Tax Benefits of Donating a Conservation Easement

Updated: 6/2015

Selling a property for development can be highly profitable, but a growing number of people are realizing that donating a conservation easement (and maintaining ownership of the land!) is also a financially beneficial option. The tax advantages vary depending on the size and current development value of the property. We strongly encourage you to consult with your personal financial or tax consultant to achieve maximum financial advantage for your situation. The following provides information on the general categories of tax considerations.

  • Property Tax Reduction: Under current law, landowners in Anne Arundel County who establish an easement with the Scenic Rivers Land Trust (SRLT) are eligible for a perpetual 100% County property tax relief on the unimproved portion of their land. SRLT will provide the landowner with the required documentation to secure this tax relief. Given the high rate of property tax, this advantage alone can result in significant savings.
 
  • Income Tax Deduction: A gift of a permanent conservation easement to SRLT constitutes a qualified charitable deduction for tax purposes.  The value of the easement  (the difference between the fair market value of the property before and after the easement is put in place) may be deducted from the donor’s income for purposes of calculating state and federal income tax.  The landowner may be able to claim a deduction of up to 30% of their adjusted gross income.  Unused deductions can be carried forward for five additional years, or until the value of the donation is reached, whichever occurs first. 
 
  • Estate Tax Reduction: For landowners who will leave sizable estates upon their death, the most important financial impact of a conservation easement may be a significant reduction in estate taxes. When property has been put into a permanent conservation easement, the easement limits the amount of development that can occur, thus lowering the appraised value of the land and therefore the estate tax valuation. In addition, there is an estate tax exclusion for certain land that is subject to a donated easement, see below.
 
  • Estate Tax Exclusion: Under the provisions of federal law, 40% of the value of land in an estate that has been put into a conservation easement may be excluded from the value of the estate. (This exclusion is currently capped at $500,000 per estate.) To qualify for the maximum 40% exclusion, the conservation easement must reduce the value of the property by at least 30% as a result of the development rights foregone by the easement. There is legislation currently in congress that may enhance this exclusion.
 
  • State Income Tax Credit: For larger properties, SRLT will often recommend that Maryland Environmental Trust (MET) cohold your easement. MET easements must be at least 20 acres and may have only one existing residence per 20 acres. With an MET easement, landowners have the option of an alternative to the State Income Tax Deduction, which is a State Income Tax Credit. The credit is up to $5,000 per year ($10,000 for husband and wife) against State income taxes for up to 15 years. One limitation is that the credit may not exceed the value of the donation. Also, a landowner will pay no state or local property tax on the unimproved land that is subject to a MET easement for 15 years from date of donation.
 

This information is for general planning purposes only. The tax advantages of easement donations will vary with individual financial situations. Please consult a tax advisor or attorney for how an easement donation would affect your taxes. Contact SRLT at 410-424-4000.