Tax Incentives for Conservation Easement Donations
Voluntary donations of qualified conservation agreements may be eligible for a charitable deduction from federal income taxes and a tax credit for New York State income taxes.
Qualified conservation agreements:
- must meet the “conservation purposes” test as defined by Internal Revenue Code §170(h);
- cannot be donated as part of a “quid pro quo” agreement; and
- must be donated to a qualified, publicly-supported charity organization, like HHLT, that has “a commitment to protect the conservation purposes of the donation, and …the resources to enforce the restrictions.”
Federal Income Tax Incentive
When a landowner donates a conservation agreement and extinguishes certain development rights, those rights have a monetary value. In order to take a federal tax deduction, that value must be determined by a qualified appraiser. The appraiser essentially completes two appraisals. The first appraisal calculates the fair market value (FMV) of the property, in which all development and subdivision rights are retained by the landowner. The second appraisal calculates the value of the property with the limitations on development and subdivision rights established in the conservation agreement, as negotiated by the landowner and HHLT. The difference in the two appraisals constitutes the value of the conservation agreement gift.
For tax year 2014, the annual deduction is limited to 30% of adjusted gross income, which if not used up in 2014, may be carried forward at 30% of adjusted gross income for an additional five years or until the donation/value of the conservation agreement gift is fully expended, whichever comes first. (An enhanced federal deduction was available for the previous six years, but has now expired. It could be renewed for 2014 by Congress at a later date.)
An IRS Form 8283 must be filed with the donor’s IRS Form 1040 to obtain this deduction. The Form 8283 requires attachment of the appraiser’s declaration, HHLT’s acknowledgement of the gift, and depending upon the appraised value of the gift, a copy of the appraisal.
New York State Conservation Easement Tax Credit
A New York Conservation Easement Agreement Tax Credit officially became part of the New York State tax code in 2007 and qualifying taxpayers can receive the credit when filing their State income tax return each year.
This innovative tax credit gives New York State property owners whose land is restricted by a permanent conservation
agreement an annual rebate equivalent to 25% of the property taxes paid on their 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. Thus, it is available to the current owners of New York conservation agreement restricted land, regardless of when the agreement was created, provided that it was wholly or partially donated to a land trust or a governmental agency. A landowner with multiple conservation agreement-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 tax they owe. Although landowners will continue to pay the same amount of property taxes on land protected by a conservation agreement, if they qualify, they will benefit directly through the state income tax credit each year when filing the New York State income tax return.
As with any tax-related aspect of conservation donations, we strongly encourage the counsel of a qualified tax professional so that conservation agreement donors can understand the implications of this incentive to your personal financial circumstances.
For more information, please contact Katrina Shindledecker, Director of Land Preservation at 845-424-3358 x3.