Can I claim both a Virginia historic rehabilitation credit and a land preservation credit within five years when the conservation easement I donate also protects the rehabilitated building's façade?

Plain-English summary

A Virginia taxpayer owned real property with a historic building that had been rehabilitated in a way that qualified for Virginia's historic rehabilitation tax credit. Within five years of finishing the rehabilitation, the taxpayer planned to donate a conservation easement on the land, and the easement would include terms protecting the historic building's façade and features. The taxpayer asked whether it could also claim a land preservation tax credit for that donation. The Tax Commissioner ruled it could not.

The two credits and the rule that separates them:

• Va. Code § 58.1-339.2 gives a historic rehabilitation credit equal to 25% of eligible rehabilitation expenses.
• Va. Code § 58.1-512 gives a land preservation credit equal to 40% of the fair market value of real property (or an interest in it) donated for qualifying land conservation, and the donation must qualify as a charitable contribution under IRC § 170(h). Preserving a historically certified structure — including restrictions on altering a building's exterior — can be a valid conservation purpose (IRC § 170(h)(4)(A)).
• Va. Code § 58.1-513 A contains a five-year bar that runs both ways: a building that serves, "in whole or in part," as the basis of one of these credits cannot serve as the basis of the other for five years following the donation (or the completion of the rehabilitation) on which the credit is based.

The Commissioner explained that a conservation easement need not cover 100% of a parcel, so a land preservation credit can be claimed within five years of a historic rehabilitation credit — but only if no part of the rehabilitated building, or the land under it, is included in the basis of the easement. Because this taxpayer's easement was drafted to preserve the historic building's façade and features, that building would factor into the valuation of the donated property, so it would serve "in whole or in part" as the basis of both credits. The taxpayer therefore could not claim the land preservation credit within five years of completing the rehabilitation. The Commissioner also noted that tax credits are a matter of legislative grace, not taxpayer right (P.D. 02-108; Deputy v. duPont).

What this means for you

If you are combining Virginia's historic rehabilitation credit with a conservation-easement donation, keep the building out of the easement's basis if you want the land preservation credit within the five-year window. Structuring the easement to protect only the land (and expressly excluding the rehabilitated building and the ground beneath it from the donated value) preserves both credits; drafting the easement to protect the historic building's façade or exterior pulls the building into the valuation and trips the § 58.1-513 A five-year bar. Because the credits turn on precise valuation and easement terms, have the easement and appraisal reviewed with this bar in mind before you donate.

Common questions

Q: Can I ever claim both credits on the same property?
A: Yes, but not on the same building within five years. A land preservation credit can follow a historic rehabilitation credit within five years only if no part of the rehabilitated building or the land under it is included in the easement's basis (Va. Code § 58.1-513 A).

Q: Why did protecting the façade defeat the credit here?
A: Protecting the historic building's façade and features means the building is part of what the easement preserves, so it enters the donated property's valuation — making the building serve "in whole or in part" as the basis of both credits.

Q: Does a conservation easement have to cover the whole parcel?
A: No. The Commissioner confirmed an easement need not cover 100% of the land, which is exactly why a land preservation credit is possible within five years if the rehabilitated building is carved out.

Citations and references

• Va. Code § 58.1-339.2 — Virginia historic rehabilitation tax credit (25% of eligible expenses)
• Va. Code § 58.1-512 — Virginia land preservation tax credit (40% of fair market value of a qualifying donation)
• Va. Code § 58.1-513 A — a building serving in whole or in part as the basis of one credit cannot serve as the basis of the other for five years
• IRC § 170(h) and § 170(h)(4)(A) — qualified conservation contribution, including historic-preservation purposes
• P.D. 02-108 (7/1/2002) and Deputy v. duPont, 308 U.S. 488 (1940) — tax credits are a matter of legislative grace, not taxpayer right

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-133

Original ruling text

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

Related Documents

02-108