Easement Tax Benefits
Federal Tax Deduction
For income-generating property, the donor’s basis in the property subject to the easement will be reduced by the proportion that the value of the easement bears to the fair market value of the property before the donation. When a preservation easement is donated on a mortgaged property, the mortgagee must subordinate its rights in the property to the right of the Connecticut Trust to enforce the easement’s provisions.
To qualify for the federal income tax benefits, the buildings must be “certified historic structures,” which are defined as those individually listed on the National Register of Historic Places or certified as contributing to a National Register Historic District or to certain local historic districts. A building is considered to be a certified historic structure if it becomes certified either by the time of the preservation easement donation or by the due date for filing the donor’s tax return for the year of the donation.
Reduction in Estate and Property Taxes
As local property tax assessments are based on the fair market value of the property, the impact of the donation of a preservation easement on the property’s value can be considered by the municipality when appraising the property for assessment purposes. Connecticut law allows the donor of an easement to request a revaluation of the affected property.
As a rule, the value of a preservation easement is equal to any reduction in value of the property which results from subjecting the property to the easement’s restrictions. The appraiser determines this value by establishing the fair market value of the property of the property as restricted, after the granting of the preservation easement. The difference between the two values is the value of the easement.
Principal considerations in the appraisal process include the nature and extent of the restrictions imposed by the preservation easement, the type and location of the property, the property’s development potential and the likelihood of its development, and any existing, restrictions on the property (e.g., zoning, local historic district regulations, other deed restrictions, etc.). Generally the greater the restrictions in the preservation easement, the greater the value of the easement and the tax benefits to the donor.