Owners of historic properties can be eligible for a variety of incentives such as the Federal Historic Rehabilitation Tax Credit (HRTC) program and Seattle's Transfer of Development Rights (TDR) program. Generally speaking, both of these credits are most useful for owners of large properties, or for major rehabilitation projects.

While development incentives such as these can help make a preservation project more desirable or feasible for a commercial developer, the needs of the individual property owner or homeowner are often different. For instance, the owner of an historic home may wish to ensure that a future owner does not harm their efforts at restoring their home. Or a family may want to preserve a house as a tribute to their family history.

Generally speaking, the federal government relies on state and local regulatory bodies to manage and incentivize their own historic preservation activity through local legislation, planning and zoning. In Seattle, for instance, properties designated as landmarks are subject to controls and incentives agreements that regulate future alterations. Approval must come from the Landmarks Board prior to the issuance of project permits. Although landmarks listing does not absolutely guarantee that a property will not be negatively altered, landmark designation generally protects a property from historically-insensitive alteration and/or demolition.

The use of deed restrictions or covenants on a property that guarantee the preservation of an historic property for generations to come, is another powerful means for protecting a historic property. By voluntarily placing restrictions on the deed of a property, an owner can ensure the preservation of particular important features. Anybody interested in preserving his or her house or land can do this.

The rights to remodel, subdivide, redevelop or otherwise modify a property can also be donated.

Both the federal government and many states recognize the donation of interest in an historic property as a charitable contribution, which can be taken as an income tax deduction. This article discusses some of the ins and outs of the conservation easement charitable donation as recognized by the IRS.

Overview

Put plainly, a conservation easement is the granting of an interest in a property to an authorized stewardship organization or public agency. A qualified nonprofit, tax-exempt conservation organization, such as a land trust or conservancy, may hold a conservation easement, as can federal, state or local agencies if authorized by law. Once donated, the value of that donation is appraised and can be taken as a tax deduction.

The IRS recognizes several categories of conservation easements, including those for historic resources. Conservation easements take a variety of forms, and are used as a tool for the preservation of natural and environmental assets, such as open spaces and scenic areas as well as historic and cultural resources. The 1980 Tax Treatment Extension Act added historic preservation to the list of qualified easement types. The conservation easement, when applied to historic properties, is often referred to as a preservation easement or façade easement.

Each type of easement has its own set of qualifications to meet the Internal Revenue Service's test as a charitable contribution. To be eligible for deduction of a preservation easement, the easement must protect either a historically important land area, or a certified historic structure.

The term "historically important land area" applies to a land area that either independently meets the National Register criteria for significance, or is adjacent to a property listed on the National Register and contributes to that property's significance. An easement that qualifies as protecting a "certified historic structure" must protect a structure or land area that is either listed on the National Register of Historic Places or is a contributing element within a National Register District.

Preservation, or façade easements can include a number of aspects of a historic property. Unlike the other federal incentives, such as the Historic Rehabilitation Tax Credit, the conservation easement does not require that the property be income producing, or even be a building at all. Other easements might include the grounds or landscaping of an important house, or a rural open space that contributes to an important historic landscape. The nature and extent of easements vary widely, and must be negotiated by the donor and the accepting organization.

The great strength of conservation easements, when used as charitable contributions, is that they run with the land. Even if the property is bought or sold, the restrictions put in place by the easement remain in effect in perpetuity.

How It Works

Generally speaking, property owners wishing to donate an easement as a historically significant area must work with the organization that is accepting stewardship to document the area's significance. The level and type of restrictions (or controls) is determined through consultation between accepting organization and the donor. The value of the donation is then determined based upon a professional appraisal of the land value prior to and following the placement of the easement.

As with the rehabilitation tax credit, if a structure is already on the National Register of Historic Places, then it is considered historic and requires no additional paperwork. However, buildings located within an historic district must fill out Part 1 of the Historic Preservation Certification Form to be evaluated. A certified historic structure may be a structure other than a building, and unlike the historic rehabilitation tax credit program, does not need to be depreciable to take advantage of this incentive. Portions of buildings, such as a façade, are also common uses of this incentive.

Generally speaking, Historic Seattle as an organization accepts conservation easements only if it holds a fee interest in the property. However, there are multiple non-profit organizations locally that do accept such transfers, including land trusts and historic preservation trusts.

Instead, Historic Seattle uses covenants, or deed restrictions, to protect historic properties that it is transferring to another owner. Simply put, this means that the buyer and Historic Seattle agree to a series of stipulations as part of the sales agreement. These requirements are conceived to ensure the preservation of the property in the future. Covenants may include the requirement that Historic Seattle approves future changes to the exterior of the building, or that Historic Seattle retains the first option to buy back the property should it ever be placed back on the market.

Two examples of this process are the Stimson Green Mansion on First Hill and the Pioneer Houses in Ballard. Both properties are registered Seattle Landmarks, and both were purchased and rehabilitated by Historic Seattle before being resold with covenants.

The Stimson-Green Mansion, built in 1899, was originally built for the C. D. Stimson family before being sold in 1913 to Joshua Green. In 1975, Historic Seattle purchased the property from the Joshua and Missy Green estate, with the objective of stabilizing the property and reselling it to a suitable owner with protective covenants in place. In 1977, the house was resold with covenants protecting the main house, carriage house and the grounds by disallowing construction or demolition that would affect the exterior of the property.

For the interior, remodeling is allowed only on the upper floors, thus ensuring that the lower floors retain their historic integrity. Historic Seattle retained the authority to approve or deny alterations to the protected elements named in the covenant, and held the first option to purchase or lease the mansion should it ever be placed back on the market. The Stimson-Green Mansion is listed both on the National Register of Historic Places and Seattle's Landmarks Register.

In 1975, two of Seattle's oldest houses, located in the International District, were threatened by redevelopment. Historic Seattle and the property owner reached an agreement to transfer the interest in the houses and relocate them to the Ballard Avenue Historic District, which had recently been created. After moving and restoring the exteriors of the two houses, known as the Pioneer Houses, the property was sold with protective covenants that protected their exterior appearance. Like the Stimson-Green Mansion, Historic Seattle retained authority to approve alterations or modifications to the outside of the buildings as well as the first option to purchase or lease.

This preservation tool is not limited to non-profits such as Historic Seattle. Individual property owners can construct similar agreements for their properties as well.

For more information

To find an organization that accepts conservation easements, or to find out more about protective covenants, interested parties should contact their local historic preservation office, or the Washington State Office of Archaeology and Historic Preservation (OAHP) at (360) 586-3065.

Seattle's Historic Preservation Office can be reached at (206) 684-0464, or (206) 733-9595 TDD.

For an example of a standard conservation easement, visit the National Trust for Historic Preservation online.

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