*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 Service (IRS) Code establishes the criteria for a “qualified gift of a conservation easement.” According to the IRS Code, certain contributions for “certified historic structures” or “historically important land areas” may qualify as a gift of conservation easement. The value of the easement, as determined by a qualified appraiser, can be claimed as a charitable donation deduction from your federal taxable income. Tax Form 8283 is used for this deduction, as a qualified conservation easement is considered a gift of property interests. For donations made in 2010-2011, deductions for historic preservation or conservation easements may be claimed for up to 50 percent of the donor's adjusted gross income in the year of the gift. Any unused portion of the gift may be carried forward for an additional fifteen years. For donations made in subsequent years (unless there is a change in the legislation) the deduction reverts to 30 percent of adjusted gross income with a carry forward period of five years.
Virginia Tax Credit: A Virginia State tax credit has been established for conservation easements at 40 percent of the value of the easement. No more than 25 percent of the total credit shall be for reductions in value for any structures or other improvements to the land. The amount of credit claimed by any one taxpayer may not exceed $50,000 for tax years 2009-2011 or $100,000 for tax year 2012 and tax years thereafter, but any unused amount may be carried over for a maximum of 13-consecutive years if the credit originates in tax year 2009-2011, or for a maximum of 10-consecutive years if the credit originates in tax year 2012 or thereafter. Unused credits may be sold or transferred to other persons or entities with Virginia income tax liability. The Virginia Department of Taxation will charge a 2-percent fee on the easement value for transferred credits. Additionally, any building that serves as the basis, in whole or in part, of a tax credit under the Virginia Land Conservation Incentives Act, cannot also serve as the basis for a historic rehabilitation tax credit for a period of five years following the donation on which the credit is based (see Code of Virginia, Sec 58.1-513 and 58.1-339.2).
Local Property Taxes: Donation of a conservation easement may stabilize or even lower
a landowner's local property taxes. Tax assessors are required by law to take an easement into account in valuing
a property. However, if land is already assessed at “use value,” in other words, enrolled in a local Land Use Assessment Taxation Program, additional reductions in taxes are unlikely.