Tax Benefits to Donating Land or an Easement
Note: This information is intended as general information, not specific legal or financial advice. You should consult your financial and/or legal adviser before engaging in any of these transactions.
Donating Conservation Easements
Donation of a Conservation Easement may entitle a landowner to significant federal and state income tax deductions.
Income Tax Benefits
The donation of a conservation easement is treated as a tax-deductible charitable contribution if it meets the “qualified conservation contribution” requirements of Internal Revenue Code Section 170(h) and Treas. Reg. § 1.170A-14. For income tax purposes, the value of the easement donation is the difference between the land’s value with the easement and its value without the easement, as determined by a certified New York State appraiser applying Uniform Standards of Professional Appraisal Practice. The appraisal must be conducted within the same tax year of, and no more than 60 days prior to, the donation of the easement.
The income tax benefits of a conservation easement to a corporation are similar to an individual taxpayer, except that a corporation can deduct only up to 10 percent of net income before the contribution deduction, per year, over six years after the donation of a conservation easement.
Property Tax Benefits
The New York State Conservation Tax Credit provides New York State landowners whose land is restricted by a donated, permanent conservation easement an annual dollar-for-dollar credit against State income tax equal to 25% of the property taxes paid on that land, up to $5,000 per year. Landowners with conservation easements may also place their land under the Agricultural or Forestry “current use” programs, which provide a property tax reduction.
Forms and instructions to file for this credit:
- Individual Form IT-242
- Individual Form IT-242 Instructions
- Corporation Form CT-242
- Corporation Form CT-242 Instructions
A conservation easement may, but will not necessarily also lower the assessed value of property in Columbia County. New York State grants broad authority to local assessors in determining how land protected with a conservation easement will be assessed. Landowners may notify their local assessors that an easement is in place and explain the terms of the easement. Many landowners who protect their land also enroll in the Agricultural Assessment or 480-a Forestry.
Conservation easements and donations of land can be conveyed post-mortem via a Will. In addition, estate beneficiaries and/or the executor may elect to place land under conservation easement after death, but before filing an estate tax return, thus reducing estate taxes.
In certain instances, Section 2031(c) of the Internal Revenue Code allows beneficiaries to exclude up to 40 percent of the otherwise taxable value of land (not structures) that is permanently protected with a qualifying conservation easement from the estate. There are a number of criteria that must be satisfied to qualify for this exclusion, and therefore individuals interested in Section 2031(c) should work with their tax advisers or estate planners to explore this option in more detail.
Donating land (with or without structures) may provide substantial federal and state income tax deductions, as well as possible estate tax benefits, while reducing capital gains taxes that would result from selling the property. When a landowner chooses to donate the fee title of his/her land to CLC, the landowner may be able to take the full fair market value of the land (as determined by a certified New York State appraiser) as a charitable deduction. (The landowner should of course discuss this with his/her financial advisor before taking any action.) In addition, the value of the land will be removed from the landowner’s estate, reducing estate tax exposure. Because the landowner no longer owns the property, he/she will no longer have to pay property taxes, yet will know that the property will be protected for future generations.
A Bargain Sale makes a conservation project more affordable for CLC and offers several benefits to the landowner: it provides cash from the sale, reduces capital gains tax exposure, and entitles one to a charitable income tax deduction based on the difference between the land’s fair market value (as determined by a certified New York State appraiser) and its sale price.
Tax Benefits of Donating a Remainder Interest in Land
By donating a remainder interest in property, landowners can continue to enjoy their land throughout their lifetime and may also be eligible for an income tax deduction when the gift is made. The deduction is based on the fair market value of the donated property less the expected value of the reserved life estate.
Tax Benefits of Land or Easement Bequests
Making a donation as a bequest can significantly reduce estate taxes while ensuring that a donor’s conservation goals are carried out. However, donating through a will (rather than during one’s lifetime) means that the donor will not receive any income tax benefits and will continue to be liable for property taxes.