November 16, 2021
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 restrictions on the façade and other outside features of a building are included in the conservation easement that forms the basis for claiming the land preservation tax credit.
FACTS
In Public Document (P.D.) 20-133 (8/11/2020), the Department ruled that a Virginia taxpayer who claimed a historic rehabilitation tax credit could not also claim a land preservation tax credit within five years when a building’s historic façade and other features would be included in the donation of the conservation easement on the land portion of the real property. The Taxpayer seeks a further ruling as to whether a land preservation tax credit may be claimed within five years of claiming a historic rehabilitation tax credit if an appraisal shows that the portion of the easement placed on the building’s historic façade and features does not increase the value of the easement.
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.]
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 P.D. 20-133, the Department ruled that because the proposed conservation easement included the preservation of the historic structure’s façade and other building features, 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. As such, the taxpayer could not claim a land preservation tax credit within five years of the completion of the renovations that qualified for the historic rehabilitation tax credit.
Treasury Regulation § 1.170 et seq. governs charitable contributions. Under Treas. Reg. § 1.170A-13(c)(3)(ii), a qualified appraisal must include the appraised fair market value of the property on the date of the contribution. As a general rule, the fair market value of a perpetual conservation restriction is equal to the difference between the fair market value of the property it encumbers before the granting of the restriction and the fair market value of the encumbered property after the granting of the restriction. See Treas. Reg. § 1.170A-14(h)(3)(i).
The taxpayer states that an appraisal for the land preservation tax credit would show that the conservation easement would cause no change or loss of value to the building. As such, it asserts that the building could not serve in whole or part of the basis for the land preservation tax credit. In this case, because the portion of the conservation easement on the building would have no value, the building could not serve as the basis, in whole or in part, for the land preservation tax credit. As such, the taxpayer would 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.
This ruling is based on the facts presented as summarized above. The application for a land preservation tax credit is complicated and requires a thorough review of the application form, appraisal, and the forms submitted to the Department of Conservation and Recreation, if required, to ensure that the donation is qualified in order for the credit to be claimed. This response assumes that all other criteria would be satisfied, and all documentation would be properly submitted, in order for the Taxpayer to be eligible to claim the land preservation 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 ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3739.B