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PPS Revolving Fund project, Providence, Rhode Island

Revolving Funds


Revolving Fund

For historic preservation, a revolving fund is a pool of capital created and used to buy properties and resell them at fair market value to a sympathetic, qualified buyer, with the restriction that the monies are returned to the fund to be reused for similar activities. In many casses the subject property is in an area that conventional lending institutions (banks) will not be willing to risk lending the prospective buyer the full amount of acquisition (minus the down paymnt and closing costs). The organization operating the revolving fund may lend the prospective buyer the monies representing the difference between acquisition costs and the bank's loan. The organization will assume second position to the bank holding the mortgage. The property/owner assuming a protective covenant or easement.


A preservation easement is a voluntary legal agreement that establishes protection of significant historic, archaeological, landscape or other cultural resource. .

Preservation easements in some states may also be called preservation “restrictions,” “covenants,” or “equitable servitudes.”

Once recorded, the easement restrictions become part of the property’s chain of title and “run with the land” in perpetuity, thus binding not only the owner who grants the easement but all future owners as well.


Protection is typically in perpetuity, or with a term limit of a specified number of years.

Tax law requires that preservation easements be held by qualified non-profit organizations or governmental units.

Owners of an easement property are legally obligated to honor the terms of the easement, while retaining private ownership of the property.

While easements are tailored to the site they are to protect, they normally consist of provisions guaranteeing that the property owner will demolish a building, will not alter the architectural character of the structures on the site, will not change the use or density of the property, will not construct new buildings or disturb archaeological features, and will not subdivide the property without approval of the easement holder.

The owner retains all the usual private property rights, but not the rights to demolish or alter the property in ways that detract from its historic character. Alterations, improvements, and even additions to the structure may be allowed, providing they do not compromise the historic character of the property. 

For buildings easements may pertain to the enterior, interior, or both.

An easement allows a property owner to retain private ownership of the property while insuring that the historic character of the property will be preserved.

Economics considerations

An easement-holding organization may require the easement donor to make an additional donation of funds to help the organization administer the easement.

Funds are often held in an endowment that generates an annual income to pay for easement administration (and, at lime, legal costs for enforcement) costs such as staff time for annual inspections or needed legal services.

According to the Internal Revenue Code, an income tax deduction may be available for a preservation easement protecting a certified historic structure or a historically important land area.

A property is considered a certified historic structure if it is a building, structure, or land area individually listed in the National Register of Historic Places, or if it is a building located in a registered historic district and is certified by the National Park Service as contributing to the historic significance of that district.

To claim the Federal income tax deduction for a historic preservation easement, at least some visual public access to the property must be available.

An easement donor makes a “qualified contribution” or "charitable contribution" of an easement, the donor may be entitled to Federal income tax deduction for the value of the easement.Federal estate taxes also may be reduced.

The value of the easement is generally the difference between the appraised fair market value of the property prior to conveying an easement and the appraised fair market value of the property after the easement.

Many State tax codes provide state tax benefits for conservation easement contributions where a reduction in the value of a property occurs.

There may also be local tax benefits where property tax assessment is based on a property’s highest and best use.

A property owner conveying an easement on an historic building that has or will be rehabilitated may also be eligible for a 20% tax credit under the Federal Historic Rehabilitation Tax Incentives Program.

An easement placed on a building that is the source of a reha- bilitation tax credit may be considered a partial disposittion of the building, which could affect the available tax credits.

Where rehabilitation tax credits have been claimed within five years preceding the easement donation, the Internal Revenue Code requires some reduction in the amount of the easement contribution deduction.

To be tax deductible, a preservation easement generally cannot be amended.


A conservation easement gives the organization to which it is conveyed the legal authority and responsibility to enforce its terms.

The organization that holds the easement must have the resources to manage and enforce the restrictions provided for in the easement and have a commitment to do so.

This includes the right to inspect the property to ensure that the owner is complying with the terms of the easement.

Proposed alterations to the property may require prior approval from the easement holding organization.

Planned architectural improvements can be submitted for consideration before the donation is completed. Individual donors may wish to add special easement provisions to protect specific interior or landscape features.

Congress has recognized the public benefits of the donation of preservation and conservation easements. Consequently, an easement donation may qualify for income, gift and estate tax deductions through Internal Revenue Code Section 170(h) and other sections.

Treasury regulations and tax court decisions have upheld easement valuations for certain family properties, historic land areas, and historic commercial rehabilitations.

In the 1990s, many states enacted comprehensive easement legislation, thus settling a number of issues regarding this mechanism for property stewardship.


Home Equity

The current market value of a home minus the outstanding mortgage balance. Home equity is essentially the amount of ownership that has been built up by the holder of the mortgage through payments and appreciation. Typically, residential property is bought through a mortgage, which is then paid off over a number of years, often 15 or 30. After the mortgage has been fully repaid, the property then belongs to the mortgagor, namely the buyer. In the interim, however, the buyer simply builds up equity in the home. This is what a home equity loan borrows against. Although that equity cannot be sold, banks will lend money against it. Home equity loans offer significant tax savings due to the fact that the interest paid on a home equity loan is tax-deductible.

The first type is the traditional home equity loan, also known as the second mortgage, which lends out a lump sum of money that must be repaid over a fixed period. The second type is the home equity line of credit, which provides the borrower with a checkbook or a credit card that is used to borrow funds against the home equity.

Second Mortgage

A mortgage taken out on property that already has one mortgage, with priority in settlement of claims given to the earlier mortgage. Liek others, a second mortgage is a loan that is secured by the equity in your home.

A secured loan (or mortgage) that is subordinate to another loan against the same property. More specifically, the second loan in sequence.

In real estate, a property can have multiple loans against it. The loan which is registered with county or city registry first is called the first mortgage. The loan registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are rarer.

Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage gets any money. Thus, second mortgages are riskier and generally have a higher interest rate.

Second mortgages enable borrowers to access their home equity without actually tapping the first mortgage. Borrowers frequently take out second mortgages to pay for the college education of their kids, consolidate debt or in case of urgent bills. By doing so, they avoid a worsening of the interest rate on the first mortgage whilst gaining liquidity for their financial needs.