DONATE

Tax Incentives & Implications

Voluntary donations of qualified conservation easements may be eligible for a charitable deduction from federal income taxes and a tax credit for New York State income taxes.
Qualified conservation easements:

• 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 easement 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 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 easement, as negotiated between us and the landowner. The difference in the two appraisals constitutes the value of the conservation easement donation.

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, our 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 easement 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. It is available to the current owners of New York conservation easement restricted land, regardless of when the agreement was created, provided that it was wholly or partially donated to HHLT or a governmental agency. A landowner with multiple conservation 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 tax they owe. Although landowners will continue to pay the same amount of property taxes on land protected by a conservation easement, 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 easement donors can understand the implications of this incentive to their personal financial circumstances.

Some conservation easements qualify as “qualified conservation contributions” under Section 170(h) of the Internal Revenue Code. To the extent they do, a federal income tax deduction may be available. A deduction generally is not available if the donor lacks “donative intent” – that is, the donor is making the donation because he or she is required to (for example, pursuant to a condition in a subdivision approval or other permit), or in cases where the donor is receiving some consideration or other “quid pro quo” in return for donating the easement. Each donor must consult with his or her own tax advisers. No person is authorized to make representations on behalf of HHLT regarding the availability or amount of any such deduction. We will not participate in a conservation easement donation where significant concerns about a claimed tax deduction are identified during the donation process.

If a donor intends to seek a tax deduction from the IRS for making a qualified charitable contribution of development rights, an appraisal must be obtained from a qualified appraiser who follows Uniform Standards of Professional Appraisal Practice. The appraisal must be completed not earlier than 60 days prior to closing on the easement donation, and no later than the due date (including extensions) of the income tax return on which the deduction is claimed. As required by Internal Revenue Code, this appraisal establishes proper value of the donation at the time of conveyance of development rights to HHLT.

Whether or not a tax deduction is sought, the landowner can obtain a preliminary appraisal or “opinion of value” to determine the effect restrictions may have on the value of the property. We can refer the landowner to qualified appraisers, as necessary. If the donor decides to seek a tax deduction, we will require a copy of the completed appraisal upon submission of IRS Form 8283 to HHLT for signature.

In the event that a mortgage exists on the property protected by the conservation easement and if the property owner plans to seek a tax deduction for the donation, Treasury Regulations require that the mortgagee (mortgage lender) subordinate its rights in the property to the right of the easement holder (HHLT) to enforce the conservation purposes of the gift in perpetuity. A standardized mortgage subordination document is signed by the property owner, the mortgage lender, and HHLT prior to the easement closing, and is legally filed, along with the conservation easement, at the county clerk’s office. As a practice, HHLT requires mortgage subordination (if a mortgage exists) whether or not the property owner plans to seek a tax deduction for the donation.

As part of the closing, each donor is required to sign a standard form (a) acknowledging that neither HHLT nor any person acting on its behalf has made any representations about the federal or other tax implications of the proposed donation, (b) representing that they are not, as of the date of the easement, required to do so under any condition to subdivision approval or other permit, and (c) agreeing that they shall not claim any federal or other deduction or credit in respect of the donation unless, following consultation with a professional tax adviser, they believe in good faith that they are entitled to such deduction.

Land Conservation And Stewardship