State and Federal Tax Information for Donated Conservation Easements
This document is not intended to provide legal, tax, or financial advice. You should consult your professional advisers to learn about the current laws and regulations, and how they might apply to your situation.
Federal Charitable Income Tax Deductions
When a landowner conveys a gift of a conservation easement to a non-profit or public agency qualified to hold such interests, the landowner may qualify for a federal charitable income tax deduction under IRC section 170(h) if he or she donates or “bargain sells*” the conservation easement, which requires that the easement: 1) comply with state law requirements for easements in land: 2) be conveyed to a qualifying organization to hold the easement; and 3) be conveyed “exclusively for conservation purposes” and in perpetuity.
Landowners who donate a conservation easement may qualify to benefit in the following ways:
- They can use the value of the conservation easement to deduct 50% of their income;
- Farmers and ranchers can deduct up to 100% of their income; and
- The donor can take deductions for 15 years.
For example, John Smith donates a conservation easement whose value is $400,000. His annual income is $80,000. He can deduct 50% of his income which is $40,000/year for donating the conservation easement. He can make that decuction for 15 years. In this case, in the first year, he deducts $40,000 from his income and pays taxes on $40,000. He does that for the 2nd, 3rd, 4th, 5th years and after ten years, he will have deducted the full $400,000.
New York State Conservation Easement Tax Credit
The New York State conservation easement tax credit provides tax relief for owners of easement-restricted lands in New York. Qualified landowners will receive a credit on their annual state income tax for 25% of the total school district, county and town property taxes paid on their land restricted by a conservation easement. The credit is not available for property taxes paid on buildings and other improvements.
- The maximum allowable income tax credit is $5,000 per year.
- The conservation easement must have been contributed in full or in part to a private non-profit conservation group or to a government conservation agency.
- The tax credit does not result in a decrease of the property tax revenue of local school districts, towns and counties in New York
- The tax credit is available to all owners of easement-restricted lands, no matter when the easement was created.
- Landowners who are not New York residents are eligible for the tax credit, even if they have no New York sources of income.
- The tax credit runs with the land, so future owners, or owners who did not originally donate the easement, are also eligible for the credit.
* A “bargain sale” occurs when a property or conservation easement is sold below its appraised market value. For example, if a property or conservation easement is valued at $150,000 and the owners sell it to a qualified conservation organization for $100,000 the $50,000 difference is counted as a charitable contribution.