The following is a summary for easy reference only of the principal aspects of the tax incentive for preservation easement donations. The Trust makes no warranty as to the accuracy of this information. Donors should not rely upon this information in deciding whether to make a donation, which decision should be made in consultation with a tax professional. Also see the "News and Issues" section for a review of recent developments regarding the tax incentive. __________________________________________________________________
Program Brief: The owner of a qualifying historic property may donate a preservation easement on the property to a qualified charitable organization and claim a tax deduction for the value, if any, of the easement. This amount is deducted from the owner's federal income tax as a non cash charitable contribution and usually from the owner's state income taxes as well.
Tax Code: IRC Section 170(h).
Tax Regulations: Section 1.170A-14.
Tax Form: IRS Form 8283. This document is prepared by the appraiser and signed by the charitable organization.
Property Qualification: The building must contribute to an historic district (as certified by the National Park Service) or be listed individually on the National Register of Historic Places.
Amount of Deduction: The amount of the deduction is the fair market value of the easement. This amount must be determined by a qualified, independent appraisal when the deduction claimed is greater than $5,000.
Tax Treatment: The donation of a conservation easement is treated from a tax perspective like any other non-cash charitable contribution. Individuals may claim in any one year an amount of up to 30% of their adjusted gross income (50% for donations made in 2006 and 2007). Any excess deduction not used in the first year can be carried over for 5 additional years (15 additional years for donations made in 2006 and 2007). The taxpayer must deduct the highest amount possible in the first year and each subsequent year until the entire deduction is used (or the carry over period expires).
Cash Contribution: The cash donation to the charitable organization is treated as a cash charitable contribution. The cash charitable contribution combined with the non-cash charitable contribution can be deducted in an amount of up to 50% of the taxpayer's adjusted gross income with a carry over of any excess for 15 additional years.
Applicable Income: The deductions may be applied against active income, passive income, ordinary income or long-term capital gain.
Associated Fees: Payments for bank subordination and appraisal fees associated with making a conservation easement donation are considered miscellaneous itemized deductions. Miscellaneous itemized deductions may be taken in full, but only to the extent that the deductions in that category exceed 2% of adjusted gross income. For donations made after February 2007, a $500 fee will be also payable to the IRS if the claimed deductions is over $10,000.
Alternative Minimum Tax: These charitable donations are fully deductible for alternative minimum tax.
Reduction of Basis and Effect on Capital Gains: The basis of the underlying property (used for calculating capital gain on sale) must be reduced by the percentage allocable to the easement donation. Because an exclusion of $500,000 ($250,000 if filing as a single) applies to taxable gains on the sale of a personal residence, this reduction in basis often results in no capital gains tax in practice. See Regulation Section 1.170A-14(h)(3)(iii) relating to allocation of basis.
(Revised February 2008)