The donation of a conservation easement often qualifies as a charitable contribution, allowing the donor to take a federal income tax deduction for the value of the contribution. The following summarizes some Internal Revenue Service rules governing these contributions.
The individual donor of qualifying conservation land or a conservation easement may claim the value of their gift as a deduction on thier federal income tax form if the value of that donation is determined by a qualified appraisal. Certain other estate and gift tax benefits may also apply.
As with other aspects of donating an easement, HeadWaters Land Conservancy highly recommends that all easement donors obtain professional advice from a knowledgeable attorney, accountant or other financial advisor before completing their tax returns.
For a gift of land, the deduction is the fair market value of the property.
Deduction = fair market value (as determined by a qualified appraisal)
For a bargain sale of land, the deduction is determined by subtracting the price the property sells for from the fair market value of the property as determined by a qualified appraisal. The difference is the deductible amount.
Deduction = fair market value minus sale price
For a donation of a conservation easement, the deduction is determined by a qualified appraisal using the “before and after test” – the value of the property as restricted by the conservation easement is subtracted from the fair market value of the property before the restrictions were granted. The difference between the two values is the value of the conservation easement “Conservation Easement Value.”
Deduction = Conservation Easement Value
Arranging for an appraisal
To claim a deduction, a landowner must obtain a qualified appraisal of the conservation easement from a qualified appraiser. The appraiser will determine the value of the easement, most frequently based on the value of the land before and after being encumbered by the conservation easement. The difference is the value of the conservation easement and the amount that may be taken as a tax deduction.
The appraisal must be completed and accepted by HeadWaters Land Conservancy before the tax return for the year in which the easement was completed is due. Click here for more information on arranging appraisals.
Required IRS forms
To document the value of their gift, conservation easement donors must attach IRS Form 8283 to their tax returns.
In addition to Form 8283, the IRS requires a supplemental statement summarizing:
- The conservation values of the donated easement.
- The appraiser’s valuation assumptions and conclusions, including fair market value of the property before the easement was in place and the fair market value of the property after the easement was conveyed to the Land Trust (if the before-and-after approach was used).Whether the easement was required by any contract, permit, or government approval.
- A description of any interest in any nearby land held by the donor or a related person.
This information is provided as a general guide and is not a substitute for tax advice from a qualified attorney or accountant regarding your specific situation.