*Note: The Virginia Department of Historic Resources does not give tax advice and recommends that donors consult their attorney, accountant, and/or tax advisors regarding the tax implications of a gift of easement. A gift of a qualified conservation easement in perpetuity may qualify as a non-cash charitable gift which may yield a deduction for federal income tax purposes and a credit for state income tax purposes. An independent qualified appraiser must establish the value of the easement that is primarily based on the value of the development rights relinquished by the donor. Once that value is established, it becomes the basis for calculating tax benefits.Federal Charitable Gift Deduction: Section 170(h) of the Internal Revenue Code (IRC) establishes the criteria for a “qualified gift of a conservation easement.” According to the federal tax code, certain contributions for “certified historic structures” or “historically important land areas” may qualify as a gift of conservation easement. The federal tax deduction for tax year 2016 and subsequent years is limited to 50% of adjusted gross income for individual taxpayers, the unused portion of which may be carried forward for a period of fifteen years or until the donation is fully expended, whichever comes first. IRS Form 8283 must be filed to obtain this deduction.
Virginia Land Preservation Tax Credit: The “Virginia Land Conservation Incentives Act of 1999” (see Section 58.1-510 through 58.1513 of the Code of Virginia, as amended), provides Virginia taxpayers who donate a conservation easement with a Virginia state income tax credit equal to 40% of the value of the easement. The tax credit will offset or reduce calculated tax liability and results in a dollar-for-dollar reduction in tax liability. The amount of the credit used by any one taxpayer may not exceed $20,000 for taxable years 2015 and 2016 and $50,000 for taxable year 2017 and each taxable year thereafter. Any unexpended portion may be carried forward for the next thirteen consecutive taxable years or transferred to another Virginia taxpayer. The Virginia Department of Taxation does impose a transfer fee on the sale of land preservation tax credits. This fee is calculated as either 2% of the value of the donated conservation interest or 5% of the face value of the transferred credits.
Land preservation tax credits in excess of $1 million or more will be issued only if the conservation value of the donation has been verified by the Director of the Department of Conservation and Recreation (DCR) based on criteria adopted by the Virginia Land Conservation Foundation. Pre-filing review of the conservation value is available through DCR. There is a $75 million limit on the amount of tax credits that the Department of Taxation may issue in each calendar year. Form LPC-1 must be filed with the Department of Taxation for registration of credits and Form LPC-2 for transfer of credits. For an easement conveyed on or after July 1, 2015, the LPC-1 application must be filed with the Department of Taxation by December 31st of the year following the calendar year of the conveyance or the credit will be disallowed. See the Virginia Department of Taxation website for additional information: http://www.tax.virginia.gov/content/land-preservation-tax-credit
Special rules and limitations on tax credits for historic resources: