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STATE OF INDIANA SETH HENKEL =OMMISSIONER DEPARTMENT OF LOCAL GOVERNMENT FINANCE June 1, 2004 J. Reid Williamson, Jr. President Historic Landmarks Foundation of Indiana, Inc. 340 West Michigan Street Indianapolis, Indiana 46202 RE: Conservation Easement Assessments Dear Mr. Williamson: INDIANA GOVERNMENT CENTER NORTH 100 NORTH SENATE AVENUE N1068(B) INDIANAPOLIS, IN 46204 PHONE (317) 232-3775 FAX (317) 232-8779 As you know, the Indiana. Conservation Easement . Act provides ' for the creation of nonpossessory interests in real property for the purpose of preserving various cultural, natural; scenic, historic aspects of real property as set forth in Indiana Code § 32-23-5-1 et seq. The donation of such an easement may entitle the donor to an income tax deduction pursuant to 26 U.S.C. § 170(h). In addition, Ind. Code § 32-23-5-8 provides "real property that is subject to a conservation easement shall be assessed and taxed on a basis that reflects the easement" The purpose of this letter is to set forth guidelines for use in determining how real property assessment in Indiana shall reflect the existence of a conservation easement. However, the scope of this letter is limited to conservation easements having a purpose of "preserving the historical, architectural, archeological, or cultural aspects of real property" pursuant to Ind. Code § 32 -23 -5 - The valuation of the donation of a conservation easement for income tax deduction purposes is the fair market value of the perpetual conservation restriction at the time of the contribution. See Treas. Reg. § 1.170A-14(h)(3)(i). In most cases, the fair market value of the contribution will be equal to the difference between the fair market value of the property before the granting of the restriction and the fair market value of the encumbered property after the granting of the restriction. See id. For income tax purposes, a -taxpayer claiming a deduction for the contribution of a conservation easement must maintain written records of the fair market value of the underlying property before and after the donation. See Treas. Reg. § 1.170A -14(i). It is the Department's opinion that it is appropriate for an assessing official to factor in the reduction in fair market value of the real estate, if any, resulting from the donation of a conservation easement in determining the assessed value of that real estate, if properly documented. Proper documentation would consist of an appraisal that complies with the Unidform Standards of Appraisal Practice (US PAP) issued by the Appraisal Foundation.