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Federal Tax Benefits | Federal Estate Tax Benefits | State Tax Benefits | State Tax DeductionsState Estate Tax Benefits | Property Tax Credits | Tax Forms | County Property Tax Credits
There are significant financial benefits available to landowners who agree to protect their land with a conservation easement including a deduction for federal income taxes and a credit for state income taxes. In addition, there is property tax credit and possible federal estate tax exemptions. Agreeing to protect your land in the form of a Deed of Conservation Easement can be considered a non-cash charitable gift by the Internal Revenue Service (IRS). A qualified appraiser must establish the value of the easement which is then used to calculate some of the tax benefits.
The gift of an easement is a charitable donation that may be deducted from Federal income taxes. The value of the donation is determined by an appraisal. If this value is 50% or less of the landowner's adjusted gross income, it may be entirely deducted in one year. If the value is greater, it may be spread over as many as 15 years.
Specifically, Federal law provides for a deduction of 50% of adjusted gross income in the year of the donation and for 15 years forward, or until the value of the donation is reached. For an IRS “qualified farmer or rancher,” this maximum increases to 100% of adjusted gross income. The value of the donation (also called the easement value) is equal to the value of the property before the easement is imposed, minus the value once the easement restrictions are in place.
Donors of conservation easements may claim an income tax deduction under § 170 of the Internal Revenue Code. The IRS requires that the donation be “exclusively for conservation purposes”. The IRS specifies that to qualify for the deduction, the easement be conveyed to a governmental unit or a “qualified organization” that is a §501(c)(3) charitable organization with the commitment and resources to enforce the easement’s restrictions. MET is a government unit with the commitment and resources to enforce conservation easement restrictions.
The exact amount of tax savings depends on several factors:
INCOME TAX EXAMPLE
*$1,160,000 would be allowed but cannot exceed the value of the easement
How to claim a federal income tax deduction for an easement donation
If you plan to take a federal income tax deduction for the easement donation IRS Form 8283 must be attached to your federal income tax return. As a conservation easement donor you will need to obtain a qualified appraiser to determine the value of the gift and to fill out part of the Form 8283. Please have your appraiser complete the form to include, at a minimum, the name, identification number and description of the donated property (Page 2, Section B, Line 5, Column a) and complete Part III. The Form 8283 instructions also require that conservation easement donors attach a statement that:
After Form 8283 and statement are complete, they should be sent to us for the donee acknowledgement signature. We request a copy of the appraisal for our review. Please allow a minimum of 10 business days for us to review. We will return the form for your submission to the IRS. The appraisal will be kept confidential. Any reference to donated easement values will not include reference to any individual property.
If the value of your donation exceeds $500,000, you will also need to provide a copy of the appraisal with the form to the IRS.
For the Internal Revenue Code text that creates a federal income tax deduction for qualified conservation easements see US Code Section 26 170(h).
For the U.S. Treasury Regulations text on Qualified Conservation Contributions text see U.S. Treasury Regulations on Qualified Conservation Contributions.
For IRS guidance regarding appraisal requirements for conservation easement doantions see IRS Notice 2006-96 "Guidance Regarding Appraisal Requirements for Noncash Charitable Contributions."
****We do not require an appraisal for us to accept a conservation easement donation and is not involved in the appraisal process; however, if you plan to take a federal tax deduction and/or claim a state income tax credit for a non-cash charitable gift you will need to obtain a qualified appraiser to determine the value of the gift.****
For estate-tax purposes, land is generally valued at its maximum development potential, often generating very high estate taxes. A conservation easement limits the amount of development that can occur, thus lowering the appraised value of the land and reducing the taxable estate. This makes conservation easements effective tools for reducing estate taxes. In addition, there is estate tax exclusion (40% of land value up to $500,000 per owner), for certain land that is subject to a donated easement. This allows the land to be partially shielded from estate taxes.
