Federal Income Tax Deduction: A federal income tax deduction can be taken for conservation easements that meet the deduction criteria. The value of the deduction must be determined by a qualified appraisal and will be deducted against the landowner’s federal income tax. The federal income tax deduction is limited to 30% of the donor’s Adjusted Gross Income in the donation year. If the value of the easement exceeds the donor’s 30% deduction in the first year, the donor can carry forward the remaining balance for five additional years.

Example: If a landowner has an adjusted gross income of $60,000 and the conservation easement is valued at $100,000, the deduction in the first year would be $18,000. The remaining balance can be carried forward for five years until the donor has deducted the full $100,000 value of the conservation easement.

North Carolina State Income Tax Credit: North Carolina gives its residents a Conservation Tax Credit. This credit is 25% of the conservation easement or donated property as valued by a qualified appraisal. The unused portion can be carried forward for five additional years. The tax credit limit is $250,000 for individuals and $500,000 for corporations.

Example: If a landowner donates a conservation easement valued at $500,000, the donor can take up to a $125,000 tax credit in the donation year and carry forward the remaining balance for five additional years.

Virginia State Income Tax Credit: Virginia gives a Preservation of Land Tax Credit to Virginia taxpayers. Individuals and corporations can use the tax credit if they protect land in Virginia for historical or conservation purposes. The state tax credit is 40% of the conservation easement or donated property as valued by a qualified appraisal. The unused portion can be carried forward for five additional years. The tax credits can also be bought and sold either through brokers established for this purpose or directly between taxpayers. More information can be found at the Virginia Department of Taxation. The tax credit limit is $100,000 for each year.

Example: If a landowner donates a conservation easement valued at $500,000, the donor can take up to a $200,000 tax credit in the donation year and carry forward the remaining balance for five additional years.

Estate Tax Benefits: Because development pressures in the New River Basin dramatically increased property values during the past 20 years, many people are forced to sell lands that have been in the family for generations in order to pay estate taxes. Consider the New River Farm, a fictional working farm, but a true-to-life financial example. The family patriarch bought the ranch in the 1960s, when land was far less expensive. Today, it is worth $1,250,000. Mrs. Landowner is a widow, and the ranch comprises nearly her whole estate. She and her husband accumulated just $250,000 in other assets. Therefore, her total estate is worth $1.5 million. In nearly every state, the combined state and federal estate taxes would be around $200,000 - more than the surviving Landowner children could afford to pay, even though they want to see the ranch remain as open space. The solution may be the voluntary donation of a conservation easement, which legally limits the amount and type of development that can take place on land.

An easement can be tailored to a landowner's desires. The easement may, for example, permit construction of just two more large-lot homes but protect the land from construction of a subdivision. As a result, Mrs. Landowner may reduce the land's market value to $750,000, down from its current $1,250,000 value. Her estate, including $250,000 in other assets, would then be worth $1 million, and no estate taxes would be due. (Scenario adopted from the New Roxbury Land Trust.)

Section 2031(c) Exclusion: This estate tax exclusion is for the heirs of landowners who donated a conservation easement, in addition to the initial conservation easement deduction. The heirs can exclude an additional 40% of the remaining taxable value of the land up to $500,000 for their estate taxes. The family must have owned the land for at least three years prior to the landowner’s death.
Other Deductions: When a landowner donates a conservation easement or land they can also deduct appraisal costs, survey costs and legal fees. These are not charitable deductions but miscellaneous deductions. These and other miscellaneous deductions must exceed 2% of the donor’s adjusted gross income.

Conservation Options l Criteria l Tax Benefits l Protected Lands