Q: What
is the Virginia Land Preservation Credit (LPC)?
A: Virginia law allows a state
income tax credit for landowners donating a conservation easement
to preserve their land from development. Since 2002, landowners
have been permitted to sell their credits to other taxpayers.
Tax credits can be used in the year the easement is donated
and then carried forward for five more years. (See Sections
58.1-510 through 58.1-513 of the Code of Virginia.) If you
use a tax credit to reduce your state taxes, any excess state
estimated tax or withholding you have already paid will be
refunded to you. You can “turn
off”
future withholding by contacting your payroll office and claiming “exempt”
from state tax. Tax credit buyers should also discontinue state
estimated tax payments.
Q: Who can purchase and use credits?
A: Individuals
and businesses (corporations, partnerships, limited liability
companies) can use a conservation tax credit to as their
Virginia tax bill. Partnerships, limited liability companies,
and S corporations can pass the credit through to their owners.
Q:
How much credit can a taxpayer use?
A: Buyers can use up to $100,000 of tax credits each year to
offset their state income taxes. The Virginia Department of
Taxation will allow up to $200,000 on joint returns as long
as each spouse applies a separately purchased credit to their
share of the tax. Business owners can buy tax credits to pay
both their personal taxes and their company’s taxes.
Excess credits can be carried forward up to five years.
Q: Who benefits?
A: Buyers benefit because they save money by paying their taxes with credits
purchased at a discount from face value. Landowners benefit by receiving income
from tax credits that otherwise would go unused. All Virginia residents benefit
from protection of the state’s open spaces, farmland, and wildlife habitat.
Q:
Where can I obtain tax credits?
A: The New River Land Trust
can provide you with names and contact information for local
landowners with tax credits to sell. We recommend a price of
85 cents/dollar. You can deal directly with the landowner as
to amount and price of tax credits you wish to buy. The Land
Trust will also provide contact information for brokers who sell
tax credits. You can contact the Land Trust at (540) 951-1704
or nrlt@newriverlandtrust.org.The
New River Land Trust is NOT a broker, accountant or lawyer. It
charges no fee for its services. Individuals buying tax credits
should seek the advice of their professional tax or legal advisor.
Q:
Can you deduct what you pay for a land preservation tax credit
on your federal return?
A: Yes! You can deduct what you pay for the credit as an itemized
deduction on your federal return as you would deduct withholding
and state estimated taxes. You should consult your tax advisor
for additional information about the timing and amount of this
deduction.
Q: Whose tax credits will you purchase?
A: These landowners are your neighbors. Tax credits are available for family
farms in the scenic Catawba Valley, in Floyd County and along the New River
and Blue Ridge Parkway.
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Q: Will you be charged for the credit transfer?
A: No. The New River Land Trust is a nonprofit conservation organization
whose mission is to help landowners conserve family lands.
It charges no fee. The NRLT hopes the buyers and sellers it
helps will join the Land Trust or make a voluntary donation
to support the cause of farmland and forest protection in Virginia.
You can also buy a credit through brokers who do charge the seller
a commission.
Q: What about withholding and estimated tax payments?
A: According to instructions for state estimated tax payments,
you must pay in at least 90% of your tax liability through withholding
and/or estimated tax payments. You may include the Land Preservation
Tax Credit in that calculation. Thus, taxpayers may choose to eliminate
state income tax withholding and discontinue estimated tax payments
for all tax years the LPC assists them in meeting the 90% or more
requirement. This will also provide clients with additional cash
in each paycheck.
Q: Will a taxpayer subject to Alternative Minimum
Tax benefit from using an LPC?
A: No. The use of Land Preservation
Credits (LPCs) to pay state taxes will be the same as paying
the state tax with cash.
Q: Are there any risks to taxpayers who buy
Land Protection (Tax) Credits?
A: If the IRS determines the
donated easement does not comply with the requirements for conservation
property or that the appraisal has overstated the value of the
easement, the state may disallow the tax credit in whole or in
part. Most appraisals in this area have been conducted by an
appraiser who has been approved by for-profit tax credit brokers
as having a reputation for well-documented, conservative appraisals.
A contract is available that provides for the tax-credit seller
to indemnify the buyer against any reduction in the tax credit’s
value. Before the Virginia Department of Taxation will allow
a credit to be transferred, experts at the department review
the underlying appraisal and documentation. The quality of the
credit, however, is an important consideration—and is another
reason why buyers should know the land and landowners.
Q:
When do I need to do this?
A: You must buy or contract
to buy the tax credit by Dec. 31st to use on the current year's
taxes. Do not wait until the last minute. You can buy (or at
least contract for) your credits anytime during the year. The
New River Land Trust now has tax credits from several regional
landowners available for purchase. |
