Introduction to Virginia Land Preservation Tax Credits Suzan Bulbulkaya, Land Conservation Analyst (804) 371-5218 suzan.bulbulkaya@dcr.virginia.gov
Land Preservation Tax Credit Enacted in 1999, the Virginia Land Conservation Incentives Act allows for a tax credit (LPTC). A 2002 amendment to the Act allows unused tax credits to be sold on the open market. The Act spurred a dramatic increase in the total number of easements/acres recorded (more than half of total easement acres held by Virginia Outdoor Foundation (VOF) have been recorded since 2000).
Donation History Data Tax Number Number of Appraised Original Credit Year of Credits Acres Value Request 2000 127 17,491 $52,296,915 $26,148,458 2001 95 13,670 $53,642,627 $26,821,314 2002 217 35,256 $125,541,326 $62,770,663 2003 140 28,151 $150,612,414 $75,306,207 2004 238 50,049 $284,269,440 $142,134,720 2005 279 56,171 $311,732,751 $155,866,375 2006 459 94,271 $495,506,988 $247,753,494 2007 254 59,323 $249,999,996 $100,000,000 2008 224 60,199 $255,717,706 $102,287,084 2009 228 63,447 $266,617,511 $106,647,006 2010 145 38,545 $267,112,497 $106,845,000 103 19,801 $56,657,350 $22,662,940 2011 Totals 2,509 536,374 $2,569,707,520 $1,175,243,261 As of May 18, 2011
Land Preservation Tax Credit LPTC is available for both fee simple donations and conservation easement donations. The vast majority of donations are of conservation easements.
Basic Tax Mechanics of LPTC Tax credit = 40% of the Fair Market Value (FMV) of donation. The FMV of a conservation easement is the value of the land before the easement minus the value of the land after the easement. – Referred to as the “before and after value” Can be claimed in the year of donation, with a 10-year carry forward (currently $50,000 per year per landowner, $100,000 if filing jointly).
Basic Tax Mechanics Value of land = $500,000 Value of land after CE = 300,000 Value of CE = 200,000 LPTC = 40%(200,000) = 80,000
History of Land Preservation Tax Credit 2002 1-1-2007 1999 Made DCR LPTC transferable Review created Begins 2000 2006 Goes Several into effect Legislative Changes
2006 Legislative Reforms $100 Million annual cap (adjusted by the CPI) Increased Dept. of Taxation scrutiny over appraisals Established DCR Oversight Role Effective January 1, 2007
2006 Legislative Reforms DCR Oversight Role includes: Annual Report on all LPTC transactions Verification to Dept. of Taxation of the Conservation Value of land donations where credit of $1M or more is claimed (requires $2.5M transaction) Virginia Land Conservation Foundation (VLCF) to authorize criteria used by DCR Identified Water Quality Improvements and Forest Stewardship as areas of focus
Key Points for DCR Review Virginia Code requires the Director of DCR to verify the conservation value of all donations requesting $1 million or more in LPTC. Department of Taxation retains responsibility for valuation and appraisal review and for issuing the tax credit.
VLCF Verification Criteria VLCF Criteria comprise three factors that, taken together, are considered the Conservation Value of donated land: 1. Conservation Purpose 2. Public Benefit 3. Water Quality and Forest Management
Conservation Purpose Water Quality Public and Forest Benefit Stewardship Conservation Value
VLCF Criteria 1. Conservation Purpose Donations must be for 1 of these 8 purposes: 1. Agricultural Use 2. Forestal Use 3. Natural Habitat and Biological Diversity 4. Historic Preservation 5. Natural-Resource Based Outdoor Recreation or Education 6. Watershed Preservation 7. Preservation of Scenic Open Space 8. Conservation and Open Space Lands Designated by Local Governments
1. Conservation Purpose (Continued) Multiple options for meeting each purpose. Safe harbors available; if met, satisfies specific purpose. Examples of safe harbors: • Agricultural Use: land that a locality has designated as being subject to use value taxation. • Historical Preservation: a battlefield individually listed in the Virginia Landmarks Register or the National Register of Historic Places.
VLCF Criteria 2. Public Benefit DCR’s review ensures that safeguards exist in deed to: Protect conservation values of the land in perpetuity. Prohibit intentional destruction or significant alteration of the conservation values of the protected property. Assure that conservation value of the property will not be adversely affected by future division or development of the property.
2. Public Benefit (continued) The deed of easement must contain the following restrictions: a. limits on # of permitted divisions of property; b. limits on permitted new buildings & structures; c. restrictions on location of new buildings & structures; d. restrictions on location of new roads or access ways; e. limits on alterations, demolition, or ground- disturbing activity that may impact cultural/historic resources and natural heritage resources; f. limits on utility placement.
VLCF Criteria 3. Water Quality and Forest Stewardship To Protect Water Quality If property contains wetlands, frontage on perennial stream or river, lakes, or tidal waters, then deed must provide for a 35-foot vegetated buffer. - Exception: NOT required for historic lawns/landscapes, intermittent streams, ornamental ponds - Allow: limited stream crossings, stream access points, limited mowing (3 times a year) If the property contains 5-acres of land in agricultural use, then the deed shall require development of a written conservation plan that stipulates the use of best management practices. (Similar requirement to receive state or federal cost-share assistance.)
3. Water Quality and Forest Stewardship Forest Stewardship Applies if property contains 20 acres or more of forest lands. Deed must require written forest management plan or Virginia Forest Stewardship Plan in place prior to the commencement of timber harvesting or other significant forest management activities. Plan to be developed by or in consultation with Dept of Forestry or be consistent with Forest BMPs
DCR Pre-Filing Review Potential applicants are encouraged to request an optional pre-filing review. Offers opportunity to address any concerns before deed is recorded. Main Components of DCR review - Site visit - Research local, state, & federal databases/maps - Review Deed and other submitted documentation - Discuss any issues with applicant or representative - Present application to Director - Send pre-filing comment or final verification letter
LPTC and the Federal Deduction Deduction: Landowners who donate a conservation easement on their land can apply that value as a deduction on up to 50-100 percent of their adjusted gross income (AGI) for 15 years. Through 2011: these rules are set to expire 12/31/11, and it is uncertain if Congress will extend them. – If not, then the deduction will likely revert to its previous smaller amount (30 percent).
LPTC and the Federal Deduction VLCF Criteria are based on IRS Code 170(h), and contain specific requirements that reflect state policy. State review is predictable, prompt, and based on specific criteria.
Benefits of the DCR Review Ensures consistency in the conservation value of the land transactions claiming over $1M in state tax credit. Provides a check on the quality of the largest easements and land donations. Enhances the value of Virginia tax dollars by adding water quality and forest stewardship protections. Expectation is for $1M or more, landowner will conserve their land and provide basic protections for conservation values.
Land Preservation Tax Credit LPTC is the most dynamic and cost-effective conservation program in Virginia. – Over 536,000 acres conserved since 2000 – Conservation costs are a fraction of the true cost of land LPTC reforms of 2006 provide accountability and budget stability. – Annual cap of $100 million on LPTC creates stability – Increased scrutiny of appraisals creates accountability – Review of easement terms by DCR ensures conservation value of donations
Suzan Bulbulkaya, Land Conservation Analyst (804) 371-5218 suzan.bulbulkaya@dcr.virginia.gov
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