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Easements Retained but Reformed

(archrecord.construction.com - 11/17/2006)

By Ted Smalley Bowen

The tax-deductible historic preservation easement is off the endangered species list, but its numbers aren't expected to rebound to recent years’ highs.

Preservation easements, agreements between owners and preservation organizations that restrict changes to historic buildings, are treated as charitable contributions under federal tax law. Filings for such easements peaked between 2003 and 2005. But after the Internal Revenue Service in 2004 warned about abuses against the system—including bogus easements on already-protected properties, overvaluations, and the questionable marketing of “facade easements”— the prospect of tougher rules seemed to stem the tide. Applications to the National Park Service for certifying buildings' historic significance dropped off in the first half of 2006, for example.

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The pension reform bill signed by President Bush in August included changes to the rules concerning tax deductions for such easements. The new language tightens appraisal and verification procedures, requires that easements cover entire exteriors rather than facades only, bars “historically incompatible” changes, and stiffens penalties.

Although the final rules might dampen interest in preservation easements, several experts suggest that they could also have the reverse effect, since they clarify the requirements. The revisions also remove the uncertainty around the overall program: Congress chose to modify rather than eliminate it, as some expected after the abuses were exposed.

“It will be interesting to see if the numbers start going back up, because to some degree there is greater certainty over the validity of a given deduction,” says Paul Edmonston, vice president and general counsel of the National Trust for Historic Preservation.

David Listokin, a land use specialist at Rutgers University, expects a modest increase in easement donations, although he notes that federal tax credits for historic preservation and low-income housing account for far more preservation activity.