The Virginia Land Preservation Tax Credit has been established for conservation easements at 40% of the value of the easement. The amount of the credit claimed by a taxpayer, including amounts carried over from prior taxable years, may not exceed $20,000 for taxable year 2019, but you may carry over any unused credit for a maximum of 13 consecutive taxable years following the taxable year in which the credit originated. For each taxpayer, in any one taxable year, the credit used may not exceed the amount of income tax otherwise due. In addition, any unexpended portion may be transferred to another Virginia taxpayer. A recent tax court opinion suggests that the income from the sale of tax credits held for more than one year prior to sale may receive more favorable long-term capital gains treatment. (Check with your tax advisor or attorney to determine whether and when tax credits should be sold.) Tax credits of $1 million or more will be issued only if the conservation value of the donation has been verified by the Director of the Department of Conservation and Recreation (DCR) based on criteria adopted by the Virginia Land Conservation Foundation. Pre-filing review of the conservation value is available through DCR. There is a $75 million limit on the amount of tax credits that the Department of Taxation may issue in each calendar year. Form LPC-1 must be filed with the Department of Taxation for registration of credits and Form LPC-2 for transfer of credits. Timing of tax credit application: For a conveyance made before January 1, 2020, no credit shall be allowed unless a complete application for tax credit has been filed with the Department of Taxation by December 31 of the third year following the calendar year of the conveyance. For a conveyance made on or after January 1, 2020, no credit shall be allowed unless a complete application for tax credit has been filed with the Department of Taxation by December 31 of the second year following the calendar year of the conveyance.
- The Treasury Department has proposed new regulations, applicable retroactively to gifts made on or after August 28, 2018, that will reduce the federal charitable deduction for a conservation or open-space easement by the amount of the land preservation tax credit (40% of the easement value). For example, a landowner gives VOF an open-space easement with a value of $500,000. The state tax credit would be $200,000 and the federal deduction would be reduced from $500,000 to $300,000.
- Certain Tax Court cases raise serious questions as to what restrictions are required for an easement to meet the “granted in perpetuity” requirement of the Internal Revenue Code and allow the federal deduction for the contribution of a conservation or open-space easement. There are conflicting court opinions amongst recent cases, and the issue has not yet been addressed by the Fourth Circuit Court of Appeals covering conservation easements granted in Virginia. See in particular Bosque Canyon Ranch II, L. P. v. Commissioner, 867 F. 3d 547 (5th Cir. 2017) and Pine Mountain Preserve, LLLP v. Commissioner, 151 T. C. 14 (2018).
VOF provides this information about tax benefits to assist landowners, but not as tax advice. Please check with your tax advisor or attorney about qualifying for any tax benefits associated with conservation easements.