In conveying land or a conservation easement to a land conservation organization, a landowner and his or her heirs may be eligible for a number of tax advantages, as follows:
Income Taxes: A landowner’s donation of land or a conservation easement may constitute a charitable gift that is deductible for federal income tax purposes. The easement must be donated to an eligible tax-exempt organization or governmental entity and must remain in effect in perpetuity. It must also serve one or more “conservation purposes” and meet certain other standards under the Internal Revenue Code. The value of the gift, determined by a qualified appraiser, is equal to the difference between the fair market value of the property before and after the easement takes effect. The amount that a landowner can deduct is based upon the value of the gift when it is made and is further defined by the landowner’s particular tax situation.
Estate and Inheritance Taxes: Federal estate and state inheritance taxes may be imposed upon the value of a person’s assets after he or she passes away, even if the assets were left to heirs under a valid will. Such taxes can be substantial, sometimes forcing heirs to sell inherited property to pay taxes, a result neither the landowner nor the heirs intended. When a landowner donates land or a conservation easement while still living, the value of his or her taxable assets is lowered, thereby reducing potential estate tax liability. A landowner may find that a land or conservation easement donation is an effective way to protect heirs from burdensome estate taxes on highly valued land, secure the land from unwanted development in the future, and ensure that the family’s vision for the land can be fulfilled.
Property Taxes: When land is conveyed to a conservation organization, the former landowner no longer has the responsibility of paying property taxes on the land. When a conservation easement is conveyed, rights to develop the property are eliminated. Because local property taxes are ordinarily based upon the value of the “highest and best” use of the land, which often is development, the conservation easement has the effect of reducing the value of the property. New Hampshire law requires towns to assess land subject to a conservation easement based upon the more limited uses allowed by the easement, and in no case at an amount exceeding the value that would be assessed under the New Hampshire current use assessment program. Consequently, a conservation easement may result in a substantial reduction in property taxes. Note that if the land is already enrolled in current use, a conservation easement is not likely to have a material effect on the property taxes.
Gift Taxes: When a landowner intends to give all or part of his or her land to a child or other person during his or her lifetime, the gift will be subject to federal gift taxes if its value exceeds a certain amount. Granting a conservation easement prior to giving land to others may reduce or even eliminate the gift tax by lowering the value of the land.
In addition to the possible tax advantages outlined above, certain costs and fees associated with a charitable gift of land or a conservation easement may be tax deductible.
Your tax advisor and/or attorney can best determine the applicability of any of these tax advantages your particular situation. The Lakes Region Conservation Trust advises you to consult such a professional prior to making important decisions regarding your land.