Not only is there personal satisfaction and peace of mind from conserving your property for future generations, but there may be financial benefits for landowners who donate a conservation easement. These benefits may include a federal tax deduction, an estate tax reduction, and a New York State Property Tax Credit. We strongly recommend that all landowners consult a tax professional about the potential financial benefits associated with conservation easements.
Federal Tax Deduction
The “Enhanced Easement Incentive” was made permanent in 2015 (read more). Under the enhanced incentive, conservation easement donors are able to deduct up to 50% of their adjusted gross income when voluntarily donating an easement. Qualifying farmers are able to deduct up to 100% of their adjusted gross income. And, donors can carry unused deductions for their contribution over an additional 15 years.
Jane owns a vacant 100-acre parcel that could be divided into 20 five-acre residential lots. The current fair market value for the property is $400,000. Jane protects her land with a conservation easement that limits development to 2 homes.
With these restrictions, Jane’s property is now appraised with a potential market value of $250,000. The difference between the market value of the property before and after the conservation easement is the value of the easement.
$400,000 – $250,000 = $150,000
The value of the conservation easement may be used to reduce federal income and estate taxes.
New York State Conservation Easement Tax Credit
Property owners with a conservation easement in New York may be eligible to receive a credit against their state income tax of up to 25% of school, county, and municipal real estate taxes with an annual cap of $5,000 per taxpayer, per year, on the undeveloped land. The tax credit does not reduce local property tax revenues, so it does not negatively impact town and county budgets.
Without proper planning, estate taxes may force landowners to split up and sell off the farm to pay estate taxes. A conservation easement reduces the appraised value of the property, subject to estate taxes. In addition, the landowner may exclude 40% of the appraised value from the taxable estate, up to $500,000.
– Rachel Carson