Easement Program

   • Program Description

   • Easement Application

   • Sample Easement Deed

   • Tax Benefits

   • Easement Calculator

   • Donation Process

   • Closing Checklist

   • Stewardship Responsibilities

   • Exterior Alterations

   • Frequently Asked Questions

   • Why Donate To The Trust?

  Preservation Incentives

  Support The Trust

  About The Trust

  Educational Programs

  Client Login

Click on a question for a direct answer, or browse through the questions and learn all about historic preservation easements.

I. What is a historic preservation easement?

A historic preservation easement is a legal agreement that enables a historic property owner to establish certain preservation restrictions while retaining possession and use of the property. By donating a historic preservation easement in perpetuity to Preservation Easement Trust, a qualified 501(c)(3) nonprofit charitable organization, the property owner promises to maintain the easement-protected property while adhering to the easement restrictions. Once donated, a preservation easement becomes part of the property's chain of title and permanently remains with the historic property binding both the present and future owners.

To qualify for a historic preservation easement donation, a property must be either a certified historic structure or historically important land area. A certified historic structure is a building or structure that is either individually listed in the National Register of Historic Places or deemed to be contributing to the historic significance of a National Register historic district or a certified local historic district. So, if a building or structure is not a certified historic structure, a certified historic structure designation from the National Park Service must be obtained. In the case of historically important land areas, National Park Service certification is not required.

To qualify for a historic preservation easement donation, a property must be either a certified historic structure or historically important land area. There are two general types of historic preservation easements: facade and interior space.

• Facade preservation easements permanently prevent demolition, neglect and insensitive alterations to the exterior facade of a certified historic structure. Facade preservation easements must preserve the entire building exterior, including the space above the building.
  
  
• Interior space preservation easements permanently prevent demolition, neglect and insensitive alterations to a specified interior space of a certified historic structure.
  

III. What are the benefits of donating a preservation easement?

In addition to preserving the special qualities of a historic property, a preservation easement donation may also result in tax benefits through the reduction of income, estate, and property taxes with the principal tax benefit being the charitable deduction from federal and state income taxes. The property owner, who conveys the historic preservation easement, qualifies for a tax-deductible charitable contribution under Internal Revenue Code Section 170(h) equivalent to the fair market value of the preservation easement. For a more detailed explanation, please refer to the Tax Benefits web page in the Preservation Easements section.

The income tax deduction which is equivalent to the fair market value of the preservation easement can be spread over six tax years and, in the majority of cases, may be applied to the property owner's federal and state income tax returns. Individuals, including Partnerships, LLC's, S-Corporations and Trusts that pass tax benefits through to individual shareholders or beneficiaries, are limited to an annual charitable contribution deduction of 50% of the adjusted gross income prior to the charitable contribution deduction in which the non-cash component (i.e., the preservation easement) cannot exceed 30% of the adjusted gross income. In contrast, Corporations that file IRS Form 1120 are limited to an annual charitable contribution deduction of 10% of the adjusted gross income prior to the charitable contribution deduction.

The IRS Form 8283, titled Non-Cash Charitable Contributions, should be filed with the tax return for the year in which the preservation easement is contributed and a deduction is first claimed. This form must be signed by a professional real estate appraiser and by the qualified 501(c)(3) nonprofit charitable organization accepting the donation. The appraisal, including building photographs and the easement deed, should also be attached to the tax return.

Before proceeding with a preservation easement donation, potential easement donors are always advised to consult with their attorneys and tax professionals to understand the specific legal and tax consequences associated with conveying a preservation easement.

V. How is a preservation easement valued?

The preservation easement donor engages a qualified real estate appraiser to perform the appraisal which must be prepared no earlier than 60 days prior to the preservation easement donation date but no later than the due date (including extensions) of the income tax return in which the charitable deduction is first claimed. The value of the preservation easement donation is usually determined by applying the "before and after" valuation approach. Performed by a qualified real estate appraiser, the amount of the charitable deduction is computed by determining the difference between the fair market value of the property before the granting of the preservation easement and the fair market value of the property after the granting of the preservation easement.

Because each preservation easement valuation depends upon a number of variables that are unique to each property, including existing historic preservation laws that may already impact the property, there is no "one size fits all" approach to valuing preservation easements. For example, the valuation for a facade preservation easement typically ranges anywhere from 5% to 15% of the historic structure’s fair market value; however, depending upon local zoning rules, the valuation may exceed this range because of lost development rights.

In order to qualify for tax benefits, a preservation easement must be donated in perpetuity, binding both present and future owners to the easement’s restrictions. The preservation easement is created in the form of a deed which is recorded at the county or town land records office and becomes part of the property’s chain of title. So, whenever a title report is obtained, all future owners and lenders will learn about the preservation easement.

VII. How is a certified historic structure designation obtained?

A certified historic structure is any building that is: 1) listed individually in the National Register of Historic Places; or, 2) located within a registered historic district and certified by the National Park Service as contributing to the historic character of that district. The National Park Service has three criteria for what makes a building historic: 1) the building was the site of a significant historic event; 2) the building was associated with a historically significant person; or, 3) the building's architecture or architect is significant or the architecture of the whole area is significant. The last criterion -- architecture -- is the one most often used by neighborhoods that apply for historic designation.

