Easement Reforms Enacted by Congress in 2006
Many organizations and individuals involved in historic preservation have closely followed the increased public attention recently focused on the subject of preservation and conservation easements, particularly in the news media and in Congress. Those interested in this subject should be aware that significant legislative changes to address abuses in the area of façade easement donations were passed by Congress in 2006 as part of an omnibus pension reform bill, H.R. 4. The bill, which includes a number of reforms in the charitable sector—as well as several enhancements to charitable giving incentives—was signed into law by the President on August 17, 2006, as Public Law 109-280.
The 2006 legislative changes constituted the first major reforms in the law relating to tax deductions for historic preservation easements in twenty-five years, and, generally, they have been welcomed by the preservation community. Many of the changes are logical reforms to address questionable practices by some easement holding organizations and promoters, as highlighted in recent years by Congress, the IRS, and the news media. For example, section 1213 of Public Law 109-280 includes new “special rules” for easements on contributing buildings in registered historic districts:
- Disallowing deductions for preservation easements that fail to protect the entire exterior of a property;
- Prohibiting deductions for easements that allow changes that are incompatible with a building’s historic character;
- Requiring the donor and donee to certify under perjury that the easement-holding organization is qualified to accept easements, and has the resources and commitment to manage and enforce the easement;
- Requiring the owner to provide the IRS more detailed substantiation to prove the value of the donation; and
- Imposing a new filing fee of $500 for easement deductions over $10,000.
Section 1219 of the law includes other reforms applicable to all charitable property donations, such as:
- Lowering thresholds for overvaluation penalties for donors, and imposing new overvaluation penalties for appraisers; and
- Imposing new qualification standards for appraisals and appraisers.
At the same time, Public Law 109-280 also includes several provisions that appear less logical or warranted, for example eliminating deductions for non-building structures or land areas in registered historic districts, and imposing a new reduction for easements on structures that have also qualified for the rehabilitation tax credit. All in all, however, the changes included in Public Law 109-280 should help to encourage higher standards of practice for easement holding organizations, easement promoters, and appraisers. Equally important, by reforming the law providing tax incentives for historic preservation easements—and rejecting an earlier congressional recommendation to substantially reduce or eliminate the deduction—Congress has soundly affirmed the validity of preservation easements and the federal tax incentives that encourage them.
Finally, Public Law 109-280 includes a provision, section 1206, that expands the availability of the charitable tax deduction for easements donated in 2006 and 2007. The law increases the annual amount deductible for most taxpayers from 30 percent to 50 percent of a taxpayer's contribution base (adjusted gross income less net operating loss carrybacks), and extends the carry-over period for deductions from five to fifteen years. Even more favorable limitations apply for conservation contributions by qualified farmers and ranchers.
- The principal revisions included in Public Law 109-280 are summarized here. For more information, contact the National Trust’s Law Department at law@nthp.org or by calling (202) 588-6035.
- Excerpted sections 1213 and 1219 from Public Law 109-280, as described above.
- Excerpted section 1206 from Public Law 109-280 (increasing deduction availability for 2006 and 2007).
- A redlined compilation of Internal Revenue Code showing these changes.
