Overview of Tax Benefits

Learn more about the tax benefits associated with donating a conservation easement.

Property Tax Benefits
State Income Tax Benefits
Federal Income Tax Benefits
Estate Tax Benefits 

Last updated December 2015

Property Tax Benefits

In Virginia counties where use value taxation is in place, land subject to a conservation easement is usually entitled to taxation at use value rates. However, all houses, farm buildings or other structures will still be taxed at their fair market value.

PEC provided the following summary of the tax benefits of conservation easements for informational purposes only. Please consult your attorney and/or accountant for professional advice on the implications of an easement donation for your own tax situation. 

State Income Tax Benefits

In addition to the Federal, Estate, and Property tax benefits of donating a conservation easement, easement donors in Virginia may be eligible for a significant state income tax credit. Moreover, easement donors who have more credit than they can use may sell their tax credits to other taxpayers.

A landowner who donates a conservation easement in 2015 and beyond is eligible to receive a Virginia Land Preservation Tax Credit (LPTC) equal to 40% of the value of the easement. The landowner may use the credit to offset his/her Virginia income tax. If the credit is not fully used in the year of the easement donation, it can be carried forward for an additional thirteen (13) years. Furthermore, these tax credits may be sold or transferred to other Virginia taxpayers.

  • An Example: A landowner who donates an easement worth $500,000 would receive a Virginia LPTC of $200,000 (40% of $500,000). Assuming that landowner pays $10,000 of Virginia income tax per year they would be able to use $10,000 of the credit for year 1 plus a 13-year carryforward thereby using $140,000 of the $200,000 credit available to them. The remaining $60,000 in credit available to the landowner could be sold to other Virginia income tax payers. Alternatively, the landowner could simply elect to save a smaller portion of the credit for themselves and sell all the balance right away in order to get more financial benefit up front.
  • Annual Usage Limit: There is an annual cap on the amount of LPTCs that can be used per year. For 2015 and 2016 that cap is $20,000 per taxpayer per year ($40,000 per married couple) and for 2017 and beyond it is $50,000 per year ($100,000 per married couple).
  • Transfer Fee: When the LPTC is sold or transferred from one party to another, the Virginia Department of Taxation assesses a transfer fee of 5% of the amount of credits transferred.
  • Credits Issued Per Year: The Virginia Department of Taxation may only issue up to $75 million in tax credit per year. The credit is issued to conservation easement donors on a first come first served bases. Easement donors applying for credits after the cap has been reached will receive credits from the follow year’s allocation.

Federal Income Tax Benefits

The donation of a conservation easement is a charitable gift and the value of the donation may be deducted from the donor's income. A qualified appraiser December, 2015 will need to determine the value of the easement by comparing the pre-easement property value to the post-easement value.

For conservation easements donated in 2015 and beyond, the value of the donation may be deducted at the rate of 50% of the donor’s Adjusted Gross Income (AGI) per year and any remaining deduction may be carried forward an additional 15 years (year 1 plus 15 years allows for a total of 16 years to use deduction). Further, “farmers” (meaning individuals with 50% or more of their income coming from agriculture) are able to deduct the donation at the rate of 100% of AGI per year.

Estate Tax Benefits

In 2016, a husband and wife can exclude as much as $10.9 million (indexed for inflation) worth of assets from their taxable estate and as a result for most estates there will be no tax due. That said, when there is a large estate, the tax rate can be as high as 40% of the assets over the $10.9 million exclusion. In such circumstances, donating an easement can reduce these taxes in two ways:

  • First, the estate will have been reduced by the value of the easement (smaller estate value means less—or perhaps no—estate tax due).
  • Second, the American Farm and Ranch Protection Act of 1997 allows heirs to exclude up to an additional 40% of the remaining value of their protected land from estate (subject to a $500,000 cap).

PEC provided this summary of the tax benefits of conservation easements for informational purposes only. Please consult your attorney and/or accountant for professional advice on the implications of an easement donation for your own tax situation.

 
 
 

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