An owner of significant property can give up one or more of their rights in their property for conservation purposes, while still retaining ownership over the rest of their rights. Giving up a right in property (land or buildings) to a qualifying organization such as a land trust creates an "easement" which not only delivers a public benefit, but also provides the landowner with substantial tax savings.
Federal Income Tax Benefits
Donating conservation easements provides the following federal tax benefits, as set forth in 26 U.S. Code § 170:
- The value of the donation of a conservation easement is considered a charitable deduction for income tax purposes. The deduction is limited to 50% of the donor’s adjusted gross income (AGI) that year. Any excess amount may be carried over for up to 15 years, subject to the same AGI limitation.
- If the donor is in the business of farming and ranching, they may deduct up to 100% of their AGI, also with a 15-year carryover period.
- Deductions may be utilized by individuals and members of qualifying pass-through entities, including S-corporations, partnerships and LLCs. They are not, however, available to publicly traded companies.
Note that the IRS has been cracking down on historic easements, particularly donations of easements on historic homes which are already subject to restrictions under local ordinances.
The IRS requires the submission of Form 8283 with a timely filed federal income tax return in the year in which the conservation easement is donated. The landowner should be careful to select a land trust or other qualifying organization that is accredited or otherwise in good standing, and that files its annual Form 990.
State Tax Credits
In addition to federal income tax benefits, 15 states also offer state tax credits for donations of conservation easements: Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Iowa, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, South Carolina and Virginia. The tax credits vary from state to state, but generally range from 15-30%. There is no state income tax in Florida, but land in that state subject to a conservation easement is exempt from all state property tax.
California’s Natural Heritage Preservation Tax Credit Program of 2000 provides state tax credits amounting to 55% of the appraised fair market value of any donation of qualifying land or water rights, with a 15-year carryover period. The purpose of this tax program is to protect wildlife habitats, parks and other open spaces, agricultural land and water, and archaeological resources. Note that the tax credit period in California expires on June 30, 2020 – in addition to completion of the transaction, certain formalities must be met before that date, including the submission of a joint application to the Wildlife Conservation Board with the donee of the conservation easement, appraisal of the property, and a public hearing.
Conservation easement advisors
The highly experienced tax attorneys at Moskowitz, LLP are here to help you protect your assets and continue to build for the future. To learn more about how a conservation easement can work for your benefit, contact our San Francisco office today.