I already claimed Virginia's historic rehabilitation tax credit on my building -- can I still claim the separate land preservation tax credit within five years if my conservation easement includes façade restrictions, as long as an appraisal shows those restrictions don't add any value to the easement?

Plain-English summary

Virginia offers two separate tax credits that can both touch the same historic property: a historic rehabilitation tax credit (25% of eligible rehabilitation expenses, Va. Code § 58.1-339.2) and a land preservation tax credit (40% of the fair market value of real property donated as a conservation easement for qualifying land conservation purposes, Va. Code § 58.1-512). But Va. Code § 58.1-513(A) prevents "double dipping" on the same building within a five-year window: a building that serves as the basis, in whole or in part, for one of these credits can't also serve as the basis for the other credit within five years.

In an earlier ruling, P.D. 20-133, the Department held that when a conservation easement's donation included preserving a building's historic façade and other exterior features, that meant part of the SAME building that generated the historic rehabilitation credit was also part of the basis for the land preservation credit -- triggering the five-year bar and blocking the second credit.

This ruling addresses a follow-up, narrower question: what if a qualified appraisal shows that the façade/features restriction portion of the easement doesn't actually add any value to the easement at all? A conservation easement doesn't have to cover 100% of a parcel -- so a land preservation credit CAN be claimed within five years of a historic rehabilitation credit, as long as no part of the rehabilitated building (or the land under it) actually serves as the basis of the land preservation credit. Since a qualified appraisal's fair market value is normally measured as the difference in the property's value before and after the restriction, the Department agreed that if the appraisal shows the façade restriction causes NO change or loss in the building's value, then the building isn't serving as the basis -- in whole or in part -- for the land preservation credit, even though the easement legally includes façade restrictions. In that scenario, the five-year exclusivity rule doesn't apply, and the taxpayer could claim the land preservation credit.

The ruling was careful to note this is based on the specific facts and appraisal presented -- claiming a land preservation credit is a complicated process requiring a thorough review of the application, the appraisal, and any required filings with the Department of Conservation and Recreation, and this response assumes all of those other requirements would be satisfied.

What this means for you

Property owners who've claimed a historic rehabilitation credit and want to also donate a conservation easement within five years

If your easement includes restrictions on the building's façade or exterior features, get a qualified appraisal that specifically addresses whether that portion of the restriction adds ANY value to the easement. If it doesn't, the building may not count as part of the land preservation credit's basis, letting you claim both credits without waiting out the five-year window -- but if the appraisal shows real value from the façade restriction, the P.D. 20-133 rule still applies and blocks the second credit.

Anyone structuring a conservation easement donation around a rehabilitated historic building

Consider whether the easement can be limited to land and non-building features in a way that has no appraised connection to the building itself. The legal test isn't just what the easement document literally covers -- it's whether the building actually contributes VALUE to the appraised easement.

Taxpayers relying on this kind of appraisal-dependent ruling

This is a narrow, facts-and-appraisal-specific ruling. If your appraisal instead shows real value attributable to the façade or other building features, the outcome flips back to the P.D. 20-133 result, and the five-year bar applies.

Common questions

Q: Can I claim both Virginia's historic rehabilitation credit and land preservation credit on the same building within five years?
A: Generally no, if the building serves as the basis (in whole or in part) for both credits. But if a qualified appraisal shows the easement's building-related restrictions add zero value, the building isn't considered part of the land preservation credit's basis, and the five-year bar doesn't apply.

Q: What made this case different from P.D. 20-133, where the Department found the five-year bar DID apply?
A: In P.D. 20-133, the façade/features restrictions were assumed to be part of the easement's value. Here, the taxpayer specifically asked about (and the appraisal supported) a scenario where those restrictions add NO value at all -- a materially different factual premise.

Q: Does this ruling guarantee my land preservation credit will be approved?
A: No. The ruling is based only on the five-year exclusivity question and assumes all other application, appraisal, and Department of Conservation and Recreation filing requirements are properly satisfied.

Citations and references

• Va. Code § 58.1-339.2 (historic rehabilitation tax credit; 25% of eligible rehabilitation expenses, up to 10-year carryover)
• Va. Code § 58.1-512 (land preservation tax credit; 40% of the fair market value of a qualifying donated conservation easement)
• Va. Code § 58.1-513(A) (a building serving as the basis, in whole or in part, for one of these credits cannot serve as the basis for the other within five years)
• IRC § 170(h) and § 170(h)(4)(A) (federal charitable-deduction qualification requirements; preserving a historically certified structure's exterior can be a valid conservation purpose)
• Treas. Reg. § 1.170A-13(c)(3)(ii) and § 1.170A-14(h)(3)(i) (a qualified appraisal must state fair market value as the before-and-after difference caused by the restriction)
• P.D. 20-133 (8/11/2020) (holding that façade/feature restrictions included in an easement's value make the building part of the land preservation credit's basis, triggering the five-year bar)

Subject

Credit : Land Preservation, Historic Rehabilitation - Buildings

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-146

Original ruling text

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

Related Documents

20-133