TAX INCENTIVES FOR CONSERVATION EASEMENT DONATIONS

The Hudson Highlands Land Trust and the Land Trust Alliance have been working hard at both state and federal levels to create greater tax incentives for landowners considering conservation donations. In part, this effort was meant to respond to commonly asked questions regarding the affect of donating a conservation easement on federal income taxes, and whether a donated conservation easement reduces a landowner’s property taxes. In 2006, our efforts paid off!

New York State Conservation Easement Tax Credit

A New York Conservation Easement Tax Credit officially became part of the State tax code in 2006 and qualifying taxpayers can receive the credit when filing their State income tax return.

This innovative credit gives New York State property owners whose land is restricted by a permanent conservation easement an annual rebate of 25% of the property taxes paid on that land, up to $5,000 per year.

Qualifying landowners are able to claim this rebate when they file their New York State income tax returns, starting with the initial donation year and annually thereafter. It is available to all owners of easement-restricted land, regardless of when the easement was created, provided that the easement was wholly or partially donated to a land trust or a governmental agency. A landowner with multiple easement-restricted parcels will be able to claim more than one tax credit, but no individual taxpayer or corporation may claim more than $5,000 in a single year. Eligible landowners will receive the credit regardless of how much income taxes they owe. So, although you will continue to pay the same amount of property taxes on land protected by conservation easements, if you qualify you will benefit directly through this State income tax credit.

As with any tax-related aspect of conservation donations, we strongly encourage you to seek counsel from a qualified tax professional so that you can understand the implications of this new incentive to your personal financial circumstances.

Federal Income Tax Incentive Expanded & Extended

The Pension Protection Act, 2006 offers a tremendous expansion of the federal tax incentive for conservation easement donations made in 2006 and 2007. In spring 2008, these tax benefits were extended until December 31, 2009!

Specifically, the new law:

  • Raises the deduction a landowner can take for donating a conservation easement from 30% of their adjusted gross income in any year to 50%;
  • Increases the number of years over which a donor can take those deductions from 6 years to 16 years; and
  • Allows qualifying farmers to deduct up to 100% of their income.

Here’s an example of how the new legislation might affect a local landowner donating a conservation easement to HHLT:

  • Under the previous rules, a landowner earning $50,000 a year who donated a conservation easement worth $500,000 could take a $15,000 deduction for the year of the donation and for an additional 5 years – a total of $90,000 in tax deductions.
  • The new rules allow that landowner to deduct $25,000 for the year of the donation and then for an additional 15 years. That’s $400,000 in deductions. If the landowner qualifies as a farmer, they can zero out their taxes. In that case, they could take a maximum of $500,000 in deductions for their gift, over 10 years.

Of course, other than the incentives listed above, the IRS requirements for donations of easements have not changed and are subject to the same restrictions as they were before. For example, easements must meet the "conservation purposes" test defined in the existing law; they cannot be donated as part of a "quid pro quo" agreement; and they must be donated to a qualified, publicly-supported charity organization, like your Land Trust — that has "a commitment to protect the conservation purposes of the donation, and …the resources to enforce the restrictions."