Federal Income Tax Deduction

The federal income tax benefits of donating a conservation easement are similar to those of making other charitable contributions. A landowner may be able to deduct up to the full value of the conservation easement from his or her federal income taxes.

Tax laws require that the value of the conservation easement be determined by an appraiser. The value of a conservation easement donation is greatest in areas where development pressure is most intense and lower in remote areas. Likewise, a conservation easement that prohibits any development will have a higher value than an easement that permits a property to be divided or developed.

A tract of land may be worth $120,000 as a potential residential development, but only worth $20,000 as open space or recreational property. If a landowner donated a conservation easement to a land trust that prohibited new construction on his property, he would be making a charitable contribution of $100,000. The landowner may then be eligible for up to $100,000 in federal income tax deductions.

If the conservation easement meets IRS criteria, the landowner may deduct the full value of the conservation easement donation from his or her adjusted gross income, up to 30 percent of the landowner's income for the year of the gift. If the donation exceeds this amount in the year of the donation, the excess balance of the donation may be deducted for up to five succeeding years, subject to the same 30 percent limitation.

A landowner with a $60,000 adjusted annual income donates a conservation easement worth $100,000 to a land trust. The landowner can deduct 30 percent of his $60,000 income, or $18,000, in each of Years 1-5 and the remaining $10,000 in Year 6.

In some situations, landowners may opt to use the "step down election" which increases the limit of the deduction from 30 percent to 50 percent of an individual's annual adjusted gross income. However, the step down election generally requires that the deduction be based on the property's "tax basis," usually the amount paid for the property when purchased. Landowners should discuss the implications of both the 30 percent and 50 percent deduction limits with tax professionals.

Conservation easements can be phased in on portions of a property over time, should the value of the charitable donation exceed a landowner's ability to use the income tax deduction over the allowed six years. Subject to certain limitations, some of the expenses incurred by a landowner in the donation process, including the costs for appraisals, surveys, legal review and title insurance, can also be tax deductible.

Conservation Easements
What Is a Conservation Easement?
Why Use a Conservation Easement?
What is the Uniform Conservation Easement Act?
Frequently Asked Questions about Conservation Easements
Financial Benefits of Conservation Easements
Federal Income Tax Deduction
Estate Taxes
Local Property Taxes
Land Trusts
What Next?
Appendices

Photos by Michael Kelly