A preservation easement is a legal agreement between a grantor and a grantee that provides permanent protection from unsympathetic new construction, alterations and demolition. It can apply to as much of the property as desired and can protect open space as well as a building.
Essentially an easement is the grant of an interest in a property or a portion of an owner’s property rights. In the easement agreement, an owner commits to preserving the property in its historic appearance, getting written permission from CPA to make alterations and refraining from demolition. An easement runs with the land and is binding on all future owners.
The donation of a preservation easement is considered a charitable contribution for federal income tax purposes. Valuations for recently donated easements have ranged from 10 to 14% of the market value of the property, but please be aware there are no “standard” valuations for easements. A variety of factors can affect the value of an easement, including market conditions, the location of the property, the extent of the property protected, and the replacement value of the portion covered by the easement. Property owners considering easement donation should be wary of inflated easement values.
Owners of easement-protected properties may also be able to have their property taxes adjusted by appealing to their county auditor. This is a benefit not only to the original easement donor, but also future owners. Generally, the sort of person who would be interested in purchasing a historic property would respect its character and not be put off by the easement once they understand it, especially if they could benefit too.
Why consider donating an easement for a property in a locally designated historic district with design controls? Historic designations can always be revoked; districts can be delisted. Easements, on the other hand, offer permanent protection.
The IRS requires the property to be listed in the National Register of Historic Places (NR) in order for the easement to be deductible. If properties are in a NR district, each property must be certified by the National Park Service that it contributes to the character of the district, unless you are donating an easement on open space only.
How to Apply
To complete an easement, the owner must obtain an appraisal of the property by a qualified easement appraiser and pay a $2000 application fee to CPA to cover our legal costs. At the time of closing, we also require payment of a one-time monitoring fee equal to three percent of the value of each easement, which will be determined by the appraisal.
This fee helps us cover the cost of inspecting the property, which we are required to do on an annual basis forever. It also helps cover any legal fees for enforcement. This fee may seem high, but it does not fully cover our time and expenses associated with monitoring, which is an essential aspect of the easement. If the easement is not enforced in perpetuity, it does not serve its purpose.
The following summarizes the costs involved with donation of an easement for a property with a market value of $500,000. The value of the easement (and tax deduction) could be 14% of the market value, or $70,000, depending on the extent of the easement.
$1,200 Appraisal (estimated; contracted by owner)
$2,000 Application fee to CPA
$1,400 Monitoring fee (3% of the value of the easement)
$4,600 Total costs
These costs are offset by the income tax benefit for a charitable contribution. The monitoring fee is also tax-deductible.
Properties in Historic Districts
If your property is in a historic district and you donate an easement on your home, you must also obtain certification that it contributes to the character of that district. (If you are donating an easement on open space only, this certification is not needed.) This application is sent to the Ohio Historic Preservation Office for review and then forwarded it to the National Park Service for final approval. CPA can prepare this application for you for a fee.
Those interested in donating a preservation easement should contact CPA Executive Director at 721-4506 for more information.