Federal and State Income Tax Benefits
Federal and State Income Tax Benefits for Donated Conservation Easements
Voluntary donations of qualified conservation easements may be eligible for a charitable deduction from state and federal income taxes. When a landowner donates a conservation easement which extinguishes certain development rights, those rights often have a monetary value. The value must be determined by an appraiser who is qualified to valuate conservation easements. The appraiser essentially completes two appraisals by comparing the landowner’s property to recent sales of similar properties in the area. The first appraisal calculates the full market value of the property, referred to as the “before value”, in which all development and subdivision rights are retained by the landowner. The second appraisal, the “after value”, calculates the value of the property with the limitations on development and subdivision rights established in the conservation easement as negotiated by the landowner and DLC. The difference in the two appraisals constitutes the value of the conservation easement gift.
In order to qualify for a federal income tax deduction, the land involved must meet certain IRS conservation criteria that establishes a public benefit. Public Benefit can include the preservation of scenic views and open space (such as farmland and forest land), natural habits or ecosystems, historic sites, as well as land for public outdoor education and/or recreation.
Introduced in 2006 as a temporary measure, the Enhanced Conservation Easement Tax Incentive was made permanent by Congress in late 2015. This enhanced tax incentive provides a broader group of landowners the ability to utilize tax benefits for donating a conservation easement on their land by:
- Raising the maximum deduction a landowner can take for donating a conservation easement from 30% to 50% of their adjusted gross income (AGI);
- Allowing a landowner who qualifies as a farmer or rancher to deduct up to 100% of their AGI; and
- Extending the total number of years over which a landowner can take deductions from 6 to 16 years, or until they reach the value of their conservation easement gift.
The enhanced incentive is helping to increase the pace of land conservation by enabling landowners to potentially get a significant tax benefit for donating a conservation easement on their land, and engaging more of our community in preserving the important resources and open lands of Dutchess County.
If you are interested in learning more about conservation tax incentives please contact us at (845) 677-3002.
A Few Notes on Qualified Appraisals: DLC encourages all landowners to request that their qualified appraiser provide a Restricted Appraisal Report, or “preliminary appraisal” prior to completing the donation of a conservation easement. The Restricted Appraisal Report provides an estimate of the value of the donation of a conservation easement, or charitable gift, and is intended to provide guidance for the landowner and their financial planners – it does not meet IRS requirements for claiming an income tax deduction. If, after reviewing the Restricted Appraisal Report, the landowner decides to proceed with donating a conservation easement, the landowner must request a complete Appraisal Report, often referred to as a “Summary” or “Full” Appraisal Report, from their qualified appraiser. The appraiser will provide the Full Appraisal Report after the conservation easement has been donated, and in time for filing the landowner’s tax return.