This section is for informational purposes only – landowners must consult their own attorney and tax advisor. Your own tax result will depend on the value of your gift and your personal financial situation.
Potential Tax Advantages of Conserving Property
Income Tax Benefits
Gifts of appreciated land or conservation easements to a public agency or a land trust may qualify as a deduction from your Federal Income Taxes. As with all non-cash charitable contributions, the amount you can deduct in one year is limited to 30% of your Adjusted Gross Income. Any remaining value can be carried forward as deductions in the next five years, applied each year up to the 30% limit. This tax deduction is also available in a bargain sale scenario.
A second option is the 50% limitation election, where the landowner can elect to claim a deduction for the property’s basis (price originally paid or value when inherited) and can deduct up to 50% of their Adjusted Gross Income per year. This election is usually made when there has not been a significant increase in the value of the property, but the landowner should run the numbers for both scenarios before making a decision.
Estate Tax Benefits
Many heirs to large tracts of property face significant estate taxes. Estate tax is levied on a property’s "highest and best use" - the resulting tax burden can be so large that the heirs must sell the property to pay the taxes.
A conservation easement may reduce estate taxes because the donation of the easement reduces the value of the property. An easement can be donated through a will and deducted from the taxable estate. Easements can also be donated or made stronger post-mortem by the Executor of the estate.
In certain circumstances, Federal tax law also allows for a 40% reduction in the value of land subject to a conservation easement. Other exclusions may also apply so be sure to consult your tax advisor about these possible advantages.
Property Tax Benefits
Local real estate property tax assessments are based on a property's full-market value, which takes into consideration the property's development potential. A conservation restriction will often considerably reduce the value of a piece of property; the level of assessment and amount of real property taxes may be reduced if the town assessor chooses to allow it. In Connecticut, there has been wide variation in how easements are considered by assessors across the state.
The above information was adapted from the Land Trust Alliance’s Conservation Options, A Landowner’s Guide. Another source of information you may want to consult is Stephen Small’s Preserving Family Lands. Both publications are available for purchase from the Land Trust Alliance.
Please visit the Land Trust Alliance website for more comprehensive information on:
- Federal Tax Regulations for All Conservation Contributions.
- The Conservation Easement Incentive (set to expire in 2011).
- Other Federal Tax Incentives that support land conservation.