Accounting & Tax Tips
December 11, 2023

Virginia Land Preservation Tax Credit: An Opportunity for Non-Landowners to Reduce Your Tax Liability

The Virginia Land Preservation Tax Credit (VLPC) is an appealing incentive, not only for landowners contributing to land conservation but also for non-landowners looking to offset their taxable income.

Here’s what you need to know to leverage the credit and reduce your tax liability.

What Is Virginia Land Preservation Credit And How Does It Benefit Non-Landowners?

The VLPC was initiated in 1999 by the Virginia General Assembly, providing tax benefits to landowners for establishing conservation easements on their properties.

These easements serve public benefits such as safeguarding wildlife habitats or conserving scenic landscapes, making the landowner eligible for a sizable 40% state tax credit based on the easement’s value.

But how does this apply to non-landowners?

Since becoming a transferable incentive in 2002, VLPC has allowed non-landowners to partake in the benefits. In cases where landowners are unable to use the credits, they can sell them to non-landowners who can use them to offset their Virginia State Income Tax liabilities – dollar for dollar.

Here’s an example: If you’re a taxpayer with a $20k Virginia state income tax liability, you could purchase $20k worth of these tax credits but at a discounted rate, typically around $.88 per dollar. That means you’ll pay $17,600 instead of $20,000, therefore saving $2,400 on state taxes. Keep in mind that the savings will be taxed in the subsequent year at your tax rate or as a long-term capital gain if held for over a year.

Since the credit program launched, it has catapulted environmental conservation efforts, leading to the preservation of over 1,275,000 acres of land in Virginia by 2023.

Navigating the Virginia Land Preservation Credit Purchase Process

When purchasing VLPC, it’s important to collaborate with a professional CPA and a reputable brokerage firm, as the process involves several complexities and considerations.

The credits go fast, with Virginia capping them at $75M each year.

Our team at Wendroff & Associates is available to help you identify available credits, consult on how to optimize your credit purchase amount, and evaluate the impact on your tax liability.

A valid land appraisal is also a prerequisite to ensure a smooth process. We have relationships with established brokerage firms that can help evaluate the appraisal, manage the paperwork, and negotiate the purchase price.

Who Should Use This Tax Liability Strategy?

If you expect a sizable state tax bill this year, purchasing Virginia Land Tax Preservation Credits is an avenue worth exploring. This applies to a number of taxpayers, such as those planning to sell a business or part of an S Corporation or Partnership where the income flows to the individual.

Moreover, this opportunity is also recommendable for sole proprietors or individual/joint filers boasting an employee wage exceeding $200k.

The credits carry forward for 10 years post-issuance. Therefore, please refer to your purchase contract to align the ‘issuance’ year and your timeline to capitalize on the credit.

Next Steps

For those in the right financial situation, purchasing credit through a landowner transfer can be a beneficial strategy for reducing your state income tax liability while supporting the much-needed conservation initiatives in Virginia.

Given the credit’s limited availability and the typical price hike as the year advances, you should consider buying credit early to secure your best rate.

To discuss this tax strategy in more detail, please hit the Free Consultation button below.

Editor’s Note: We originally posted about the Virginia Land Tax Credit Strategy in October 2018.

This is great info. Share it...

Client Reviews

Find out what Wendroff & Associates, CPA
can do for your business.