Conservation Partners, LLC

Potential Benefits

At Conservation Partners, we firmly believe that an easement donation will only work if the donor is concerned primarily with protecting his or her land from development, and he or she should look to the tax incentives as a way of partially offsetting the cost of that protection. That said, an easement donor, depending on his or her financial situation, can potentially benefit from various federal and state income and estate tax incentives. The following is a list of some of the more important tax benefits available to donors of easements that qualify under applicable law; prospective donors should discuss these potential benefits with qualified tax or legal professionals:

• Federal charitable income tax deduction: The deduction, generally equal to the value of the easement, can be used to reduce the donor’s “adjusted gross income” by up to 30% (or 50% in some situations) per year for six years or until it’s used up. For years 2006 and 2007 only, the annual limitation is increased to 50% of adjusted gross income for all qualifying easement donations, and to 100% of adjusted gross income if the donor is a qualifying farmer. In addition, for easements donated during 2006 and 2007 only, the deduction may be taken over a sixteen year period. Pending legislative changes may extend the 2006-2007 benefits in 2008, and prospective easement donors should obtain up-to-date information on the federal income tax deduction from an independent, qualified tax professional.
• Basic estate & gift tax benefit: The donation of a qualifying conservation easement will not have gift tax consequences and will remove the value attributable to the easement from the donor’s estate for estate tax purposes.
• Additional estate tax exclusion: If certain requirements are satisfied, up to an additional 40% of the after-easement value of the land can be excluded from a landowner’s estate for estate tax purposes. The maximum amount that may be excluded is $500,000.
• Virginia land preservation income tax credit: The state tax credit can be used to offset the donor’s Virginia income tax liability dollar-for-dollar, and any unused credit can be transferred by gift or sale to other Virginia taxpayers. The ability to sell the credit makes it attractive to easement donors who do not have significant Virginia income tax liability. Here’s a quick example illustrating the benefit an easement donor might realize from the Virginia land preservation tax credit:
  • Let’s assume that your 200-acre farm, located in an area where suburban sprawl is starting to occur, is worth $500,000. That’s the price at which you realistically could sell your farm as it is, not the product of an overeager appraiser’s fevered imagination.
  • We’ll also assume your land has significant conservation value, its perpetual protection is consistent with the county’s comprehensive plan, and the easement you’re donating is reasonably restrictive, prohibiting subdivision and most commercial uses other than farming. It allows you to maintain or expand your existing house and build a guest cottage nearby—but no other houses!
  • Your appraiser estimates that the easement donation will reduce the value of your land from $500,000 before the easement to $300,000 after the easement. Thus, the “value” of your easement is the difference, or $200,000.
  • If the easement qualifies under applicable law, you will be entitled to a transferable land preservation tax credit equal to 40% of the value of your easement, or $80,000. After you register your credit with the Tax Department, you will own an $80,000 credit that can be used to pay Virginia income tax.
  • You may expect to make enough money in the eleven years before the credit expires so that you can use up all $80,000 paying your own state income taxes. But if, like most easement donors, you don’t have that kind of income—or you would prefer to have some cash up front rather than waiting—you’ll want to sell part of your credit. You can do that privately or through an intermediary who can help you find buyers.
  • As an important part of our work with landowners interested in conserving their land, Conservation Partners facilitates the transfer of credits for easement donors. Hundreds of individuals and companies look to us every year to supply them with high-quality land preservation tax credits that they use to offset their own state tax liabilities.