Federal tax law has provided a tax incentive to donate an historic preservation easement. This "Tax Law Library" Section is intended to provide materials about this tax incentive. Contained in this Section are:
- An overview of the relevant Internal Revenue Code and Treasury Regulations provisions;
- US Tax Court cases heard related to valuation of easement donations;
- Excerpts from the Internal Revenue Code and Treasury Regulations provisions that allow for the tax incentive;
- IRS statements and pronoucements of its positions and interpretations on the tax incentive.
These materials are provided for informational purposes only. This Section is not intended to offer legal or tax advice, or any opinion or conclusion as to the proper tax treatment of any easement donation. An historic preservation easement donor must consult with their own tax advisors regarding the specific requirements of claiming tax deductions for an easement donation. Also the Trust recommends the "News & Issues" Section for a review of recent developments regarding the tax incentive for historic preservation easements.
"Tax Law Library" Section revised November 2009.
The following is a overview, for quick reference only, of the highlights of the tax incentive for donation of historic preservation easements. The Trust makes no warranty as to the accuracy of this information. Donors should not rely upon this information in deciding whether to make an easement donation, which decision should be made in consultation with a tax professional.
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 appraiser, donee organization and taxpayer.
Property Qualification: The property must contribute to the historic character of its 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 tax deduction available, if any, is generally equal to the fair market value of the preservation easement as determined by a qualified, independent appraiser. If the property has been owned for less than 1 year when the donation is made, the deduction is based on the cost basis of the property, not its fair market value.
Tax Treatment: The donation of a preservation easement is treated as a noncash charitable contribution, entered on Schedule A in the case of an individual taxpayer. The deduction may be applied against active income, passive income, ordinary income or long-term capital gain.
Deduction Limits: For donations made through the end of 2009, a taxpayer may claim in any one year an amount of up 50% of their adjust gross income, and any excess deduction not used in the first year can be carried over for 15 additional years. (These limits will be reduced to 30% and 5 years after 2009, if not extended by Congress). The taxpayer must deduct the highest allowed amount 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.
Associated Fees: Payments for bank subordination and appraisal fees associated with making a preservation 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.
Effect on Cost Basis: The basis of the property (used for calculating capital gain on sale) must be reduced by the percentage allocable to the easement donation. In the case of a personal residence, an exclusion of $500,000 ($250,000 if filing as a single) of capital gains on sale applies, so this reduction in basis often has minimal or no effect on actual capital gains.
(Revised September 2009)