August 11, 2020
Re: Request for Ruling: Land Preservation Tax Credits
Dear *****:
This will reply to your letter in which you request a ruling as to whether a taxpayer may claim both a historic rehabilitation tax credit and a land preservation tax credit within a five-year period when only land and the outside features of a building are donated.
FACTS
A Virginia taxpayer owns real property that contains an historic building. The building was rehabilitated in a manner qualifying for the Virginia historic rehabilitation tax credit. The Taxpayer intends to donate a conservation easement on the land portion of the real property within five years of the completed renovation of the building. The easement would include terms to protect the historic façade and features of the building. The Taxpayer seeks a ruling as to whether it may claim a land preservation tax credit for the donation.
RULING
Under Virginia Code § 58.1-339.2, any individual, trust, estate, or corporation is entitled to the historic rehabilitation tax credit equal to 25% of eligible expenses for taxable years after 2000. Credits granted to partnerships are allocated to the partners either in proportion to their ownership interest or as agreed. The credits may be carried over up to 10 taxable years.
Virginia Code § 58.1-512 provides a land preservation tax credit for 40% of the fair market value of real property or an interest in real property donated to an eligible charitable organization or instrumentality of the Commonwealth for qualifying land conservation purposes. In order to qualify for the land preservation tax credit, a donation of an interest in real property must qualify as a charitable deduction under Internal Revenue Code (IRC) § 170(h). The preservation of a historically certified structure, including restrictions to altering the exterior of buildings, may be a valid conservation purpose. See IRC § 170(h)(4)(A).
Pursuant to Virginia Code § 58.1-513 A:
Any building which serves as the basis, in whole or in part, of a tax credit under this article shall not serve as the basis of the [Virginia rehabilitation tax credit] for a period of five years following the donation on which the credit is based; and any building which serves as the basis for the [Virginia rehabilitation tax credit] shall not serve as the basis, in whole or in part, for a tax credit under this article [land preservation tax credit] for a period of five years following the completion of the rehabilitation project on which the credit is based. [Inserts added.]
Generally, a taxpayer does not have a right to any tax credit. In Public Document (P.D.) 02-108 (7/1/2002), the Department held that credits, deductions or exemptions allowed in the computation of an income tax are privileges accorded as a matter of legislative grace and not as a matter of taxpayer right. See also Deputy v. duPont, 308 U.S. 488, 60 S.Ct. 363 (1940).
A conservation easement does not have to cover 100% of a parcel of land. A land preservation tax credit may be granted within five years of a historic rehabilitation tax credit as long as no part of the rehabilitated building or the portion of the land on which it sits is included in the basis of the credit. Any building, however, that serves in “whole or in part” as the basis of the historic rehabilitation credit cannot serve as the basis of the land preservation tax credit. See Virginia Code § 58.1-513 A.
In this case, the proposed conservation easement includes the preservation of the historic structure’s façade and other building features. Therefore, it appears that part of the building on which the historic rehabilitation tax credit was based would also be considered in the valuation of the real property donated as a conservation easement. Based on this understanding of the facts, the Taxpayer would not be eligible to claim a land preservation tax credit within five years of the completion of the renovations that qualified for the historic rehabilitation tax credit.
The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3336.B