For more information on the role of easements in estate planning, please see
For Internal Revenue Code text that provides a partial exclusion from federal estate tax for land subject to a conservation easement see 26 United States Code section 2031(c).
Federal Estate Tax Examples
Percent calculation $300,000/$700,000=30%Application of exclusion 40% times $700,000=$280,000 Tax savings (assume 50% rate):
Percentage decrease 20%
Example #3 (STEPPED UP BASIS)Original cost of land $ 5,000Construction cost of barn $20,000Basis $25,000Owner donates easement That meets 30% requirement Prior to death
Post easement value of land
$210,000 is 28% of $750,000
Capital gain tax (22% state/fed) $ 45,892Value of exclusion
State Income Tax Credit
The Maryland General Assembly passed legislation in 2001 allowing a State income tax credit for donations of conservation easements to the Maryland Environmental Trust. Further legislation passed in 2016 allows for pass-through entities to claim the credit as well. The maximum credit per individual or per pass-through entity is $5,000 per year. The remainder of the credit (based on the appraised value of the easement) may be carried forward for up to 15 years for a maximum credit of $80,000.
The credit is in addition to the Federal income tax deduction, estate tax savings, and the Maryland property tax credit. The details are:
Form 502CR is used to claim the conservation easement tax credit. Form 502CR must be attached to your Maryland tax return. If you plan to claim a state income tax credit for a non-cash charitable gift you will need to obtain a qualified appraiser to determine the value of the gift.
For the direct Annotated Code of Maryland reference to this income tax credit see Title 10-723 of the Tax-General Article.
State law allows, with some limitations, an individual who itemizes deductions on their federal income tax return to itemize deductions on their Maryland income tax return. One of the limitations is that an individual cannot deduct a conservation easement donation if they claimed the Maryland income tax credit for donating the conservation easement.
For the direct Annotated Code of Maryland references see Title 10-218 and 10-219 of the Tax-General Article.
For estate-tax purposes, land is generally valued at its maximum development potential, often generating very high estate taxes. A conservation easement limits the amount of development that can occur, thus lowering the appraised value of the land and reducing the taxable estate.
For the direct Annotated Code of Maryland reference to determining Maryland estate taxes see Title 7-309 of the Tax-General Article.
A landowner will pay no property tax on land that is subject to a donated Maryland Environmental Trust easement for 15 years from date of donation. The tax credit, however, will not apply to any residential improvements, or to a minimum of one acre around these improvements.
At the end of the 15-year period unimproved land under donated easement will be assessed at the highest agricultural rate. This rate is currently $500 per acre. Property will qualify for this assessment rate even if the property is not actively farmed. If the property is in agricultural use it will be assessed at the appropriate agricultural level (See Annotated Code of Maryland Title 8-209.1 of the Tax-Property Article). However, the tax credit and assessment rate will not apply to any residential improvements, or to a minimum of one acre around these improvements.
This property tax credit only applies to conservation easements donated to us. For the direct Annotated Code of Maryland reference to this property tax credit see Title 9-107 of the Tax-Property Article.
Download the Conservation Property Tax Credit Application.
The application form for the Conservation Property Tax Credit may be filed for the fiscal tax year with the County Office of the Maryland Department of Assessments and Taxation. A copy of the recorded Deed of Conservation Easement and the Board of Public Works approval letter must be attached to the application.
County Property Tax Credits
****We do not require an appraisal for us to accept a conservation easement donation and is not involved in the appraisal process; however, if you plan to take a federal tax deduction and/or claim a state income tax credit for a non-cash charitable gift you will need to obtain a qualified appraiser to determine the value of the gift.
The information and data on this page is for guidance and general planning purposes only. It should not be used to make decisions on specific matters. Tax advantages of easement donations will vary with individual financial situations. Consult a tax advisor or attorney for advice on how a conservation easement would affect your taxes and estate. Tax advantages may differ between individual landowners, institutions, and other legal entities.
580 Taylor Ave., Annapolis MD 21401
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