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Program Description

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. 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 the building.

  • Interior space preservation easements permanently prevent demolition, neglect and insensitive alterations to a specified interior space of a certified historic structure.

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.

As an incentive, federal law permits the donation of a historic preservation easement to be treated as a tax-deductible gift. Thus, 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, as determined by a qualified real estate appraiser. 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.

To qualify for a historic preservation easement donation and its associated federal tax benefits, a property must be either a certified historic structure or historically important land area. The tax deduction 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 deduction.

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.

 

 

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