Federal Tax Deductions - Easements

Charitable Contributions (Easements) for Historic Preservation Purposes

The Tax Reform Act of 1986 retains the provisions established by Section 6 of the Tax Treatment Extension Act of 1980 (IRC Section 170) that permit income and estate tax deductions for charitable contributions of partial interest in historic property. Generally, the IRS considers that a donation of a qualified real property interest to preserve a historically important land area or a certified historic structure meets the test of charitable contribution (easements) for conservation purposes. For purposes of the charitable contribution provisions only, a certified historic structure need not be depreciable to qualify. It may be a structure other than a building and may also be a remnant of a building such as a façade, if that is all that remains, and may include the land area on which it is located.

The IRS definition of historically important land areas is contained in the Code of Federal Regulations at 26 CFR 1.170A-1-(d)(5) and includes:

Independently significant land areas including any related historic resources that meet National Register Criteria for Evaluation.

Land areas within registered historic districts. Including any buildings that contribute to the significance of the historic district; and...

Land areas adjacent to a property individually listed in the National Register of Historic Places (but not within a historic district) where physical or environmental features of the land area contribute to the historic or cultural integrity of the historic property.

For taxpayers who itemize deductions, the charitable contributions deduction for partial interest in historic property remains. Under the new alternative minimum tax provisions, the untaxed appreciation in property that is the subject of a charitable contribution is treated as a item of tax preference for gifts made after December 31,1986. (For carryovers of unused charitable contribution deductions made before August 16,1986, untaxed appreciation is not a tax preference item.)

Under the new alternative minimum tax provisions, the full fair market value of a donated preservation or conservation easement on property, which has appreciated since the taxpayer acquired it could be used to reduce the donor’s adjusted gross income for purposes of computation of regular tax liability, but the appreciated portion of the donation must be for purposes of computing the donor’s alternative minimum tax.