Glossary of Key Concepts
The following list is intended to flag a few of the issues that easement donors sometimes find confusing. Please discuss these issues with your professional advisors if necessary.
Credit = 40% of easement value: A Virginia land preservation income tax credit generally is equal to forty percent (40%) of the appraised value of the donation.
The $75 million cap: Applications for tax credits are subject to an annual overall cap of $75 million, and credit applications processed by the Tax Department after the cap has been reached will be put off until the following year.
Annual limit: The amount of tax credit individuals and married couples may use annually is currently $20,000 and $40,000, respectively. This should be confirmed by your tax advisor.
The Tax Department transfer fee: The Tax Department imposes a 5% fee on each tax credit sale transfer. Conservation Partners, LLC advances this fee where applicable and we are reimbursed from the sale proceeds.
DCR review: Credit claims of $1 million or more (i.e., easements valued at $2.5 million or more) are subject to review and verification by DCR. Under Virginia law, past credit claims may have to be added to the donor’s current claim when determining whether review is required. Conservation Partners, LLC has significant experience with the DCR review process, and we can help donors navigate the important “pre-filing review” that DCR offers for donations not yet recorded.
Credit limited to percentage of basis: If the donor has owned the protected property for one year or less, the amount of the tax credit may have to be calculated based upon the donor’s proportional basis in the donated easement.
Delayed easement recordation: If the appraisal report is finalized before the easement is recorded and more than 60 days passes before recordation, the appraisal report will have to be updated, which usually involves an additional fee. Conservation Partners, LLC works with our donors’ appraisers, attorneys, and accountants to help them ensure the “60-day rule” and other technical requirements are addressed.
Title report: Title issues can dramatically affect an easement donation, and they can take time to resolve. Easement holders generally require that their donors obtain a title report or other professional title investigation early in the donation process.
Mortgage or Deed of Trust: Any mortgage liens on a property to be protected must be subordinated to the conservation easement or released prior to the donation of the easement. Negotiations with lenders can cause significant delays in the easement donation process, and negotiations with any relevant lender(s) regarding subordination or release should begin as early as practicable in the donation process. Conservation Partners, LLC frequently works with banks and other lenders to help facilitate lien subordination or release and refinancing.
No credit sales without registration number: A donor’s credit cannot be sold or otherwise transferred until the credit application has been filed and accepted and the donor has been issued a registration number by the Tax Department. The Tax Department is swamped with registrations in November and December and cannot guarantee that late- year registrants will receive their registration numbers in time to sell credits before year-end.