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What is a conservation easement?

A conservation easement is a landowner’s relinquishment of certain property rights in perpetuity. Typically, the property rights relinquished include development rights, or the ability to conduct certain types of activities on the property. Easements are conveyed by deed to independent holders such as land trusts, which are responsible for monitoring and enforcing compliance.

What is the Virginia Land Preservation Tax Credit?

If a conservation easement diminishes the value of the property, the owners may claim 40% of the diminution as a credit against their Virginia State Income Tax liability, up to a maximum of $100,000 in any year for an individual; $200,000 for a married couple. For conservation easements donated before January 1, 2007, 50% of the diminution could be claimed.

How do I pay my Virginia State Income Tax liability with Virginia Land Preservation Tax Credits?

Once your Virginia Land Preservation Tax Credits are registered with the Virginia Department of Taxation, you may use them to pay your Virginia income tax liability. After January 1, 2007, conservation easements yielding $1,000,000 or more in Virginia Land Preservation Tax Credits are also subject to review by the Virginia Department of Conservation and Recreation (DCR) to verify the conservation value of the easement. Credits associated with easements recorded after January 1, 2007 that yield less than $1,000,000 in credits and all credits created before January 1, 2007 are not subject to the DCR verification process.

How long do Virginia Land Preservation Tax Credits last?

Credits created before January 1, 2007 can be used for five years after the year in which they were created. Credits created after January 1, 2007 can be used for ten years after the year in which they were created. Credits cannot be used to pay Virginia State Income Tax liabilities for years prior to their creation or purchase, nor can their life be extended by overpaying current year tax liabilities.

What if I cannot use my Virginia Land Preservation Tax Credits before they expire?

If the owners of the eased property are liable for any state or local taxes in Virginia and the credits have not yet expired, they can sell them to third parties. Third parties can re-sell them. Land Conservation Concepts, Inc. helps sellers market and transfer Virginia Land Preservation Tax Credits to buyers.

What are my Virginia Land Preservation Tax Credits worth?

The credits generally sell for a discount to their face value. Tax credit sellers get cash for a tax credit they might otherwise be unable to use. Tax credit buyers pay their Virginia State Income Tax liability with tax credits they purchased for less than face value. To illustrate: If a buyer purchases $10,000 in Virginia Land Preservation Tax Credits at a discount of 20% (for $8,000) the buyer could pay his or her $10,000 Virginia State Income Tax liability with the credits in lieu of cash, at savings of $2,000. The transferability of Virginia Land Preservation Tax Credits is a powerful financial incentive for conservation easement donors to preserve land for public benefit and future generations. By purchasing tax credits from conservation easement donors, buyers help finance preservation of Virginia’s unique natural resources.

This sounds too good to be true - what are the risks?

If the deed of gift for the conservation easement is not properly prepared, or the qualified appraisal of the conservation easement overstates the value of the donation, the IRS and the Virginia Department of Taxation may disallow or discount the value of the conservation easement and the underlying Virginia Land Preservation Tax credits. The agencies have successfully challenged easement deeds and appraisals they perceive to be abusive. Prospective conservation easement donors and tax credit purchasers can mitigate this risk by ensuring that the attorney who drafts the easement deed, the appraiser who values the easement donation, and the tax advisor planning the financial aspects of the transaction are highly qualified and experienced in this specialized area of practice.

How much does it cost to sell my Virginia Land Preservation Tax Credits?

For credits created after January 1, 2007, the Virginia Department of Taxation imposes a 2% transfer fee on the appraised value of the conservation easement donation, capped at $10,000 per credit holder per donation. For credits created before January 1, 2007, the Virginia Department of Taxation imposes no transfer fee. A facilitator such as Land Conservation Concepts, Inc. will charge a nominal fee for introducing the seller and buyer and helping them transfer the credits, whether they were created before or after January 1, 2007.

Are there limits on how many Virginia Land Preservation Tax Credits I can sell in a given year?

No – if the owners of the property are liable for any state or local taxes in Virginia and the credits have not yet expired, they can sell all of them in a given year. Sellers are limited only by how many credits they have to sell and the willingness of buyers to purchase the credits at a certain price. Sellers are strongly encouraged to consult with their tax advisors on the tax implications of any sales.

Are there limits on how many Virginia Land Preservation Tax Credits I can buy in a given year?

No – you can buy as many tax credits as you wish in any year. Once you have purchased them, you can use them to pay your Virginia State Income Tax liability - up to a maximum of $100,000 in any year for an individual; $200,000 for a married couple. The credits cannot be used to pay Virginia State Income Tax liabilities for years prior to their creation or purchase, nor can their life be extended by overpaying current year tax liabilities. If you cannot use all of your credits before they expire, you may re-sell them.