Tax Benefits

While a conservation easement clearly increases the environmental and, sometimes agricultural value of the land, it usually reduces the development value of the property. To compensate, there are financial incentives that accompany state and local easement programs that attempt to balance how much "market value" the landowner is willing to give away and how much public "environmental value" the federal, state and local governments are willing to 'purchase' on private property through a variety of tax benefits.

Here's a sampling of potential benefits. Tax advantages will, of course vary with individual situations. Consult a tax advisor or your attorney for advice on how a conservation easement would affect your taxes and estate.

FEDERAL & STATE INCOME TAX
State Income Tax Credit - NEW

The Maryland General Assembly passed legislation in 2001 allowing a State income tax credit for donations of conservation easements to the Maryland Environmental Trust. The maximum credit is $5,000 per year per person (or $10,000 for husband and wife). The remainder of the credit (based on the appraised value of the easement) may be carried forward for up to 15 years for a maximum of $80,000. For more details, see the State Income Tax portion of the MET website

http://www.dnr.state.md.us/met/sitc.html

Federal Income Tax Deduction

In addition to the state income credit, the gift of an easement is a charitable donation that may be deducted from Federal income taxes (and State income taxes as an alternative to the new state income tax credit). The value of the donation is determined by an appraisal If this value is 30% or less of the landowner's adjusted gross income, it may be entirely deducted in one year. If the value is greater, it may be spread over as many as 6 years.

For 2006 and 2007 only: The maximum Federal deduction permitted will be 50% of adjusted gross income for up to 16 years, or 100% for qualified farmers. For more information, view: www.lta.org/publicpolicy/tax_incentives_updates.htm

For more details, see the MET website at:
http://www.dnr.state.md.us/met/taxbenefits.html

For a good overview of the Federal (primarily income and estate) tax benefits take a look at a copy of A Simplified Guide to the Tax Benefits of Donating a Conservation Easement by Timothy Lindstrom, Esq. at the Jackson Hole Land Trust website go to:
http://www.jhlandtrust.org/our_work/tax_guide.php

FEDERAL & STATE ESTATE TAX

Under current estate tax law, land is usually valued at its maximum development potential, regardless of the owner's intent. Often, part or all of the land must be sold to pay the very high taxes that result. However, an easement limits the amount of development that can occur, thus lowering the appraised value of the land. This makes easements effective tools for reducing estate taxes.

In addition, the Farm and Ranch Protection Act of 1997 may provide a very large estate tax exemption (up to $500,000 per owner), for land that is subject to a qualifying donated easement. For more details, go to the View Estate Tax Examples portion of the MET website at:
http://www.dnr.state.md.us/met/pecexamples.html

PROPERTY TAX CREDIT

A landowner will pay no property tax on land that is subject to a donated MET easement for 15 years from date of donation. However, the tax exemption will not apply to any residential "improvements", and to a small area around these improvements. This tax credit applies only to donated easement held or co-held by MET. In Anne Arundel, Harford, Montgomery, Prince George's, Queen Anne's and Carroll Counties, landowners donating easements to a local land trust may get a credit against the county portion of the tax bill for the unimproved part of the property.