A preservation easement is a legal agreement that gives the easement holder a responsibility to protect the visual and structural integrity of a particular historic structure, even though that structure is actually owned by another person.  The intent of the preservation easement is to prevent anyone from demolishing the building or diminishing its historic character.

The owner retains all the usual private property rights, but not the rights to demolish or alter the property in ways that detract from its historic character.  Alterations, improvements, and even additions to the structure may be allowed, providing they do not compromise the historic character of the property.  At the Kansas Preservation Alliance (KPA), we are always willing to work with the owner of a property on which we hold an easement, not only to preserve the historic character of a building, but also to make it a comfortable and desirable place in which to live or work.

Many people who are interested in older buildings are under the false impression that if a building is “historic,” it is somehow automatically protected from destruction.  In reality, a listing on the National Register of Historic Places does not prevent an owner from demolishing a building.  In some cities, local preservation ordinances do provide a measure of protection for historic properties.  Many local ordinances, however, only provide for a delay in the demolition or renovation process.  An easement, on the other hand, is a legal document that ensures the preservation of a historic property in perpetuity.

Granting a preservation easement can lead to substantial savings for the owner of a historic property.  First, the assessed value the property may be lowered or stabilized, resulting in  property taxes that are lower or at least held to their current rate.  The value of some properties might not decrease much if the easement does not conflict with what a prudent owner would normally do with the property.  The savings, however, may be substantial in the case of urban properties that are zoned to allow buildings much larger than the existing historic structure and in the case of rural properties when the easements preclude extensive development for which there is a market demand.

Second, a property owner who grants an easement to a qualified tax-exempt organization such as the Kansas Preservation Alliance, can qualify for an income tax deduction under the charitable contribution clause.  Some restrictions apply.  As with any tax issue, you should consult your accountant to find out how these easement benefits could affect your specific financial situation.

Finally, easements that lower the market value of a property can also reduce estate, gift, and capital gains taxes.  In fact, the estate tax savings can be considerable, far outweighing property and income tax benefits.  These savings will, of course, depend on the particular property in question and the financial situation of the easement donor.

Most of the preservation easements held by the Kansas Preservation Alliance will be facade easements which pertain to the exterior envelope of the building.  The interiors of buildings with historic features may also be covered, although building owners less frequently are interested in donating these rights.  Easements will also prohibit alterations to the surrounding grounds that would detract from the exterior appearance of the building.  These might include excavations, earth berms, rubbish heaps, ash dumps, and utility towers, for example.

Easements may also be applied to land.  For example, the owner of a farm who does not wish his/her land to be developed can grant an easement restricting future development of the property. Land preservation or conservation easements have become an important tool for open space preservation and have been used by conservation groups to protect wildlife habitat, trees, and agricultural land.

The Kansas Preservation Alliance is happy to work with the owners of properties on which we hold easements to accommodate their needs and desires for expansion or modification of their structures.  The key to success is simply to begin discussion of one’s plans at the conceptual stage so that approval can be agreed upon before any work is actually started.  In this way, the KPA can fulfill its duty to ensure that the historic integrity of the site will not be compromised.  Often, the KPA can advise regarding ways to rehabilitate or restore historic structures properly and economically.

As a preservation easement holder, it is the Kansas Preservation Alliance’s responsibility to conduct regular inspections of its easement-encumbered properties to confirm that they are being maintained in accordance with the terms of the easements.  The inspections also allow the KPA to monitor the condition of a property over time and make recommendations to property owners for maintenance work which will prevent small problems from becoming large problems.  Most inspections reveal the dedication and care lavished by owners on their historic properties.  In the rare cases where a violation of the easement has occurred, the KPA is legally empowered to correct the violation at the owner’s expense.

The length of time that an easement will run is specified in the easement document itself and can be any period agreed upon by the signers of the easement.  However, in order to qualify for tax reductions, easement must be in perpetuity.   Most preservation easements, including the ones held by the Kansa Preservation Alliance are “granted in perpetuity” and “deemed to run with the land,” meaning that they last forever, no matter how many times or to whom the property is sold. This ensures that the protection offered by the easement will not cease when the property is sold to a new owner.

