Historic Preservation — A Taxing Effort

Historic Preservation — A Taxing Effort

Property owners taking advantage of facade easement.

With dreaded April 15, tax day, fast approaching, a "gift to the street" could be worth significant savings. It all comes down to the first rule of real estate — location, location, location.

A little known provision in the Internal Revenue Code provides home owners, in specified areas, authority to claim up to 15 percent of the assessed value of their residences provided they have granted what is known as a "facade easement" to the National Architectural Trust.

At present, there are four Alexandria property owners taking advantage of this tax break and a fifth is in the process of completing the final requirements. There is a similar program operated under the Alexandria Historic Restoration and Preservation Commission. It can encompass the entire property as well as open space.

"The primary goal of a facade conservation easement is to provide a gift to the street," said Timothy Maywalt, area manager, National Architectural Trust.

"In our dedication to achieve this goal, we place our emphasis on the historically significant architectural features of the property's exterior that are visible from the street."

Although the federal legislation authorizing these gift deductions passed Congress in 1976, "IRS didn't write the regulations for 10 years because they could not decide on the percentage of deduction," Maywalt explained. "Therefore, many people did not know about the program and have not taken advantage of it."

The Trust operates under the aegis of the National Park Service, according to Maywalt. "But, since they have no money for implementation, the Trust puts out all the literature and assumes all the expenses," he said.

MONEY COVERING part of those costs comes from the property owners who apply for the easements. "The Trust requires a donation of 10 percent of the tax break. Plus, the property owner must pay for the appraisal which usually runs about $800," Maywalt acknowledged. "But the donation to the Trust is also deductible since we are a 501-c3 organization."

In practical terms, if a property is appraised at $500,000, the tax write off, at 11 percent, which is the usual percentage approved by The Trust's appraisers, according to Maywalt would be $55,000, plus a donation to the Trust of $5,500. These would be considered charitable deductions within the IRS definition.

"Meeting the legal requirements of the program is all done by us," Maywalt specified. "We meet all of the qualification requirements on behalf of the donor, such as acquiring the necessary certifications from the State and National Park Service as well as subordination of loans on the property. But, we do encourage applicants to consult with their accountants before entering into the program."

ONE ALEXANDRIAN now in the process of securing a facade easement from the Trust is Irene Barbieri at 311 Howell Street in the Del Ray section of the city. "It has been very easy. The biggest time consuming part was the research. I did a lot of my own leg work," she said.

"Throughout that process nobody indicated it might pose any problems. One realtor told me it might even enhance the value of my property," Barbieri said. "I did think the appraisal fee of $800 was somewhat high, particularly since they were only looking at that part of the house visible from the street."

Her accountant, Charney Weber of Alexandria, clarified the tax advantage by explaining, "What a donor gets is a deduction for a charitable contribution which comes under Schedule A, the same as any other charitable deduction. It's no different in definition than giving a bag of clothes to Goodwill except it is a lot larger."

Weber noted, "It lowers the donor's taxable income and, therefore, could lower the tax bracket depending on each individual circumstance."

The write-off can be taken all in one taxable year or spread over several, according to Maywalt. "This would be subject to IRS carry forward limitations and regulations," Weber pointed out.

There are various requirements which must be met to qualify a given property for the Trust's facade easement, according to Maywalt.

*The property must be of a certain age. This can differ depending on the location.

*Properties must be located within a National Register Historic District or be individually listed on the Register. By Trust definition there are four eligible districts within Alexandria: Old and Historic, Rosemont, Del Ray, also designated The Town of Potomac, and Park Fairfax.

*Properties with mortgages must have the lender subordinate its interest in the property to the enforcement provisions of the easement.

*Owners must get approval from the Trust before proceeding with any restoration/preservation work on the facade.

*Owners must go through the application process which includes paying the fees such as appraisal, performed by appraisers from a list maintained by the Trust.

*The property must be approved by the Office of State Historical Preservation and the U.S. Park Service.

EASEMENTS GRANTED by the Trust become part of the property's title in perpetuity. "This also imposes the requirements that the property can not be torn down or allowed to deteriorate," Maywalt said.

As holder of the easement, the Trust inspects the property annually to make sure it is being maintained, according to Maywalt. The approval process for any changes even applies to painting.

"I hope to get the house painted this spring," Barbieri said. "They [the Trust] just asked that I send them a chip of the color I choose. They said it would only take about a week for them to review."

Maywalt noted he has been concentrating on Alexandria for about the last six months. "Old Town was one of the first historic preservation areas in the nation when the original legislation was passed in 1966 to establish historic districts," Maywalt said.

"We usually find that local communities, such as Alexandria, have more stringent requirements for historic preservation than we do. Therefore, we normally bow to those local controls," Maywalt added.

As an example, he pointed out, "Alexandria's historic district won't accept anything unless it was constructed before 1900. Our criteria for Rosemont and Del Ray considers properties constructed up to 1949."

Alexandria's historic easement program is not limited to facades. It can encompass the entire property, both exterior and interior, and can apply to open space as well, according to Charles Trozzo, chairman, Alexandria Historic Restoration and Preservation Commission.

By comparison to the Trust's five easements in the city, AHRPC has 42 on their list, as supplied by the Office of Historic Alexandria. These cover all aspects from easements in gross to exterior and interior, facades, and open space.

Although the tax advantages are the same, there is no donation required. "However, we do advise all donors to retain their own legal counsel before acquiring an easement on their property," Trozzo said.

The Alexandria Commission was originally established by an act of the Virginia General Assembly in 1962. That defined the scope of the Commission and established the membership at seven, two named by the governor and five appointed by Alexandria's mayor. On April 2, 2002, the enabling legislation was amended to increase the size of the Commission to nine and make other changes.

As defined in the legislation, "The purpose and function of the Commission shall be to acquire facilities in the restorable area and provide restored facilities in accordance with the restoration period." That period, according to the act, is "The period of time during which the Commission shall seek to conform the design, architecture and construction shall be from the founding of the City...to and including 1860."

Trozzo noted, "We [the Commission and Trust] have different approaches. They offer one-stop shopping by doing all the legal work. In a sense we are competitors. But, whereas they go only for the facade, we are able to protect entire properties as well as open space."

The primary differences between the two entities, according to Trozzo are, "We don't take any compensation from the donor and we have an ongoing monitoring program."

Additionally, he pointed out, "The tax break from the Commission also provides the donor with a property tax break based on the assessed value of the easement. This can go as high as 25 percent." The Trust easement would also be applicable to property tax relief if the city is made aware of its existence.

"We are looking for people with an ongoing stewardship. This is where we put our emphasis. The Commission is made up of local people and that contributes to our enforcement. I don't think their monitoring program is of the same quality as ours," Trozzo said.

He explained the Commission's area of interest has now spread from being concentrated in Old Town to encompassing the entire city. "For us to consider a property it must be at least 50 years old and have historic significance to Alexandria," Trozzo said.

AN EXAMPLE OF a Commission property is the Lloyd House. "We have leased the Lloyd House to the city for the past 20 years at no fee. They have agreed to maintain it," he explained. It was recently awarded a matching grant of $99,000 for preservation efforts under the Federal Save America's Treasurers program.

However, most Commission's easement properties are individually owned and concentrated within the perimeters of Old Town. "We are having a seminar on easements in March but no exact date or location has been set at this time," Trozzo said.

Additional information is available through the Office of Historic Alexandria. Their phone number is 703-838-4554.