Protecting Your Land
Tax Advantages
Please note: The following material on potential tax benefits, and the accompanying examples, are intended to provide a potential donor with a basic understanding of the tax benefits of conservation easements. Many of the complexities affecting individual situations are not addressed. Therefore, a potential donor should consult his/her tax advisors regarding the tax benefits of conservation easements before taking any action.
What are the Potential Tax Benefits?
When a conservation easement meets federal requirements as a charitable gift, the donor of the easement may be entitled to a reduction in income and/or estate taxes.
Income Tax
The value of the easement as a charitable gift is determined by a qualified appraiser who values the property before and after the easement restrictions are applied. The difference between these two values is the amount of the charitable gift for tax purposes. This gift amount is treated as a regular charitable contribution. There are limiting provisions. If the basis (usually purchase price) of the property is used as the before-easement value of the property, the deduction is limited to a maximum of 50 percent of the donor’s adjusted gross income in that year. Any unused balance of the gift is limited to a maximum deduction of 50 percent of the adjusted gross income each year for the next five years. If the before-easement value of the property is determined by a qualified appraisal (rather than the basis as above), then the deduction is limited to a maximum of 30 percent of the donor’s adjusted gross income in the year of the donation and each year for the next five years. Generally, where property has appreciated in value, the 30 percent option may be more advantageous. The 50 percent election is generally more appropriate for taxpayers whose property has been recently acquired and has appreciated little.
Estate and Gift Taxes
Conservation easements will ordinarily result in a reduction of the property value for estate and gift purposes. This can ease the financial burden of passing the property on to heirs. Conservation easements are a significant and useful estate planning tool. The amount of value reduction is unique to each property, but is generally the difference between its subdivision development value and its agricultural value.
Corporate Income Tax
In the event that the property owner is a corporation, the easement gift may be deducted against 10 percent of the corporation’s annual net income before the year of donation with any unused balance limited to 10 percent of the annual net income each year for the next five years.
What Happens after the Easement is in Place?
Once a conservation easement is signed, NLT and the landowner begin a working relationship to assure that the intended conservation becomes a reality. NLT is not in the day-to-day land management business. Landowners continue to make all of their property management decisions while the easement limits only the broad parameters of land use, such as subdivision, commercial development, construction and surface mining. Annual monitoring visits are conducted by NLT stewardship staff. These visits foster good communication with the landowner and an opportunity to answer questions or respond to concerns. In many ways the conservation easement is a working partnership for the land. Mutual respect and clear understanding of easement terms have helped avoid potential conflict. This system has worked well for thousands of partnerships between land trusts and landowners across the country.
