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.
Conservation Easement donors may deduct up to 30% of their adjusted gross income. Qualifying farmers may deduct up to 50% of their adjusted gross income. And, donors may carry unused deductions for their contribution over an additional 5 years.
Jane owns a 100-acre family farm that under current zoning rules could be divided into 20 five-acre residential lots. Based upon her ability to convert the farm to subdivision, the current fair market value for her property is $400,000. Instead, Jane places a conservation easement on the property that allows for only two homes, necessary agricultural structures, and the right to continue using the farm as her family has for generations. With the restrictions of the easement, 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 (in this case: $400,000-$250,000 = $150,000) is the value of the conservation easement that can be deducted from Jane’s federal income taxes. If the conservation easement is placed in 2012, Jane can deduct up to 30% of her adjusted gross income for up to a total of 6 years. If she is a qualified farmer, she can deduct up to 50% of her adjusted gross income for up to 6 years.
New York State Property Tax Credit.
The state of New York allows landowners with conservation easements to claim a state income tax credit worth 25% of annual property taxes on an easement property, up to $5,000 per year. While the landowner benefits from the income tax credit, local municipalities do not lose any tax revenue for vital local services.
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.