Document Number
02-158
Tax Type
Individual Income Tax
Description
Historic Rehabilitation and the Land Preservation Tax Credits.
Topic
Credits
Date Issued
12-10-2002

December 10, 2002


Re: Ruling Request: Individual Income Tax


Dear *****:

This is in response to your memorandum of August 1, 2002, in which you requested a ruling on the Historic Rehabilitation and the Land Preservation Tax Credits.
FACTS

You state that a taxpayer is interested in purchasing and rehabilitating an historic structure located on a tract of undeveloped land. In order to protect the historic and undeveloped character of the property, the taxpayer would establish a preservation or conservation easement which would prevent future development of the property. Although the easement would restrict development of the property, the taxpayer would still own the structure and the land.

The taxpayer would like to claim the Historic Rehabilitation Tax Credit for costs incurred in rehabilitating the structure. Additionally, the taxpayer would like to claim the Land Preservation Tax Credit for the value of the preservation or conservation easement. You ask whether the taxpayer may claim both credits or must make an election between them.
RULING

Concerning the Historic Rehabilitation Tax Credit, Code of Virginia § 8.1-339.2(A) provides that:
    • any individual, trust or estate, or corporation incurring eligible expenses in the rehabilitation of a certified historic structure shall be entitled to a credit against the tax imposed by Articles 2 (§ 58.1-320 et seq.), 6 (§ 58.1-360 et seq.) and 10 (§ 58.1-400 et seq.) of Chapter 3. (Emphasis added.)

Subsection D of this Code section defines the term "eligible rehabilitation expenses" as "expenses incurred in the material rehabilitation of a certified historic structure and added to the property's capital account." Therefore, the Historic Rehabilitation Tax Credit is based on the eligible rehabilitation expenses incurred in rehabilitating a certified historic structure.

Concerning the Land Preservation Tax Credit, Code of Virginia § 58.1-512(A) provides that:
    • there shall be allowed as a credit against the tax liability imposed by §§ 58.1-320 and 58.1-400, an amount equal to fifty percent of the fair market value of any land or interest in land located in Virginia which is conveyed for the purpose of agricultural and forestal use, open space, natural resource, and/or biodiversity conservation, or land, agricultural, watershed and/or historic preservation, as an unconditional donation in perpetuity by the landowner/taxpayer to a public or private conservation agency eligible to hold such land and interests therein for conservation or preservation purposes. (Emphasis added.)

The Land Preservation Tax credit, therefore, is calculated based on the fair market value of the land or interest conveyed to the appropriate public or private conservation agency.

Code of Virginia § 58.1-513(A) provides that any taxpayer claiming a Land Preservation Tax Credit "shall not claim a credit under any similar Virginia law for costs related to the same project."

Although the Historic Rehabilitation Tax Credit is based on the amount of expenses incurred to rehabilitate a structure and the Land Preservation Tax Credit is based on the fair market value of the interest in land conveyed to a conservation agency, both credits share a similar goal-historic preservation. Thus, Code of Virginia § 58.1-513(A) bars a taxpayer from claiming the Historic Rehabilitation Tax Credit for costs related to the project for which the Land Preservation Tax Credit is claimed.

Based on the facts presented, the project for which the Historic Rehabilitation Tax Credit is sought-rehabilitation of the historic structure-may be distinguished from the project for which the Land Preservation Tax Credit is sought-the creation of the preservation or conservation easement. If the expenses incurred to rehabilitate the historic structure do not increase the value of the preservation or conservation easement, they are not related to the same project and Code of Virginia § 58.1-513 (A) would not bar the taxpayer from claiming the Historic Rehabilitation Tax Credit.

A different conclusion would result if the value of the interest in land that was conveyed to the public or private conservation agency was increased by the rehabilitation of the historic structure. For example, if the taxpayer rehabilitated the structure prior to conveying a fee simple interest in the property to a conservation agency, the value of the fee simple interest conveyed would be increased by the rehabilitation of the historic structure. As the expenses incurred to rehabilitate the historic structure increase the value of the interest in land conveyed, they are related to the same project and Code of Virginia § 58.1-513 (A) would bar the taxpayer from claiming the Historic Rehabilitation Tax Credit.

I trust that this reply answers your ruling request. Copies of the Code of Virginia cited are included for reference purposes. These and other reference documents are also available online in the Tax Policy Library section of the Department of Taxation's web site located at www.tax.state.va.us. If you should have any questions regarding this ruling, you may contact *****, Office of Policy and Administration, Policy Development, at *****.

                • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner




OTP/42081D


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46