Easements FAQ: Tax Benefits

How are the tax benefits of an easement calculated?

Federal income tax benefits: Under the IRS code, qualified conservation easement contributions can be treated as charitable gifts. As of August 2006, if the underlying property has been owned for more than one year, the value of the gift can be deducted at an amount of up to 50 percent of the donor’s adjusted gross income in the year of the gift. If the easement’s value exceeds 50 percent of the donor’s income, the excess can be carried forward and deducted (subject to the 50-percent limit) in each of the 14 succeeding tax years. Farmers may be able to deduct up to 100 per cent of their adjusted gross income. (These provisions expire at the end of 2007 but may well be extended. If they are not extended, the deduction would revert to 30 per cent of income, deductible over six years.).

If the easement’s value exceeds 30 percent of the donor’s income, the excess can be carried forward and deducted (subject to the 30-percent limit) in each of the five succeeding tax years.

Property tax benefits: Local tax assessors generally take into account the existence of conservation easement restrictions when assessing property. If the property is not already receiving farm-use valuation, this can result in lower property taxes.

Estate tax benefits: The donation of an easement, whether during a landowner’s life or by bequest, reduces the value of the property upon which estate taxes are calculated to its restricted or farm value. Thus, by reducing this tax burden through an easement donation, a landowner can help ensure that his or her family does not have to sell the farm just to pay the estate taxes. There are additional Federal estate tax benefits in some cases.

How long does an easement last?

Conservation easements must be perpetual in order to obtain any of the tax benefits. While some state programs accept term easements, West Virginia law and the Land Trust only allow perpetual easements. Easements, however, may be modified or terminated by the courts if the land or its surroundings change and make the conservation objectives of the easement impossible to achieve.