In order to qualify for a historic preservation easement donation and its associated federal tax benefits, a building must be a certified historic structure. If a building is not currently a certified historic structure, the building owner must obtain a certified historic structure designation for the building by submitting an application to the National Park Service. Specifically, if the building is located within a registered historic district, the easement donor must submit the Historic Preservation Certificate Application Part 1 - Evaluation of Significance; otherwise, the easement donor must submit a National Register of Historic Places Registration Form. In many cases, the easement donor engages an experienced historic preservation consultant who prepares the National Park Service application. While both the State Historic Preservation Office and National Park Service review the applications, the State Historic Preservation Office provides advice and comment and the National Park Service makes the actual certification decision.

VIII. What are the requirements for pre-existing mortgages?

If the preservation easement donor wishes to utilize the tax deduction benefit associated with a historic preservation easement donation, all mortgages (and other encumbrances) must be subordinated to the preservation easement. The IRS regulations state that "no deduction will be permitted…For an interest in property which is subject to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity."

Without a mortgage subordination, if the mortgage lender forecloses on a mortgage and takes title to the property, the preservation easement could be extinguished. As a result, the mortgage lenders are required to subordinate their rights in the property to the rights of the easement holder, so that in the event of a foreclosure, the preservation easement will remain intact. By the way, mortgage lenders are neither legally nor financially incentivized to subordinate their mortgages to a preservation easement.

If the easement-protected historic attributes of the property are not visible from a public way, the preservation easement must include a provision for some form of visual public access. For example, whereas viewing a facade from a public street qualifies as accessible, an interior space preservation easement requires a provision for general public viewing that is consistent with the nature and condition of the property.

X. Who owns an easement-protected property?

After donating a preservation easement in perpetuity, the preservation easement donor still owns the property and may choose to sell or give it to others at any point in time. In short, the preservation easement donor continues to own, manage and maintain the property within the limits of the preservation easement while bearing all costs and liabilities related to ownership.

Because the Preservation Easement Trust is responsible for monitoring and enforcing the provisions of the preservation easement, the property owner must receive prior approval before any visual or structural alteration is made to the exterior of an easement-protected property. In the case of an interior space preservation easement, any proposed alterations to the specified interior space should also be reviewed and approved by the Trust. Routine maintenance and repairs do not require prior consent from the Trust, unless an adverse impact on the historic features and character of the easement-protected property is anticipated.

Before undertaking any visual or structural alteration, the property owner must submit a request for alteration to Preservation Easement Trust. Ordinarily, the Trust responds to the request within ten business days by either approving, denying or providing comment. In the case of a denial or comments, the Trust works with the property owner to find a design solution that is mutually satisfactory. The materials submitted for local work permits and approvals are usually sufficient for the Trust’s review process.

When evaluating a proposed visual or structural alteration, the Trust relies upon The Secretary of the Interior’s Standards for the Treatment of Historic Properties and typically approves those alterations that are consistent with the historic architecture and/or cultural landscape of the easement-protected property. To learn more about The Secretary of the Interior’s Standards for the Treatment of Historic Properties, please refer to the Links web page.

XII. What are the Trust's stewardship responsibilities?

Upon receiving a preservation easement donation, Preservation Easement Trust assumes permanent responsibility for monitoring and enforcing the provisions of the preservation easement. The Trust’s stewardship responsibilities include performing annual property inspections, tracking changes in property ownership, answering property owner questions, approving permitted activities, and correcting violations through voluntary compliance or, if necessary, legal proceedings. The Trust is always available to answer questions about preservation easements and pro-actively works with property owners to avoid any potential conflicts.

Because the preservation easement is granted in perpetuity, these responsibilities are also perpetual, and represent a significant annual expense. As a result, the Preservation Easement Trust maintains an endowment fund to pay for operations and the ongoing costs of administering, monitoring, and enforcing of its preservation easements.

Preservation easement donors are responsible for the cost of the real estate appraisal, historic structure certification, lender underwriting fees, and any legal and accounting services that they might require during the donation process. Then, upon the conveyance of a preservation easement, the preservation easement donor makes a suggested one-time tax-deductible charitable contribution to the Preservation Easement Trust’s endowment fund, equivalent to 3% of the appraised easement value or $15,000 per property, whichever is greater. The Preservation Easement Trust maintains this endowment fund to pay for operations and the ongoing costs of administering, monitoring, and enforcing its preservation easements.

XIV. How does a property owner donate a preservation easement?

The historic preservation easement donation process can be divided into five easy steps:

1) Submit Preservation Easement Application Form;

2) Obtain Certified Historic Structure Designation;

3) Subordinate Mortgages;

4) Perform Real Estate Appraisal; and,

5) Convey Preservation Easement.

The entire preservation easement donation process can take anywhere from two to six months to complete. For a detailed explanation of each step and timeline, please refer to the Donation Process web page in the Preservation Easements section.