One of the most direct and effective means of implementing government policies is the use of the tax code. Fortunately for land conservation, the U.S. tax code contains strong incentives for donating conservation easements. As noted elsewhere on this website, if a donated easement meets tax code requirements, there can be significant tax advantages for many donors.
Income Taxes:
For many years Congress has made it possible to deduct the value of a conservation easement from federal income taxes as a charitable contribution, if the development rights on land are donated to a land trust (or government entity). Under new legislation -- which expires at the end of 2009 -- there is a greatly increased incentive to do so.
The new rule is that up to 50% of a taxpayer’s Adjusted Gross Income (AGI) can be deducted in any year starting with the one in which the easement is donated, and any unused deduction can be carried forward for up 16 years in all. This incentive should be of particular interest to moderate-income taxpayers. Farmers are given even greater incentives to put easements on their land.
Capital Gains Taxes:
The 15% capital gains tax can take a significant bite out of the proceeds of a land sale if the property was acquired many years ago and/or at low cost. But by reducing the resale value of the land when the easement is placed upon it, the capital gain and thus the tax is somewhat reduced.
Inheritance Taxes:
Because an easement diminishes the value of land, any estate tax owed by heirs will also be diminished by a similar amount. In addition, for easement land up to 40% (maximum $500,000) may also be excluded from the value of the gross estate, thus reducing taxes further. These provisions may help those who wish to keep their land in the family and maintain its traditional use.
Postmortem Easement Donations:
Heirs who will inherit natural lands which do not previously have easements on them are allowed to have the decedent’s estate donate a conservation easement on the property, thus lowering any estate taxes due 9 months after death.
Property Taxes:
There is no such thing as a federal property tax. All property taxes are imposed by state and/or municipal tax codes.
The state of Connecticut currently has no direct tax incentive for donating conservation easements. However, significant property tax relief is available under the state’s so-called 490 tax abatement program when temporarily protecting 25 acres or more. This abatement is available whether or not a conservation easement exists, but the easement ensures the conservation objective will become permanent.
The town of Cornwall currently has no provision for property tax abatement when placing a conservation easement on land.
*************************************************
Advice of Tax Counsel:
The above comments are meant to generally illustrate the tax advantages of easements. These comments must NOT be considered expert advice. Please be sure to check with your lawyer and/or tax advisor before making any decisions which would affect your own particular situation.
Revised June 2008
`