The motivation behind most donations of land to a land trust is a landowner’s love for his or her land and a wish to see that land preserved for future generations. However, the tax benefits of conserving land 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.
This is a brief summary of tax-saving gift arrangements and ideas that conservation-minded landowners should consider as they make financial and estate plans. Tax laws change frequently and this information may not be up to date. An attorney or tax planner can furnish more complete details about tax benefits currently in effect.
Gifts of Land
Generally, landowners can take an income tax deduction for the fair market value of land donated to a land trust such as Couderay Waters Regional Land Trust. The deduction is limited to 30% of the landowner’s adjusted gross income in the year of the gift. Any remaining value can be carried forward and deducted in the next five years (limited each year to 30% of the original adjusted gross income). Donations may also be in the form of a bargain sale, in which the landowner sells the property for less than fair market value. The difference between the fair market value and the sale price is the basis for any income tax deduction.
Gifts of Money or Other Assets
Outright cash gifts are the simplest way to support Couderay Waters Regional Land Trust and gain a tax deduction. Donations of other assets, such as securities, stocks, life insurance, or valuables, such as artwork, may also be given. Such donations are deductible up to the value of the donated item. Taxpayers cannot eliminate all taxable income by making charitable donations. In general, the deduction for charitable donations of appreciated property cannot exceed 30% of the taxpayer’s adjusted gross income (although any excess amount may be carried forward and deducted over the five succeeding years, not to exceed 30% in any one year).
Donations of Conservation Easements
Potential federal income tax benefits vary with the particulars of each donation. Essential points to consider include:
1) A qualified organization is required – The easement must be granted to a qualified non-profit conservation organization like Couderay Waters Regional Land Trust. The trust is charged with overseeing land conservation or preservation of land in which the trust has an interest.
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 landscapes, wildlife corridors, areas for public education or recreation, or open spaces in the vicinity of intense land development. In general, the maximum allowable deduction arises 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) Calculate the deduction accurately – The allowable deduction for a donated easement is the difference between the property’s appraised value before the easement is granted and its value after the easement’s restrictions take effect.
5) Secure the proper appraisal – An appraisal to determine the easement’s value must meet strict substantiation requirements as specified in federal tax law regarding conservation easements.
6) Estate Taxes – Many heirs to large tracts of open space, farms, natural areas and timberland face substantial estate taxes. Estate tax is levied on a property’s “highest and best use” – usually the amount a developer or speculator would pay. The resulting tax burden can be so large that the heirs must sell the property 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 in a will and then deducted from the taxable estate. The gift of a qualified easement must be included in the donor’s will and cannot be modified after death.
In certain circumstances, federal tax law also allows for a 40% reduction in the remaining value of the land for landowners who donate a conservation easement to a qualified organization such as Couderay Waters Regional Land Trust. This reduced value is the basis for any estate tax.
Under the Taxpayer Relief Act of 1997, an easement donor is eligible for an additional exclusion from estate tax of up to $500,000 beyond the exclusion of the value of the easement itself.
7) Local Property Taxes – 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 or removes this potential, the level of assessment and, accordingly, the amount of real property taxes, may be reduced. Wisconsin statutes require the local tax assessor to consider the effects of a conservation easement when assessing property. In practice, there has been a wide variation in how easements are considered by assessors across the state.
Getting Help from Couderay Waters Regional Land Trust
A board or committee member of Couderay Waters Regional Land Trust can to discuss land conservation options with interested landowners. However, neither Couderay Waters Regional Land Trust nor any such board or committee member can provide legal or financial advice or guarantee the success of a particular plan. A landowner should seek qualified, independent counsel from financial and legal experts familiar with the charitable giving of land and property easements.