The Kansas Preservation Alliance acquires easements either as gifts or as part of our Preservation Opportunity Fund program.  In the first case, the owner of a historic property who wants to make sure that it will not be destroyed or inappropriately altered can grant the KPA a preservation easement in perpetuity on the property.  The terms of such an easement can be written in any manner that the owner wants as long as they are acceptable to the KPA.  In the second instance, property owners who receive low interest loans to repair their older home or business through the Kansas Preservation Alliance’s Preservation Opportunity Fund program may be required to grant an easement to the KPA as part of the terms of the loan; or real property that is acquired and resold by the POF may be encumbered by easements or preservation covenants.

For more information about Preservation Easements, contact the Kansas Preservation Alliance, 785.325.6163.

Historic Preservation Easements and Property Taxes

Donating an historic preservation easement on a property may result in a decrease in the taxes paid by the owner on the property.  Kansas law requires that appraisal records reflect recorded easements.   Because an easement restricts how the owner can use and develop the property, it has the potential to lower the property’s value and thus the taxes assessed on it.

The Kansas Preservation Alliance cannot guarantee that an easement donor will see a reduction in his/her property taxes.  The easement donor will need to deal directly with his/her assessor to have the easement taken into consideration as part of  the assessment of the property’s value.

For many properties, the difference the easement will make in the value of the property is minor.  For example, the restrictions imposed by an easement on a house in a residentially zoned neighborhood may not significantly change the value of the property.  However, a property in an area experiencing development pressure (i.e. a small commercial building in an area zoned to permit buildings of much greater density) has the potential for a larger reduction in value and hence, property taxes.  Donors interested in the potential property tax benefits of easement donations are strongly encouraged to consult with a qualified appraiser to find out how a preservation easement will affect the value of the property.

While it is the donor’s responsibility to secure any tax benefits resulting from easement donation, the Kansas Preservation Alliance is happy to assist donors in the process of working with their assessor.  If you have any questions about easement donations and property taxes, please contact the Kansas Preservation Alliance at 785.235.6163.

Historic Preservation Easements and the Charitable Gift Tax Deduction

Property owners who donate an historic preservation easement in perpetuity may qualify for a charitable gift tax deduction on their federal income taxes.  However, the Kansas Preservation Alliance cannot guarantee that an easement donor will qualify for the deduction.  Each donor’s tax situation is unique.  We strongly encourage each donor to seek advice from professional counsel and a qualified appraiser.

According to the Internal Revenue Service (IRS), owners of a property subject to an easement may deduct the value of the easement as a gift when given to a qualified easement holding organization.  The value of the easement is based on the difference between the appraised market value of the property prior to conveying an easement and its value with the easement restrictions in place.

There is no absolute value or percentage that an easement donor can expect.   Each easement donation is different.  Larger losses in value accrue to properties that have unutilized development potential for which thee is market demand, however, any easement that restricts the use of a property in any way that would affect the market for the property diminishes its value.  IRS guidelines suggest that any many cases an easement can be appraised at approximately 10 to 15 percent of the value of the property.

For many properties, the difference the easement will make in the value of the property is minor.  An example of this is a house in a residentially zoned area that is already being used for its highest and best use.  The restrictions of the easement will not significantly change the market value for the property.  However, a property in an area experiencing development pressure (i.e. a small commercial building in an area zoned for much larger buildings) has the potential for a much greater value diminution.

Taxpayers cannot eliminate all of their taxable income by making charitable donations, no matter how large the donation.  In general, the deduction for charitable donations of appreciated property cannot exceed 30 percent of the taxpayer’s adjusted gross income, although any excess amount may be carried forward and deducted over the five succeeding years.

As alternatives to the charitable gift tax deduction, a property owner may want to explore the donation of an historic preservation easement in the course of estate planning to realize estate tax savings or gift tax savings.  These options may be especially helpful in planning for a future gift or inheritance grant of buildings and land.

While it is the donor’s responsibility to secure any tax benefits resulting from easement donation, the Kansas Preservation Alliance is happy to assist donors in the process of working with their accountant, appraiser, tax attorney, or real estate attorney.  If you have any questions about easement donations and the charitable gift tax deduction, please contact the Kansas Preservation Alliance at 785.235.6163.

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