An owner of a significant piece of land or a building can give up one or more of their rights in that property for conservation purposes, while still retaining the rest of their rights. Giving up a right in property (land or buildings) to a qualifying organization such as a land trust creates an “easement” which not only delivers a public benefit, but also provides the landowner with substantial tax savings.
Conservation easement tax deduction
Donating conservation easements provides the following federal tax benefits, as set forth in 26 U.S. Code § 170:
- The value of the donation of a conservation easement is considered a charitable deduction for income tax purposes. The deduction is up to 50% of the donor’s charitable contribution base (adjusted gross income, less net operating loss carryback) for the taxable year. Any excess amount may be carried over for up to 15 years, subject to the same AGI limitation.
- If the donor is in the business of farming and ranching, they may deduct up to 100% of their charitable contribution base.
- Deductions may be utilized by individuals and members of qualifying pass-through entities, including S-corporations, partnerships and LLCs. They are not, however, available to publicly traded companies.
Note that the IRS has been cracking down on historic easements, particularly donations of easements on historic homes which are already subject to restrictions under local ordinances. Syndicated conservation easement abuses (in which promoters pool conservation easement investors to fund an LLC or partnership, and claim inflated tax deductions through unreasonably high land valuations) are also being closely scrutinized.
The IRS requires the submission of Form 8283 with a timely filed federal income tax return in the year in which the conservation easement is donated. The landowner should be careful to select a land trust or other qualifying organization that is accredited or otherwise in good standing, and that files its annual Form 990.
State tax credits
In addition to federal income tax benefits, 14 states and Puerto Rico also offer state tax credits for donations of conservation easements. The tax credits vary from state to state, but generally range from 15-30%.
California’s Natural Heritage Preservation Tax Credit Program provides state tax credits amounting to 55% of the appraised fair market value of any donation of qualifying land or water rights. The purpose of this tax program is to protect wildlife habitats, parks and other open spaces, agricultural land and water, and archaeological resources. This process involves the submission of a joint application to the Wildlife Conservation Board with the donee of the conservation easement, appraisal of the property, and a public hearing.
Conservation easement advisors
The highly experienced tax attorneys at Moskowitz, LLP are here to help you protect your assets and continue to build for the future. To learn more about how a conservation easement can work for your benefit, contact our San Francisco office today.
Warning: Note that the government has significantly increased enforcement actions for conservation easement transactions, and coordinated audits are being conducted throughout the various examination divisions of the IRS. We advise taxpayers to be cautious of promoters assembling syndicated conservation easements, in which investors in partnerships and other pass-through entities are offered charitable contribution deductions in amounts that significantly exceed the amount invested. To learn more about the IRS crackdown on fraudulent conservation easements, see Notice 2017-10.
4 thoughts on “Income Tax Benefits of Donating Conservation Easements”
Thank you so much for taking the time to share this. Yes, the law provides additional tax benefits for landowners to place a conservation easement. Voluntary agreements between landowners and a land trust that permanently limit uses of the land in order to protect its conservation values.
I’m very happy because there is an existing law like this. To those people who are involved to work on this, you did a great job guys!!
Thanks for all this information dedicated to your article,I will try to see the notice 2017 to better understand the repression of the IRS against the easements.
The question is whether there is a limitation on the ability of a valid trust entity for the benefit of an individual to take a conservation easement deduction when the trust owns limited partnership interests in an LP which is the owner of the real property and which donates the conservation easement to benefit from the donation of the CE by the LP.
ie LP donates the easement on land which it owns, LP takes the deduction, thereby educing reportable income for the year of donation (and for future years if applicable). LP is a pass-through entity. LP interest is owned by a trust. Does the tax benefit pass through to the trust?
Thank you, Ryland Howard