Please Note: Otsego Land Trust cannot provide any legal, tax or accounting advice. The following information is intended only as a guide and may not be relied on as a substitute for obtaining professional advice. The summaries below are based on current (January 1, 2016) tax laws that may change.
Income Tax Incentives
A person "donating" a qualified conservation interest (a conservation easement) may deduct the appraised value of the easement from taxable income, provided that the deduction does not exceed 50% of his or her adjusted gross income (AGI) in the year of the gift. (If you qualify as a farmer or rancher, you may deduct up to 100% of your AGI.) Any unused deduction may be carried over for up to 15 succeeding years, subject to the same annual 50% limitation.
The appraised value of the easement is the difference between the value of the land unencumbered by the easement and the value of the land with the easement in place, which is assumed to be of lower value.
Since New York uses the federal method of determining taxable income, this deduction also applies to New York State income taxes.
Real Estate Tax Incentives
The New York State conservation easement tax credit offers taxpayers who own land restricted by a conservation easement an annual rebate of specific real estate taxes (i.e. school district, county, and town). This rebate is equal to 25% of these taxes paid on such land, not to exceed $5,000 per taxpayer per year. The rebate takes the form of a tax credit against New York State income taxes (or a check if the credit exceeds the amount of State taxes due) and is available to the current landowner regardless of whether or not that landowner was the original donor of the easement. Residency in New York is not required for a landowner to request this credit.
In New York, assessors typically do not reduce a property’s assessed value as a result of a conservation easement. The income tax credit described above is the sole real estate tax benefit available to landowners with conservation easements.
Estate Tax Benefits
Land that is already subject to a conservation easement will be valued for estate tax purposes at a reduced value that reflects the restrictions of the easement. This valuation is applicable to the estate of the easement donor and also to the estates of all subsequent owners of the land.
A conservation easement can also be created by will. Such a gift is considered effective as of the date of death and will reduce the estate taxes of the decedent if the estate’s value exceeds the exempt amounts. Currently, federal rules exempt the first $5.25 million of an individual’s estate from federal estate taxes. The exemption for New York State estate taxes is $1.0 million.
For estates that include land subject to a conservation easement and are valued above the exemption amounts, an additional estate tax exemption of up to $500,000 is available. Under Section 2031(c) of the Internal Revenue Code, taxable estates can reduce the taxable value of the land encumbered by an easement by as much as 40 percent. This exemption is available if the easement prohibits all but “de minimis commercial recreational use.” The amount of the exemption is reduced if the easement’s value is less than 30% of the original cost of the land. Other rules apply to this special exemption that encourages conservation easements.