Conservation protects land important to our shared future. Whether it is farmland or forest, significant wildlife habitat, or recreational land, we all benefit from the conservation of land which contributes to our working landscape, the health of our ecosystem, and the beauty of Vermont.
When you give the gift of conservation—through a conservation easement donation or a gift of land to VLT—you join a growing community of charitable Vermonters shaping the future of our state.
By protecting land you care about, you can also be eligible for tax benefits, such as federal income tax and estate tax deductions.
What are the tax benefits of donating a conservation easement on my land?
When you donate a conservation easement on your land, you may be eligible for a charitable tax deduction for your federal and, in some cases, state income taxes.
A number of principles and I.R.S. criteria apply to the donation of conservation easements. In general, a donation can be eligible for an income tax or estate tax deduction if the conservation easement conserves land that:
- involves significant farmland, forestland, or open space that either provides scenic enjoyment for the public, furthers public conservation policies, or includes important historic lands or buildings; or
- includes relatively natural habitats for fish, wildlife, plants, or similar ecosystems; or
- is used by the public for outdoor recreation or education.
We work closely with landowners to prepare conservation easements that protect high quality resources that benefit Vermonters and the health and future of our state. It is important to speak with your own attorney or tax adviser if you are interested in seeking a tax deduction.
In order to claim an income or estate tax deduction, a landowner must first obtain a qualified independent appraisal. Appraisals of conservation easements must meet certain time requirements and include factual information required by the I.R.S.
A donor of a qualified conservation easement may deduct up to 30 percent of his or her adjusted gross income. This is deductible against the donor’s federal and, in some cases, state income taxes. If the value of the gift is not used up in the first year, the unused portion may be carried forward for five additional years.(1) Special rules apply to the deductibility of land owned less than one year.
As tax rates and regulations affecting charitable deductions fluctuate, it is important for landowners to work closely with their own tax advisers when seeking a charitable income tax deduction.
While tax deductions are rarely the primary motivation behind land conservation, the financial and tax benefits associated with easement donations can make it even more rewarding to protect the land important to families and communities in Vermont.
How can conservation of my land reduce my estate taxes?
Under the American Tax Payer Relief Act of 2012, estates less than $5.43 million for a single person and $10.86 million for married couples aren't subject to estate taxes. For people with estates greater than these amounts, the donation of a conservation easement or a gift of land to VLT can be an effective estate planning tool.
By gifting your land to the Vermont Land Trust, you can remove its entire taxable value from your estate. A conservation easement donation will also lower the value of your property and therefore reduce the overall value of your estate. Either of these options can reduce your potential estate tax liability.
Occasionally, people plan for the conservation of their land to take effect upon their death. These conservation easements are conveyed to us through a will or a living trust, often accompanied by an endowment to support the perpetual stewardship of their conservation plan.
If a landowner dies, it is possible in certain circumstances for their heirs to make a conservation easement donation and exclude the easement value from the estate. These “post mortem” elections can allow for a conservation easement donation and an additional estate tax deduction of up to 40 percent of the conserved property’s value. However, all of the heirs must agree and the election must be made within nine months of the owner’s death.
Advance planning can help you to make the best plans for your land and your heirs. Please contact us to consider a gift or conservation of your land through your will or living Trust. Together, we can consider your land and prepare a conservation easement that will fulfill your conservation and estate planning goals.
Will conserving my land reduce my property taxes?
Property taxes are a growing concern for Vermonters. Many people wonder if conserving their land will help reduce their property taxes. The answer is—sometimes.
A conservation easement generally reduces the value of property because it removes some of the rights landowners typically hold, such as the right to develop or subdivide their land.
Vermont’s listers are directed to consider the impact a conservation easement has on the value of an individual conserved property. This may lead to a reduction in your town’s assessment of your property.
In practice, however, many listers have not adjusted the assessment of conserved properties. Some landowners choose to grieve their assessment, especially if they have an appraisal which substantiates the value of their conserved property.
If your land is already enrolled in Vermont’s Use Value Appraisal Program, or “Current Use,” it is already being taxed at its “use value” as productive farm or forestland. This use value assessment, a per-acre value for farm or forestland established annually by the state, is usually lower than a municipal assessed value of a conserved property. For this reason, many landowners who have conserved their land stay enrolled in the Current Use program and continue to pay taxes at the lower, current use value rate.
For more on the impact of conservation on property taxes see Property Tax Impact of Land Conservation and for a longer discussion see Land Conservation and Property Taxes in Vermont (PDF) by Deb Brighton.
Conservation easement appraisals
Appraisals are a key part of the process of conserving land. Most people are familiar with appraisals which substantiate the value of real estate, boats, jewelry, or other assets. Appraisals for conservation easements differ in that they identify that value of a property’s “development rights.”
When landowners conserve their land, they are dedicating it, in perpetuity, to agricultural, forestry, educational, and other open spaces uses. In many cases, landowners have given up or limited their ability to subdivide, build a house, or engage in certain commercial uses of their land. These “development rights” have an intrinsic financial value and can be the basis for claiming a charitable deduction for tax purposes.
A conservation easement appraisal determines the value of development rights in a two part process. First, the current fair market value of the unrestricted land with no conservation easement is considered. Second, research is conducted to determine the value of the land with a conservation easement. The difference between these two values is the value of the development rights.
An individual donating a conservation easement may seek a charitable deduction for the appraised value of the development rights conveyed to us.
When a conservation easement is being sold (rather than donated), the appraised value of the development rights establishes the purchase price.
Appraisals conducted for conservation purposes must be completed by a qualified, independent appraiser, and meet other I.R.S regulatory standards.
1. The enhanced tax incentive for donations of conservation easements expired on December 31, 2014. If congress votes in 2015 to extend or make the incentive permanent, it would allow landowners to take a charitable tax deduction of up to 50% of their adjusted gross income in the first year and to carry over the remaining allowable deduction for up to 15 years. The current law allows a landowner to take up 30% of their agi with a 5 year carry-over period.