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questions and learn all about historic preservation easements.
I. What is a historic
A historic preservation easement is a legal agreement
that enables a historic property owner to establish certain preservation
restrictions while retaining possession and use of the property.
By donating a historic preservation easement in perpetuity
to Preservation Easement Trust, a qualified 501(c)(3) nonprofit
charitable organization, the property owner promises to maintain
the easement-protected property while adhering to the easement restrictions.
Once donated, a preservation easement becomes part of the property's
chain of title and permanently remains with the historic property
binding both the present and future owners.
To qualify for a historic preservation easement donation,
a property must be either a certified historic structure or historically
important land area. A certified historic structure is a building
or structure that is either individually listed in the National
Register of Historic Places or deemed to be contributing to the
historic significance of a National Register historic district or
a certified local historic district. So, if a building or structure
is not a certified historic structure, a certified historic structure
designation from the National Park Service must be obtained. In
the case of historically important land areas, National Park Service
certification is not required.
To qualify for a historic preservation easement donation, a
property must be either a certified historic structure or
historically important land area. There are two general types of
historic preservation easements: facade and interior space.
- Facade preservation easements permanently prevent demolition,
neglect and insensitive alterations to the exterior facade of a
certified historic structure. Facade preservation easements must
preserve the entire building exterior, including the space above
- Interior space preservation easements permanently prevent
demolition, neglect and insensitive alterations to a specified
interior space of a certified historic structure.
III. What are the
benefits of donating a preservation easement?
In addition to preserving the special qualities of a historic property,
a preservation easement donation may also result in tax benefits
through the reduction of income, estate, and property taxes with
the principal tax benefit being the charitable deduction from federal
and state income taxes. The property owner, who conveys the historic
preservation easement, qualifies for a tax-deductible
charitable contribution under Internal Revenue Code Section 170(h)
equivalent to the fair market value of the preservation easement.
For a more detailed explanation, please refer to the Tax
Benefits web page in the Preservation Easements section.
The income tax deduction which is equivalent to the fair market
value of the preservation easement can be spread over six tax years
and, in the majority of cases, may be applied to the property owner's
federal and state income tax returns. Individuals, including Partnerships, LLC's, S-Corporations and Trusts that pass tax benefits through
to individual shareholders or beneficiaries, are limited to an annual
charitable contribution deduction of 50% of the adjusted gross income
prior to the charitable contribution deduction in which the non-cash
component (i.e., the preservation easement) cannot exceed 30% of
the adjusted gross income. In contrast, Corporations that file IRS
Form 1120 are limited to an annual charitable contribution deduction
of 10% of the adjusted gross income prior to the charitable contribution
The IRS Form 8283, titled Non-Cash Charitable Contributions, should
be filed with the tax return for the year in which the preservation
easement is contributed and a deduction is first claimed. This form
must be signed by a professional real estate appraiser and by the
qualified 501(c)(3) nonprofit charitable organization accepting
the donation. The
appraisal, including building photographs and the easement deed,
should also be attached to the tax return.
Before proceeding with a preservation easement donation, potential
easement donors are always advised to consult with their attorneys
and tax professionals to understand the specific legal and tax consequences
associated with conveying a preservation easement.
V. How is a preservation
The preservation easement donor engages
a qualified real estate appraiser to perform the appraisal which
must be prepared no earlier than 60 days prior to the preservation
easement donation date but no later than the due date (including
extensions) of the income tax return in which the charitable
deduction is first claimed. The value of the preservation easement donation is usually determined
by applying the "before and after" valuation approach.
Performed by a qualified real estate appraiser, the amount of the
charitable deduction is computed by determining the difference between
the fair market value of the property
before the granting of the preservation easement and the fair market
value of the property after the granting
of the preservation easement.
Because each preservation easement valuation depends upon a
number of variables that are unique to each property, including
existing historic preservation laws that may already impact the
property, there is no "one size fits all" approach to valuing
preservation easements. For example, the valuation for a facade
preservation easement typically ranges anywhere from 5% to 15% of
the historic structure’s fair market value; however, depending upon
local zoning rules, the valuation may exceed this range because of
lost development rights.
How long does a preservation easement last? |
In order to qualify for tax benefits, a preservation easement must
be donated in perpetuity, binding both present and future owners
to the easement’s restrictions. The preservation easement
is created in the form of a deed which is recorded at the county
or town land records office and becomes part of the property’s
chain of title. So, whenever a title report is obtained, all future
owners and lenders will learn about the preservation easement.
VII. How is a certified historic
structure designation obtained?
A certified historic structure is any building that is: 1) listed individually in
the National Register of Historic Places; or, 2) located within a registered
historic district and certified by the National Park Service as contributing to
the historic character of that district. The National Park Service has three
criteria for what makes a building historic: 1) the building was the site of a
significant historic event; 2) the building was associated with a historically significant
person; or, 3) the building's architecture or architect is significant or the
architecture of the whole area is significant. The last criterion --
architecture -- is the one most often used by neighborhoods that apply for
In order to qualify for a historic preservation easement donation and its
associated federal tax benefits, a building must be a certified historic structure.
