Tax Benefits of Conservation Easements
A Florida conservation easement is a voluntary, legally binding, and often perpetual, agreement between a landowner and a land trust, government agency, or a non-government conservation organization which prohibits the landowner to use or develop the land for other activities not related to agricultural use.
Some of the advantages of Florida conservation easements on agricultural lands include the preservation of the land’s agricultural state, assurance of long-term viability of agricultural operations, and various financial benefits such as direct payments, tax savings and reduction of estate taxes when land is passed from a landowner to their heirs.
Three potential tax savings that are related to conservation easement donations include tax savings on income, real property, and federal estate taxes.
Income Tax Benefits
The Internal Revenue Service (IRS) views conservation easement donations in the same manner as gifts of land to qualified recipients, which allows donors the opportunity to deduct the present value of their conservation easement donations as charitable deductions from income. The value of a conservation easement donation is the difference between the market value of the property before and after the easement is granted.
The degree of benefit depends on the donor’s income, the size of the donation in relation to the donor’s income, and the amount of claims for other deductions. A donor may elect an annual deduction of up to 30% of their adjusted gross income to be claimed. If the donor is unable to use the entire deduction in the year that the donation is made, the deduction may be carried for an additional 5 years at 30% of the donor’s adjusted gross income or until the donation is fully expended, whichever event occurs first.
Real Property Tax Benefits
Real property taxes are based on the market value of a property. Since the market value of a property is reduced when a conservation easement is granted, a real property tax savings may occur as a result. Florida House Bill 7157 F.S. 196.26 and 193.501 is a two part law that provides taxes savings for land that is used for conservation. The first part provides an exemption from property taxes for land that is used in perpetuity for conservation purposes. The second part provides for a “conservation assessment” for land that does not fall into the first category but is used for conservation purposes.
Federal Estate Tax Benefits
The value of the property for estate tax purposes is often substantially reduced when a Florida conservation easement is granted, which may translate into less or possibly no federal estate tax liability when the property is passed from the landowner to an heir. Per Section 2031(c) of the Internal Revenue Code, a federal estate tax exclusion of up to 40% of the remaining encumbered value of the land, up to $500,000 for property values that have been reduced by more than 30% and noninclusive of any improvements made to the property, protected by a qualified conservation easement may be granted.
(Please check with the IRS on current Federal tax laws for updated information.)