When a landowner donates a conservation easement, the landowner may qualify for certain tax benefits. The two main federal tax benefits associated with a donated conservation easement are income tax benefits and estate tax benefits. In some instances, landowners might also receive property tax benefits as a result of donating a conservation easement. The amount and type of tax benefit depends on a variety of factors, including the value of the donation, the landowner’s income level, and the total amount of his or her estate.
LPLC does not provide tax advice to landowners and highly recommends consulting financial advisors when considering potential or actual tax benefits of easement or land donations. Landowners should consult with a financial advisor and/or an attorney to fully understand the tax implications of their gift.
To be eligible for tax advantages, a conservation easement must:
- be permanent
- be donated by the landowner (or subject to a qualified bargain sale)
- meet one or more of the IRS conservation tests
- diminish the value of the property through the restrictions of the conservation easement
Potential for federal and state income tax benefits
Donation of an easement to LPLC is a potential charitable contribution. The value of the gift is equal to the difference between the value of the land before granting the conservation easement (when the land has development rights) and the value after the easement is granted (after development rights are reduced or eliminated). This charitable gift can be deducted from income for federal and state income tax purposes, as long as certain conditions are met.
The value of the gift must be determined by an appraisal performed by a certified appraiser that meets the qualification requirements outlined by the IRS. The date of value of the appraisal cannot be more than 60 days prior to the date of the conservation easement donation. The appraisal is extremely important. The appraiser must be aware of all IRS-required conservation easement appraisal standards.
New York State local property tax benefits
Owners of land in New York whose property is restricted by a conservation easement may be eligible to receive an annual, refundable tax credit equal to 25 percent of the combined town, county, and school taxes paid on the land during the previous tax year. The tax credit is capped at $5,000 per year for each qualifying landowner.
Potential for estate tax benefits
If a landowner dies, the estate taxes on the property will be lower, if the fair market value of the property has been lowered by a conservation easement. This may make the difference between an heir being able to keep the land and having to sell it in order to pay the estate taxes. Potential estate tax savings associated with a conservation easement are especially valuable for families that have land as a significant portion of their net worth.
Potential for property tax benefits
Property taxes on land subject to a conservation easement could be reduced if the tax assessor determines that the market value of their property is reduced because of the restrictions included in the easement. The property might also be protected from substantial tax increases resulting from subsequent neighboring developments.