If a building is not currently a certified historic structure, the building owner must
obtain a certified historic structure designation for the building by submitting an
application to the National Park Service. Specifically, if the building is located
within a registered historic district, the easement donor must submit the Historic
Preservation Certificate Application Part 1 - Evaluation of Significance; otherwise, the
must submit a National Register of Historic Places Registration Form. In many cases, the
easement donor engages an experienced historic preservation consultant who prepares the
National Park Service application. While both the State Historic Preservation Office and
National Park Service review the applications, the State Historic Preservation Office
provides advice and comment and the National Park Service makes the actual certification decision.
VIII. What are the
requirements for pre-existing mortgages?
If the preservation easement donor wishes to utilize the tax deduction
benefit associated with a historic preservation easement
donation, all mortgages (and other encumbrances) must be subordinated
to the preservation easement. The IRS regulations state that "no
deduction will be permitted…For an interest in property which
is subject to a mortgage unless the mortgagee subordinates its rights
in the property to the right of the qualified organization to enforce
the conservation purposes of the gift in perpetuity."
Without a mortgage subordination, if the mortgage lender forecloses
on a mortgage and takes title to the property, the preservation
easement could be extinguished. As a result, the mortgage lenders
are required to subordinate their rights in the property to the
rights of the easement holder, so that in the event of a foreclosure,
the preservation easement will remain intact. By the way, mortgage
lenders are neither legally nor financially incentivized to subordinate
their mortgages to a preservation easement.
IX. What type
of public access is required? |
If the easement-protected historic attributes of the property are
not visible from a public way, the preservation easement must include
a provision for some form of visual public access. For example,
whereas viewing a facade from a public street qualifies as accessible,
an interior space preservation easement requires a provision for
general public viewing that is consistent with the nature and condition
of the property.
X. Who owns an easement-protected
After donating a preservation easement in perpetuity, the preservation
easement donor still owns the property and may choose to sell or
give it to others at any point in time. In short, the preservation
easement donor continues to own, manage and maintain the property
within the limits of the preservation easement while bearing all
costs and liabilities related to ownership.
|XI. What is
the procedure for making exterior alterations? |
Because the Preservation Easement Trust is responsible for monitoring
and enforcing the provisions of the preservation easement, the property
owner must receive prior approval before any visual or structural
alteration is made to the exterior of an easement-protected property.
In the case of an interior space preservation easement, any proposed
alterations to the specified interior space should also be reviewed
and approved by the Trust. Routine maintenance and repairs do not
require prior consent from the Trust, unless an adverse impact on
the historic features and character of the easement-protected property
Before undertaking any visual or structural alteration, the property
owner must submit a request for alteration to Preservation Easement
Trust. Ordinarily, the Trust responds to the request within ten
business days by either approving, denying or providing comment.
In the case of a denial or comments, the Trust works with the property
owner to find a design solution that is mutually satisfactory. The
materials submitted for local work permits and approvals are usually
sufficient for the Trust’s review process.
When evaluating a proposed visual or structural alteration, the
Trust relies upon The Secretary of the Interior’s Standards
for the Treatment of Historic Properties and typically approves
those alterations that are consistent with the historic architecture
and/or cultural landscape of the easement-protected property. To
learn more about The Secretary of the Interior’s Standards
for the Treatment of Historic Properties, please refer to the
Links web page.
XII. What are the
Trust's stewardship responsibilities?
Upon receiving a preservation easement donation, Preservation Easement
Trust assumes permanent responsibility for monitoring and enforcing
the provisions of the preservation easement. The Trust’s stewardship
responsibilities include performing annual property inspections,
tracking changes in property ownership, answering property owner
questions, approving permitted activities, and correcting violations
through voluntary compliance or, if necessary, legal proceedings.
The Trust is always available to answer questions about preservation
easements and pro-actively works with property owners to avoid any
Because the preservation easement is granted in perpetuity, these
responsibilities are also perpetual, and represent a significant
annual expense. As a result, the Preservation Easement Trust maintains
an endowment fund to pay for operations and the ongoing costs of administering,
monitoring, and enforcing of its preservation easements.
What are the costs of donating an easement? |
Preservation easement donors are responsible for the cost of the
real estate appraisal, historic structure certification, lender underwriting fees, and any legal and accounting
services that they might require during the donation process. Then,
upon the conveyance of a preservation easement, the preservation
easement donor makes a suggested one-time tax-deductible charitable contribution
to the Preservation Easement Trust’s endowment fund, equivalent
to 3% of the appraised easement value or $15,000 per property, whichever
is greater. The Preservation Easement Trust maintains this endowment
fund to pay for operations and the ongoing costs of administering, monitoring,
and enforcing its preservation easements.
XIV. How does a
property owner donate a preservation easement?
The historic preservation easement donation process
can be divided into five easy steps:
1) Submit Preservation Easement Application Form;
2) Obtain Certified Historic Structure Designation;
3) Subordinate Mortgages;
4) Perform Real Estate Appraisal; and,
5) Convey Preservation Easement.
The entire preservation easement donation process can take anywhere
from two to six months to complete. For a detailed explanation of
each step and timeline, please refer to the Donation
Process web page in the Preservation Easements section.