Tax Benefits of Donating Conservation LandBy: Robert Levin
There are several kinds of tax benefits available to donors of land or conservation easements. This article attempts to summarize these benefits and provide some examples of how they work. If you are uncertain about the differences between bargain sales and donations, or conservation easements and whole interests in property, go to Conservation 101 for a quick brush up.
Federal Tax Benefits
There are two main kinds of federal tax benefits available to conservation donors: federal income tax benefits and federal estate tax benefits.
Federal Income Tax Benefits- Donors of land and conservation easements may claim an income tax deduction under § 170 of the Internal Revenue Code. The exact amount of tax savings depends on several factors:
- How long the donor has owned the property (benefits are generally greater if owned for more than one year);
- How the donor has used the property (residence, investment, agricultural);
- The income of the donor (the higher one’s income, the more one will save on taxes); and
- The value of the donated property (the more valuable the property, the bigger the deduction).
Federal Estate Tax Benefits - A donor may also save substantially on estate taxes if he donates a conservation easement. Under § 2031(c) of the Code, up to $500,000 may be excluded from one’s taxable estate if he or she had donated a qualifying easement. As with the income tax benefits, the larger the value of the donated easement, the bigger the deduction.
The federal estate tax is currently in great flux. In 2003, any estate of $1 million or more is subject to the estate tax. This number rises gradually and the estate tax is completely phased out in 2010. But in 2011, the estate tax is back, along with the $1 million threshold. It is likely that Congress will revisit the estate tax in the coming years, so it is impossible to make any long-term predictions.
State Tax Benefits
Some states have enacted income tax deductions or credits for the donation of land or conservation easements. Check with your local land trust for more information. For example, there is no such state income tax benefit in Maine.
Local Property Tax Benefits
In general, property tax reductions are available for landowners who grant land or a conservation easement. The exact results depend on state law. In Maine, for example, property subject to a conservation easement. will qualify under the Open Space Tax Program. The landowner must file an application with the local tax assessor, who will then make the final decision on the amount of the reduction.