Federal Income Tax Deduction. The IRS recognizes the donation of a qualified conservation easement as a charitable contribution, and allows a deduction under Section 170(h) of the Internal Revenue Code. The value of the easement is determined by a qualified appraiser, usually by assessing the value of the land before the easement is given, then subtracting the value of the land as restricted by the easement. The deduction is generally limited to 30% of the donor’s adjusted gross income in the year the easement is given, and can be carried forward for up to five additional years. In order to qualify for the deduction, the easement must meet certain requirements, including a requirement that it be donated “exclusively for conservation purposes,” as defined by the IRS.

Federal Estate Tax benefits. Estate taxes can make it difficult for property owners to pass land on to their heirs. Because the taxes can represent a significant percentage of the value of the property, heirs may be forced to sell all or part of the land. Simply by reducing the value of the property, an easement can substantially lower this tax burden. However, this initial benefit is significantly enhanced by the American Farm and Ranch Protection Act, which allows up to 40% of the remaining value of land subject to qualifying easements, up to a maximum of $500,000, to be excluded from the estate.  The easement may be given by a landowner who has owned his land for at least three years or by the executor of the estate of such a landowner.

State Income Tax Credit. A state tax credit is available for easement donations under the Virginia Land Conservation Incentives Act (sections 58.1-510 through 513 of the Virginia Code). The credit is 50% of the value of the easement, up to $100,000, as determined by an appraiser. Like the federal deduction, the state credit may be carried forward for up to an additional five years beyond the year of donation. Donors who cannot use all of their credit can sell or transfer unused portions of the credit to other Virginia taxpayers. In order to qualify for the state tax credit, easements must meet the same standards required by the IRS for the federal deduction.

Local Real Estate Tax benefits. Land that is protected by a conservation easement automatically qualifies for use value assessment and taxation. That is, the land is taxed according to its value in use, as opposed to its market value for development. This generally results in considerably lower real estate taxes.