Building, Fire and Related codes, such as new panels, rewiring, re-piping and heating and cooling systems. The work must still be approved by CHAP and documented.

Do appraisal and architect fees count?

Yes. The regulation lists architectural design, engineering and appraisal among the costs that count, and the City's FAQ says cost documentation can include architect, engineering and design fees. Your pre- and post-improvement appraisals are therefore part of the 25% total.

What is the 25% measured against, the appraisal or the assessment?

The City's FAQ says 25% of the property's full cash value before the work. The regulation text points to the assessment record at the time of application, while the application also requires a pre-improvement appraisal. Confirm with CHAP which value applies to your property and budget on the higher number.

What costs do not count toward the CHAP 25% requirement?

The City says cost documentation cannot include property acquisition costs, utility bills, property tax bills or other holding costs. Estimates are not accepted, and costs must be paid in full and documented.

Can I start demolition before CHAP approves my project?

No. Work begun before the initial appraisal is not considered, and work between application and preliminary approval can make the property ineligible. Ask CHAP in writing first, because limited early items such as basement excavation, underpinning and formstone removal can be approved.

How long does the CHAP tax credit last, and is it transferable?

The credit lasts 10 tax years and transfers automatically to a new owner for the remaining term, provided the property keeps its major historic features and complies with City codes.

Can I still apply for the Baltimore CHAP tax credit?

Yes, for now. Under the City's current regulations, no new applications may be filed after December 31, 2027. Confirm the date with CHAP before you plan around it.

Sources

Baltimore City Historic Tax Credit, CHAP
Historic Tax Credit FAQ, CHAP
Historic Tax Credit Rules and Regulations, Baltimore City Department of Finance (Sections 3.0 to 9.0 and Appendix A, effective December 14, 2020)

This article is general information, not legal, tax or financial advice. Program rules change and every project is different. Confirm current requirements with CHAP and the Baltimore City Department of Finance before you start work.