Tax Benefits to Landowners
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:
Federal Income Tax Deduction
A landowner’s donation of land or a conservation easement may constitute a charitable gift that is deductible for federal income tax purposes. The organization receiving the donation must be an eligible tax-exempt organization or governmental entity. A conservation easement donation must be permanent, must serve one or more “conservation purposes”, and meet certain other standards under the Internal Revenue Code. The value of the gift of land or a conservation easement must be established by an appraisal prepared by a qualified appraiser (as defined by the Internal Revenue Code) and completed no more than two months prior to the gift date and no later than the due date of the landowner’s tax return. 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.
Local Property Tax Reduction
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. As 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 at an amount not exceeding the value of open space under the New Hampshire current use assessment program. 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.
Estate and Inheritance Tax Reduction
Federal estate and state inheritance taxes may be imposed based upon the value of a person’s assets when he or she passes away. 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.
Gift Tax Reduction
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 financial advisor and/or attorney can best determine the applicability of any of these tax advantages to your particular situation. The Lakes Region Conservation Trust advises you to consult such a professional prior to making important decisions regarding your land.
For further information on conserving family or community lands, please contact LRCT President Don Berry at firstname.lastname@example.org.