*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. Congress recently passed legislation (American Taxpayer Relief Act of 2012 (H.R. 8), that renews the enhanced income tax deduction for conservation easements. For tax year 2012 and tax year 2013, the deduction is limited to 50% of adjusted gross income, which if not used up in 2012 or 2013, may be carried forward at 50% of adjusted gross income for an additional fifteen years or until the donation is fully expended, whichever comes first. IRS Form 8283 must be filed to obtain this deduction. Form 8283 requires attachment of a copy of the appraisal, an appraiser’s declaration, and VDHR’s gift acknowledgment letter.
Virginia Land Preservation Tax Credit: The "Virginia Land Conservation Incentives Act of 1999," 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 donated 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 $100,000 for 2012 and any subsequent tax years. Any unexpended portion may be carried forward for the next ten tax years or transferred to another Virginia taxpayer. A taxpayer entitled to a land preservation tax credit is allowed to transfer unused but otherwise allowable credit to another 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.
Special rules and limitations on tax credits for historic resources apply:
As of January 1, 2007, conservation easement donations that generate $1,000,000 or more in land preservation tax credits 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 limit on the amount of tax credits that the Department of Taxation may issue in each calendar year. The tax credit ceiling was set in calendar year 2008 at $100 million, which ceiling is adjusted annually by changes in the consumer price index. Form LPC-1 must be filed with the Department of Taxation for registration of credits and Form LPC-2 for transfer of credits.
Local Property Taxes: Tax assessors are required by law to take an easement into account in valuing your property (see Code of Virginia 10.1-1011 and 58.1-3205). In Virginia counties where use value taxation is in place, land subject to a conservation easement is usually entitled to taxation at use value rates. However, all dwellings, buildings, and structures will still be taxed at their fair market value.See the links below for a fact sheet and DCR Review Criteria: