Tax Considerations
Potential Tax Advantages of Conserving Property
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.
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. The Enhanced Conservation Easement Tax Incentives for conservation easement donations was made permanent in 2015. The enhanced incentive for donation or bargain sales of conservation easements raises the deduction from 30% to 50% and extends the carry forward period from 5 to 15 years and provides other incentives for qualified landowners. 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.
Bargain Sales
When a landowner sells property to an eligible conservation organization at a bargain price (i.e. less than fair market value [FMV]), they may claim a charitable deduction equal to the difference between the FMV of the property and the sales price.
The many conditions of donation or bargain sale for conservation easements (IRC Section 1709h) are further fleshed out by Treasury Regulations 1.170A-14)). These conditions must be fulfilled in order to qualify for the federal tax deduction. The landowner may still donate even if they don't qualify for a federal deduction, but they still need to meet requirements of state conservation easement law and land trust requirements.
