Financial Benefits of Conservation Easements
Not only is there personal satisfaction and peace of mind from conserving your property for future generations, but there may be financial benefits for landowners who donate a conservation easement. These benefits may include a federal tax deduction, an estate tax reduction, and a New York State Property Tax Credit.
Federal Tax Reduction.
The temporary "Enhanced Easement Incentive" expired at the end of 2013 (read more). Under the enhanced incentive, conservation easement donors were able to deduct up to 50% (raised from 30%) of their adjusted gross income
when voluntarily donating an easement. Qualifying farmers were able to deduct up to 100% (raised from 50%) of their adjusted gross income. And, donors could carry unused deductions for their contribution over an additional 15 years (raised from 5 years).
Although the enhanced incentive may be retroactively renewed by Congress, currently, conservation easement donors may be able to deduct up to 30% of their adjusted gross income, and farmers may be able to deduct up to 50%. Donors may be able to carry unused deductions over an additional 5 years.
Jane owns a vacant 100-acre parcel that could be divided into 20 five-acre residential lots. The current fair market value for the property is $400,000. Jane protects her land with a conservation easement that limits development to 2 homes.
With these restrictions, Jane’s property is now appraised with a potential market value of $250,000. The difference between the market value of the property before and after the conservation easement is the value of the easement.
$400,000 – $250,000 = $150,000
The value of the conservation easement may be used to reduce federal income and estate taxes.
New York State Property Tax Credit.
Property owners with a conservation easement in New York may be eligible to receive a credit against their state income tax of up to 25% of school, county, and municipal real estate taxes with an annual cap of $5,000 per taxpayer, per year, on the undeveloped land. The tax credit does not reduce local property tax revenues, so it does not negatively impact town and county budgets..
Without proper planning, estate taxes may force landowners to split up and sell off the farm to pay estate taxes. A conservation easement reduces the appraised value of the property, subject to estate taxes. In addition, the landowner may exclude 40% of the appraised value from the taxable estate, up to $500,000.