What are the tax benefits of donating a conservation easement?
Qualifying for tax benefits.
The tax advisor and appraiser hired by the landowner are responsible for making sure the conservation easement qualifies for tax benefits under the federal tax code. The Land Trust has prepared a booklet of introductory materials for landowners and their professionals. Click here to download the landowner booklet.
The Enhanced Conservation Easement Tax Deduction
With the President’s signature on the federal budget deal reached toward the end of 2015, the enhanced conservation tax deduction was made permanent. A landowner can deduct 50% of his or her income and carry forward for 15 years. This gives a donor a total of 16 years to absorb the value of a donated conservation easement. There are also enhanced benefits for farmers and ranchers. Qualifying farmers and ranchers who donate a conservation easement are eligible to deduct up to 100% of their income and can take 15 years to absorb the value of the donated conservation easement value. Depending on the landowner’s residence, state income tax deductions may also be available. Landowners considering the gift of a conservation easement should consult with their legal or tax advisors to learn how the gift may benefit them financially.
Example: We provide an example of a calculation of easement value for illustration only. The property described is a model, not an actual property. The Land Trust does not appraise property values, and recommends that landowners seek the advice of their personal legal and financial advisors.
John and Emma Smith own 250 acres of land along the South Fork Snake River in Madison County and wish to retain the right to build one house with a small guesthouse. The Smiths will retain use of their property for recreation and ranching.
The Smiths hired an appraiser with extensive conservation easement appraisal experience. After researching the sales of comparable properties already under conservation easement, the sales of developed and undeveloped properties and the terms of the conservation easement, the appraiser calculated the value of the conservation easement on this 250-acre property to be $900,000.
The Smiths make $140,000 a year, giving them a tax deduction of $70,000 a year for twelve years, with the remainder of the deduction left to be taken in year 13.
Income Tax Benefits
Landowners donating qualifying conservation easements may be eligible to deduct up to 50% of their adjusted gross income each year for the year of the easement donation and the following five years, or until the value of the easement gift is used up, whichever occurs first. Depending on the landowner’s residence, state income tax deductions may also be available. Landowners considering the gift of a conservation easement should consult with their legal or tax advisors to learn how the gift may benefit them financially.