DONATING LAND OR CONSERVATION EASEMENTS
Tax Information for Landowners and Advisors
Thank you for your interest in conserving your land with the Northern Virginia Conservation Trust. The gift of a conservation easement or of title to land may qualify as a non-cash charitable gift, providing you with various tax benefits. While our staff cannot provide tax advice, we hope the information below will help you and your advisors in your financial planning. Please contact us for more information.
HOW IS A CONSERVATION EASEMENT VALUED?
A donor applying for tax benefits must hire an independent certified appraiser to establish the value of the easement. Typically, the appraiser will determine the fair market value of the property both before and after it is restricted by the conservation easement, primarily based on the value of the development rights forgone. The difference is the easement’s value, which is the basis for calculating tax benefits.
HOW IS LAND VALUED?
Gifts of land are valued at fair market value by an independent certified appraiser.
WHAT TAX BENEFITS ARE AVAILABLE TO DONORS?
Federal Income Tax Deduction
Donations of conservation easements or lands that meet federal tax code requirements may entitle the donor to a federal income tax deduction. The deduction is limited to 50% of adjusted gross income, which if not used up in the year of the gift may be carried forward for an additional fifteen years or until fully expended, whichever comes first. IRS Form 8283 must be filed to obtain this deduction. Form 8283 requires a copy of the appraisal report, an appraiser’s declaration, NVCT’s acknowledgement of the gift, and copies of the recorded deed and the baseline documentation report.
Virginia State Tax Credit
Virginia’s Land Preservation Credit is an income tax credit available for donated conservation easements or land at up to 40% of the value of the gift. An individual taxpayer may use tax credits up to $20,000 through 2020, and $50,000 each year thereafter. Unused credits may be carried forward for up to 10 years. In addition, unused credits may be sold to another Virginia taxpayer, allowing individuals with little or no Virginia income tax burden to take advantage of this benefit. Virginia will issue tax credits of $1 million or more only if the conservation value of the donation has been reviewed and verified by the Virginia Department of Conservation and Recreation. Pre-filing review of the conservation value is available. There is a $75 million limit on the amount of tax credits that the Department of Taxation may issue statewide in each calendar year. Form LPC-1 must be filed with the Department of Taxation for registration of credits and Form LPC-2 for transfer of credits. Please let NVCT know if you will be applying for the tax credit.
Federal Estate Tax Reduction and Exclusion
Extinguishing some or all of the development rights for a parcel of land through a conservation easement may reduce the value of the land for estate tax purposes, thus reducing the estate taxes. In addition, Section 2031(c) of the Internal Revenue Code provides an estate tax exclusion from the gross estate of up to 40% of the remaining encumbered value of the land (but not improvements on the land) protected by a qualified conservation easement. The exclusion is capped at $500,000 and is reduced if the conservation easement reduced the land’s value by less than 30% at the time of the contribution. To qualify, the easement must prohibit all commercial recreational use other than de minimis use.
Local Property Taxes
Local property taxes may be reduced with respect to land in a conservation easement (but not dwellings, farm buildings, or other improvements to the land). However, if land is already enrolled in a local land-use assessment taxation program, a conservation easement is unlikely to result in an additional reduction in taxes. Landowners should ask their local jurisdiction whether a reduction is possible.
This information is provided by NVCT to assist landowners, but this is not tax advice. Please ask your tax professional or attorney for guidance on how you might qualify for tax benefits associated with conservation easements.
Source: Virginia Outdoors Foundation, Virginia Dept. of Conservation and Recreation, and NVCT. Current as of May 2019.