Donating land, or partial interests in land (such as a conservation easement), to an organization such as CLC can result in significant income, property, estate, and capital gains tax benefits, depending on your unique situation.
CLC provides the following as an informational resource to assist you in beginning a conversation with your own financial and tax advisors. The following should not be construed as legal or tax advice.
Donating Land Outright
There can be many benefits to conveying land outright (i.e., the land and all the structures and rights associated with it, also known as “the fee,” “fee simple estate” or “fee title”). Donating land to an organization such as CLC typically qualifies as a charitable gift for federal and state income tax purposes. Typically, the value of the gift, as determined by a qualified appraisal in accordance with IRS regulations, can be deducted from the donor’s Adjusted Gross Income (AGI) – up to 30% of AGI in the year of the gift, and in each of the following five years, until the value of the gift is used up. Once you no longer own the land, you are no longer responsible for management and upkeep, or for paying the property taxes. If the land is donated, there is no capital gain to be taxed, and the value of the land is removed from your taxable estate, reducing your estate tax exposure. Most importantly, whether you donate your land for conservation purposes or as a tradeland, you can rest assured that your gift will contribute to conservation in Columbia County!
Donating Conservation Easements
There are substantial tax incentives for donating conservation easements.
Income Tax Benefits
Federal tax law provides enhanced incentives for the donation of conservation easements that meet the “qualified conservation contribution” requirements of Internal Revenue Code Section 170(h) and Treas. Reg. § 1.170A-14. Individuals (and corporations that are taxed like individuals) can typically deduct up to 50% of their Adjusted Gross Income (AGI) in the year the gift and in each of the following 15 years, until the value of the charitable contribution is used up. Qualifying farmers can deduct up to 100% of AGI over the same time period. More information on the enhanced federal income tax incentives for the donation of conservation easements is available here. Many donors also see a reduction in state income tax liability as a result of the federal incentives.
NOTE: A recent rulemaking by the Internal Revenue Service has created some uncertainty about the impact of the New York State Conservation Tax Credit on the availability or the amount of the charitable deduction for a qualified conservation contribution.
Property Tax Benefits
The New York State Conservation Tax Credit provides New York State landowners whose land is restricted by a conservation easement that was established as a result of a donation (or partial donation) with an additional benefit: reduced property taxes. The benefit is available to the current owner of the protected land, regardless of whether or not it was the current owner who donated the conservation easement. The annual credit reduces property tax liability by 25% of the property taxes attributable to the land (not structures), up to $5,000 per year. Landowners must pay their property taxes in full, and the credit is provided subsequently by the state, regardless of whether landowners pay income taxes in NY. More information about the NY State Conservation Tax Credit is available here.
Landowners with or without conservation easements on their property may also wish to enroll in one of two state programs that provide a property tax reduction for eligible properties: the NY Forest Tax Program (480-A) and the NY Agricultural Assessment Program.
Estate Tax Benefits
Placing a conservation easement on a piece of land during one’s lifetime can significantly reduce the value of that property, thereby reducing the value of the landowner’s estate. Most families find it preferable to take the time to have discussions about the future of their land, and make decisions, before a crisis hits.
If you choose to convey a conservation easement in your will, it is still advantageous to talk with your chosen land trust early on, to be sure they are prepared to accept your gift, and to agree upon the terms of the conservation easement in advance. Gifts of conservation easement by will that qualify under Section 2055(f) of the Internal Revenue Code (IRC) may not be subject to estate tax.
In certain circumstances, and in accordance with IRC Section 2031(c)(9), heirs may even grant a conservation easement after the death of the landowner (but before filing estate tax returns) and still take advantage of the estate tax benefits. It is important to note that this option, while useful, requires the family to make significant, permanent decisions, under time pressure, shortly after the death of a loved one.
Section 2031(c) of the Internal Revenue Code may also allow beneficiaries to exclude an additional 40% of the land’s restricted value from the value of the estate, subject to certain conditions. Individuals interested in potentially utilizing IRC Section 2031(c) should work with their tax advisers or estate planners to explore this option in more detail.
Bargain Sales
When a landowner sells their property, or a conservation easement, to a charitable organization at a price that is below appraised value, the transaction is referred to as a “Bargain Sale.” Bargain Sales help non-profit conservation organizations like CLC to reduce costs, while offering several benefits to the landowner: they provide the seller with some cash from the sale; they provide a potential income tax deduction for the donated value; and they reduce potential capital gains tax exposure.
Other Transactions
Although conveying land and conservation easements are the most common ways for landowners to protect their land, other mechanisms are sometimes useful. If your unique situation is such that another tool might be best for you, such as a life estate or remainder interest, CLC staff can provide you and your tax advisors with some helpful resources on those topics as well. More information about Planned Giving is available on CLC’s website.