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A preservation easement is a voluntary legal agreement between a property owner and Preservation New Jersey (PNJ) that insures the long-term protection of the property’s historic character and value, even if the property is transferred to subsequent owners. The Internal Revenue Service recognizes the voluntary donation of a preservation easement as a charitable tax deduction when such easements comply with certain conditions and regulations, and when donated to a “qualified organization.” Preservation New Jersey is recognized as a qualified organization for accepting easements and has developed its program to comply with IRS regulations.
Preservation New Jersey realizes that the donation of a preservation easement is a significant commitment by a property owner to historic preservation. We appreciate this commitment, and work with each donor to fully acknowledge such donations with plaques or other appropriate acknowledgments.
WHAT IS A HISTORIC PRESERVATION EASEMENT?
A preservation easement is a means by which the owner of a historic property can insure its preservation and at the same time retain legal possession and use of the property. Through the easement, the owner transfers to Preservation New Jersey certain rights pertaining to the property, which are spelled out in an agreement and are granted to PNJ in perpetuity. Recorded as part of the deed, it requires all current and future owners to maintain the historic character of the property. The easement imposes restrictions on alterations, requires ongoing maintenance and provides for monitoring and enforcement of the easement. Usually, easements allow the owner (or “easement donor”) to claim a charitable contribution, which may substantially reduce federal income taxes.
WHAT PROPERTIES ARE ELIGIBLE?
An easement can be placed on any property that has historic significance, including residential, commercial, institutional or industrial property owned by individuals, corporations, condominium associations or nonprofit groups. Although preservation easements can be placed on any suitable historic property, only easement donations that comply with federal legislation are eligible for charitable tax deductions.
WHAT EASEMENTS ARE ELIGIBLE FOR CHARITABLE TAX DEDUCTIONS?
Federal legislation in 1980 established criteria for eligibility of easement donations for charitable tax deductions:
• Property must be individually listed on the National Register of Historic Places, or
• Property must be located in National Register Historic District and be certified as being of historic significance to the district.
WHO CAN DONATE AN EASEMENT?
Any property owner – private, public or nonprofit – that has legal title may donate an easement. The nature of ownership affects the tax benefits, not the ability to donate.
HOW LONG DOES AN EASEMENT LAST?
An easement can be for any length of time to which the donor and Preservation NJ agree. However, the IRS allows charitable deductions only for easements donated in perpetuity.
WHAT IS THE AMOUNT OF TAX DEDUCTION RESULTING FROM AN EASEMENT DONATION?
The specific tax consequences of an easement donation depend on the donor’s tax situation, and on the value of the easement donation. Interested donors should consult a tax accountant and attorney. In general, the value is calculated as the difference between the fair market value of the property without any easement restrictions, and the fair market value with the restrictions in place. A complicated calculation, this requires, by IRS regulation, an independent, certified real estate appraiser to determine the equivalent cash value of a preservation easement donation.
WHAT RESTRICTIONS ARE PLACED ON AN EASEMENT PROPERTY?
The owner retains legal possession and use; the primary restriction of an easement relates to the physical maintenance and possible alterations to the historic exterior of the property. ALL exterior sides of the property must be protected. After an easement is donated, current and future owners must:
• maintain the property in a reasonable manner so that the historic appearance and characteristics remain.
• seek approval from Preservation NJ prior to making any changes to the exterior, such as altering windows, making additions, or making repairs beyond routine maintenance
• carry adequate fire and liability insurance and list PNJ as “additional insured”
Preservation NJ inspects easement properties annually to insure compliance. In cases of noncompliance, PNJ can exercise its legal right to enforce the easement.
WILL AN EASEMENT REQUIRE EXPENSIVE PROPERTY IMPROVEMENTS?
Our objective is preserve the visual character of buildings, but does not require full restoration. An easement can be negotiated that accepts the present condition of a building, with guidelines for future restoration.
COSTS ASSOCIATED WITH DONATING AN EASEMENT TO PRESERVATION NEW JERSEY
To be a qualified organization per IRS rules, PNJ must have the capacity to monitor easement properties and enforce their terms. Therefore, PNJ requires a donation to accept an easement to provide funds for operation of the easement program. A cash donation, usually constituting a small percentage of the appraised value of the easement, plus the cost of PNJ’s legal fees, are required. The property owner is responsible directly for appraisal costs and for any legal fees of the owner’s own attorney. Most easement donations also require the owner to pay the IRS a filing fee. For more information on costs associated with easement donations, contact Preservation NJ.
Sample PNJ easement document>>