The driving force
behind most donations of land or money to a land trust is a landowner's love
for the land and a wish to see that land preserved for future generations
to enjoy. However, the tax benefits can be substantial and add value for those
deciding to participate in a land protection program. Leaving a priceless
legacy can benefit both the land and the landowner.
Here is a brief
summary of tax-saving gift arrangements and ideas that conservation-minded
landowners should consider as they make financial and estate plans. An attorney
or tax planner can furnish more complete details.
Money or Other Financial Assets - Outright cash gifts are the simplest way
to support a land trust and gain a tax deduction. However, donations of other
assets, like securities, stocks, life insurance, or valuables such as artwork
or coin collections, also may be given to help a land trust's conservation
Gifts of Land - Real estate that meets a trust's acquisition criteria
will be protected in its natural state or according to terms and conditions
outlined in a conservation easement document. Other donated real estate-like
homes, vacant lots, or commercial and industrial properties - may be sold
(with development restrictions, if appropriate), with the proceeds used to
further the goals of the land trust. Gifts of appreciated real estate held
long-term may entitle thelandowner to an income tax deduction for its full-market
value, subject to certain limitations.
Donations of Conservation Easements - Potential federal income tax benefits
vary with the particulars or each donation. Essential points to consider include:
1) Work with a qualified conservation organization - The easement must be
granted to a qualified conservation organization, like a land trust or a public
agency charged with overseeing land conservation or historic preservation
2) Donations should be made for conservation purposes - An easement must be
granted exclusively for conservation purposes. This can cover preservation
of natural habitats or resource lands, historic sites, unique scenic landscapes,
wildlife corridors or connections to other preserved parcels, areas of concern
for public education or recreation, or open spaces in vicinity of intense
land development. In general, the maximum allowable deductions arise from
conservation easements donated over large tracts of open space in areas where
development pressures are intense.
3) Agreement must have permanence - The easement must be granted in perpetuity.
4) Deduction for donations are calculated differently - The amount a property
owner can deduct for a donated easement generally equals the reduction in
the property's value due to the easement or the difference between the property's
independently appraised value before the easement is granted and after the
easement's restrictions take effect.
5) Secure the proper appraisal - The appraisal that determines the easement
value must meet strict federal substantiation requirements as specified in
federal tax law regarding conservation easements.
Taxpayers cannot eliminate all taxable income by making charitable donations,
no matter how large the donations, In general, the deduction for charitable
donations or appreciated property cannot exceed 30 percent or the taxpayer's
adjusted gross income, although any excess amount may be carried forward and
deducted over the five succeeding years. Under some circumstances, the donor
may be subject to the Alternative Minimum Tax (AMT). An accountant or tax
lawyer can determine whether the AMT will apply.
Many heirs to large estates and large tracts of open space, farms, natural
areas and timberland, in particular, face substantial estate taxes. Even
if they wish to keep inherited property in an undeveloped condition, the
federal estate tax is levied not on the current-use value of the property
but on its "highest and best use," or the amount a developer
or speculator would pay. The resulting estate tax can be so steep, the
heirs must sell the property quickly to pay the taxes. A conservation
easement can reduce estate taxes because the donation of the easement
reduces the value of the property. An easement can be donated as part
of a will then deducted from the taxable estate. Also, as of July 1, 2020
the executor of an estate may place a conservation easement on a property
held within the estate.
Note: In the
2001 Tax Reform Bill estate taxes will be eliminated by 2010.
Local real property tax assessments are based on a property's full-market
value, which takes into consideration the property's development potential.
If a conservation easement reduces this potential and limits the property's
future use, the level of assessment and, accordingly, the amount of real property
taxes, may be reduced. In Wisconsin, local tax assessors are required by law
to consider the effects of a conservation easement when assessing property.