Department of Conservation and Recreation
Conserve. Protect. Enjoy.
Department of Conservation and Recreation
Landowners who conserve their land may be eligible for different financial incentives from federal, state and local governments. The information on this page is intended for the general information of landowners. Any landowner contemplating the donation of land or a conservation easement should consult a qualified attorney, accountant or other tax adviser.
The Internal Revenue Service Code allows two principal forms of tax benefits from fee simple donations or conservation easements:
The amount of the deduction or exclusion is determined by an appraiser who calculates the decrease in value caused by the permanent restrictions on the use of the land from the conservation easement. Only fee simple donations or easements granted in perpetuity are eligible for the tax benefit.
In addition to these two tax benefits, it is an accepted estate tax planning technique to use an easement to lower the value of land (and consequently the amount of tax) upon which estate taxes will be owed when the goal is to pass the land to the next generation and to forestall the land having to be sold in order to pay the estate tax.
IRS Code (Sec. 170 (h)) allows qualified conservation contributions to be counted as charitable gifts, which are then eligible for an income tax deduction. Qualified contributions include the donation of land in fee or the donation of a perpetual conservation easement. The donation must be made to a qualified organization exclusively for one of the defined conservation purposes:
In exchange for a qualified conservation contribution, a landowner may take an income deduction of up to 50% of their adjusted gross income (AGI) in the year of the gift. Qualifying farmers and foresters can claim a deduction of up to 100% of AGI. If not exhausted the first year, the amount of the gift can be carried forward for as many as 15 subsequent years.
IRS Code allows for an estate tax exclusion from federal estate taxes of up to 40% of the value of land under conservation easement. The exclusion is capped at $500,000. To qualify, the easement must be perpetual and must meet the conservation purposes of Sec. 170(h) above (except that preservation of a historic area or structure is excluded). The easement may be given by a landowner who has owned his land for at least three years, by a family member, or the executor of the estate of such a landowner. The intent of this provision is to provide relief from estate taxes for farmers and ranchers passing land to their children who might otherwise be forced to sell the land to pay estate taxes.
A landowner who takes a charitable gift deduction for a conservation easement or fee simple land donation on a federal tax return also receives the same diminution in taxable income for state income tax purposes.
In addition, Virginia has a Land Preservation Tax Credit program, which allows a tax credit of an amount equal to 40 percent of the value of a qualified gift of easement or land. Taxpayers may use up to $50,000 per year. Tax credits may be carried forward for up to 10 years after the year of donation, and any portion of the tax credit can be transferred or sold to other taxpayers.
In those localities where a land use assessment tax program has been implemented, a conservation easement requires that counties value the property as if it were in the land use taxation program. In addition, local assessors are required by state law to recognize the restricted value of the land with the easement in place. To see how local governments can play a role in land conservation, visit the Local Government Tools to Protect Land page.
