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THE ROAD LESS TAXED: VIRGINIA LAND PRESERVATION TAX CREDITS


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Introduction

While there is no such thing as a free lunch, Virginia Land Preservation Tax Credits might be the next closest thing. These credits, which are available to every Virginia taxpayer, can provide you with significant tax savings while encouraging the conservation of Virginia’s land.


What Are Virginia Land Preservation Tax Credits?

The program is designed to incentivize Virginia landowners to make charitable donations of land or easements for the purpose of conservation. Virginia rewards these land donors with credits against future income tax. Donors are often left with unused credits which can be sold to other Virginia taxpayers at a discounted price.


Real World Example

Marty expects to have a $20,000 Virginia income tax obligation when he files in April 2022. Rather than pay the income tax as normal, Marty purchases a credit in October 2021 at a discounted price of 90 cents on the dollar. Thus, Marty can satisfy $20,000 of income tax obligations with a credit purchased for only $18,000 (a savings of $2,000). Marty has effectively saved 10% on his Virginia income tax.


Important Things to Know:

  • The maximum credit you can claim for a tax year is $20,000 per taxpayer. Married couples can each purchase $20,000 of credits for a total of $40,000.

  • If too much credit is purchased, it can be carried forward for 10 years after the original contribution of the landowner.

  • The purchase must be completed prior to the end of the tax year for which you wish to use the credit. For example, credits used on your 2023 income tax return (filed in 2024) must be purchased during 2023.


Purchasing Credits

There are important things to consider when purchasing the tax credits. It’s best to plan ahead since the credits are often in short supply at year end. The purchase process can also take several weeks to complete. To determine the amount of credit needed, it's best to begin with the net amount of tax (line 18 on a 2022 VA return) and adjust for increases/decreases in anticipated income (using 5.75% as the VA tax rate). You should also purchase your tax credits from an experienced organization who specializes in facilitating these transactions.


Summary

The Virginia Land Preservation Tax Credit program is low hanging fruit available to every Virginia Taxpayer. At Selective, we are happy to walk you through the process of purchasing and redeeming your credits. If you would like to learn more about how to purchase these, please contact your advisor.


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