Ask a preservation-minded congregation about funding a sanctuary restoration and you'll hear about grants long before you hear about tax credits — and that's a gap worth closing, because more than 70% of states now offer some form of historic rehabilitation tax credit, and a meaningful number of them explicitly allow churches and other nonprofits to use them. The catch is structural, not eligibility-based: tax credits offset tax liability, and a tax-exempt congregation doesn't have much of that to offset. Whether a state historic tax credit is actually useful to your church depends entirely on how that particular state's program handles nonprofits.
Federal historic tax credits generally require income-producing use, which rules out most church buildings used purely for worship. State historic tax credits are different — many states have their own programs, and some, like Texas, explicitly allow nonprofit organizations including churches to use the credit directly. Others, like Virginia, allow tax-exempt organizations to bring in a taxpaying partner to monetize a credit they can't use themselves. This varies by state; there's no single national answer.
The federal Historic Rehabilitation Tax Credit — a 20% credit administered jointly by the National Park Service and the IRS — is built around income-producing property. The building has to be used in a trade or business, or otherwise generate taxable income, for the owner to have tax liability the credit can offset. A sanctuary used for worship services isn't generating taxable income in the way the federal program is designed around, and a tax-exempt congregation has no federal income tax liability at all. That combination is why most church rehabilitation projects that reference "historic tax credits" are actually talking about state-level programs, or about more complex structures where a church leases part of a historic property to a for-profit tenant specifically to create the income-producing use the federal credit requires — a structure that needs specialized legal and accounting guidance, not a DIY approach.
State historic tax credit programs are written independently by each state legislature, and several explicitly address nonprofit and religious-property eligibility in ways the federal program doesn't. Two examples illustrate how differently states can handle this:
| State | How Churches/Nonprofits Access the Credit |
|---|---|
| Texas | The state historic preservation tax credit is explicitly available to properties used by nonprofit organizations, including churches, museums, and arts centers — not restricted to income-producing use the way the federal credit is. |
| Virginia | Nonprofit organizations without Virginia income tax liability can still benefit from the State Historic Rehabilitation Tax Credit by structuring the project with a taxpaying partner under a limited partnership arrangement, effectively transferring the credit's value to an entity that can use it. |
| Iowa | Runs an annual application window (recent cycles have opened in early June and closed in mid-September) through the State Historic Preservation Tax Credit Program — worth checking for religious-property eligibility details each cycle. |
These three states are examples, not an exhaustive list — treat them as illustrations of how differently "historic tax credit" can work depending on where your church sits, not as a guarantee your state works the same way. Every state's program has its own rules on nonprofit eligibility, transferability, and whether the credit can be sold or must be used against the recipient's own tax liability.
Our free eligibility review looks at your building, your state, and your programs, and points you toward the preservation funding paths that actually apply.
Check My Eligibility →Before the tax credit question even comes up, a building generally has to clear a preservation-status hurdle common to most state and federal programs:
This preservation-status work overlaps substantially with what's required for the private and nonprofit preservation grants covered in our historic church preservation grants guide and the National Fund for Sacred Places program — churches pursuing a restoration project often end up building the same documentation (photos, condition assessments, a preservation plan) once and using it across multiple funding applications, tax credits included.
One thing state historic tax credit programs generally don't reach: a historic churchyard or cemetery on the same property. Rehabilitation tax credits are built around structures, not burial grounds, so a deteriorating cemetery needs its own funding path — see our church cemetery preservation grants guide for the state and national programs that actually cover that work.
A tax credit also isn't the only funding lane worth checking before assuming a project depends entirely on cash flow. Historically Black congregations specifically have access to a dedicated grant program that can be paired with, or used instead of, a state credit — see our Preserving Black Churches grant program guide for how that $50,000–$500,000 capital and planning fund works.
A grant puts cash toward a project. A tax credit reduces a future tax bill — and because most congregations owe little or no state income tax, an unusable credit is worth nothing on its own. That's the central practical question every church needs to answer before budgeting around a state historic tax credit: does this state's program let a tax-exempt organization actually capture value from the credit, through direct nonprofit eligibility (Texas-style), a transfer or syndication mechanism (Virginia-style), or a refundable/sellable credit structure some states allow? If the answer is none of those, the credit exists on paper but isn't a usable funding source for your specific project, and your preservation funding strategy should lean on grants instead.
Tax credits, grants, and matching funds all work differently. See what applies to your building in one free review.
Start the Free Eligibility Review →