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 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.
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