Tax Incentives for Donations of Conservation Land
Donating a conservation easement allows you to continue to own the land you love while conserving and protecting Georgia’s natural heritage. In addition, you may be eligible for certain federal, state and estate tax benefits for qualifying donations.
The following summary is for general informational purposes only. Landowners must obtain professional financial planning and legal advice in order to determine if and how the federal deduction might apply to their specific situation.
1. Federal Income Tax Benefits for the Donation of Conservation Land:
Federal law provides for a federal charitable tax deduction for the value of a qualifying easement. The landowner is required to obtain a qualified appraisal and submit IRS form 8283.
What easements qualify?
The conservation easement must be donated, permanent, and held by a land trust.
The conservation easement must protect one or more of the following conservation values:
- Outdoor recreation or education resources;
- Significant natural habitat;
- Open space for the scenic enjoyment of the public, providing a significant public benefit;
- Open space, including farms and forests, pursuant to governmental policy, providing a significant public benefit.
How the tax deduction works
- The conservation easement’s value (the landowner’s charitable donation) is the difference between the property’s value before the CE and the value of the property with the CE, as determined by a qualified appraisal. Typically, the more rights given up in the CE, the higher the CE value.
- The deduction for 2015 is generally equal to 30 percent of the landowner’s adjusted gross income (AGI) with a carry forward of 5 years.
Federal Tax Example: Landowner creates an easement on 200 acres of forest
Landowner creates an easement on land that is valued at $1 million before the conservation easement is placed. The land is now worth $600,000. The value of the CE is therefore $400,000, (i.e. $1million minus $600,000). The landowner can deduct a portion of the CE value equal to 30 percent of her AGI. If the landowner’s AGI is $50,000, then she can take a $15,000 deduction for the year of the donation and for the next five years, for a total of $75,000 in deductions.
2. State Income Tax Benefits for the Donation of Conservation Land:
In Georgia, taxpayers who meet state requirements may claim a credit on their state income tax for the value of their qualifying conservation easement or fee simple donation. As of January 2013 these requirements include:
- The property must meet two of the five possible Conservation Purposes as identified by the Department of Natural Resources and listed by the Georgia Land Conservation Program. To view this list, go to glcp.org.ga.gov\taxcredit or call 770-918-6411.
- Other conservation easement requirements include mandatory 100-foot vegetated riparian buffers with no new construction within 150 feet, no subdivision of parcels under 500 acres and only one subdivision if property is greater than 500 acres, and new construction limited to 1 percent of property.
- A $5,000 application fee to the state, certification of the conservation easement by the Georgia Land Conservation Program, and approval of the appraisal by the State Property Commission.
- The easement must be held by a “qualified land trust.” The Oconee River Land Trust has obtained this designation.
How the state tax credit works:
- The tax credit is equal to 25 percent of the conservation easement’s value up to a maximum of $250,000 for individuals, and $500,000 for corporations and partnerships.
- The tax credit may not exceed the amount of tax owed.
- Any unused portion of the tax credit may be carried forward for the next 10 years.
- The State Tax Credit is transferrable. The rules governing this can be found Rules of Department of Revenue, Chapter 560-7-8-.50.
- There are other requirements that must be adhered to, and consultation with your tax adviser is strongly recommended.
- There is a process for pre-certification and certification of the conservation easement.
Estate Tax Benefit
A conservation easement will typically reduce the value of a property, which in turn reduces the value of your estate for your heirs. Easements can be a part of good estate planning and may yield substantial benefits. Because each landowner’s situation is unique, landowners must determine, with the help of their advisor, if a conservation easement would play a useful role in their estate planning. In addition to the reduction in value, the federal tax law allows an exclusion of 40 percent of the restricted property value of qualifying conservation easements, up to a maximum of $500,000.
A landowner placed a qualifying conservation easement on her property, originally worth $1 million dollars. At her death, her easement-restricted property is worth $600,000. Thus, the value of the estate has been reduced by $400,000, thereby reducing potential estate taxes.
In addition, the landowner’s executor may elect to exclude 40 percent of the property’s value from the estate—in this case, an additional $240,000 (40% x $600,000). The conservation easement has therefore reduced the taxable value of the landowner’s property by $640,000: $400,000 from the initial reduction in value and $240,000 due to the exclusion.
3. Property Tax Benefits:
Property taxes may also be reduced on land protected by a conservation easement. If the easement reduces the fair market value of the land, the local tax assessor may recognize that the property taxes should likewise be decreased. The local assessor is required by state law to reevaluate the property once the easement is recorded, but there is no standardized treatment by assessors. Property owners must work with their local assessor to determine the conservation easement’s affect on property taxes.