DONATING AN EASEMENT
Donating an easement enables you to protect your land now and for future generations, and can provide immediate and long term tax benefits as well.
In addition to potential tax benefits, another advantage of protecting your land with a donated conservation easement is that this type of easement can be completed quickly – often within two to four months. Purchased easements generally take at least one year to complete, and often longer (especially if there is a waiting list of landowners).
If you’re thinking about donating a conservation easement on your property north of the C & D Canal in Cecil County, we’d welcome the opportunity to talk with you. The Cecil Land Trust can accept the donation and assist you through the easement donation process. As a general rule, the Cecil Land Trust co-holds all of its donated conservation easements with the Maryland Environmental Trust (MET). This enables landowners to claim generous state income and property tax credits. You may also donate your conservation easement directly to MET.
If you own land south of the C & D Canal and are interested in donating a conservation easement on your property, we encourage you to contact the Eastern Shore Land Conservancy, which will guide you through the process.
The minimum acreage to donate a qualified conservation easement to the Cecil Land Trust or MET is 25 acres, although exceptions can be made under certain circumstances. As a general rule, neither land trust will accept a donated conservation easement on property within designated growth areas that are within the County Sewer Service Area.
Contacts for Donated Conservation Easements
Cecil Land Trust (north of the C & D Canal)
Tax Benefits of Donating a Conservation Easement
Landowners who donate a conservation easement are eligible for the following tax benefits:
- Federal income tax deduction
- State income tax credit
- State property tax credit
- Federal estate tax benefits
For informational purposes, a summary of potential tax benefits is provided below. The Cecil Land Trust advises you to consult with a qualified professional to evaluate the applicability of these potential benefits to your particular case.
Federal Income Tax Deduction
The donation of a qualified conservation easement constitutes a charitable gift that may be deductible by the landowner for federal income tax purposes. To qualify for the tax deduction, the conservation easement must be perpetual, held by a “qualified conservation organization” like the Cecil Land Trust, and serve a valid “conservation purpose.” If the landowner qualifies and meets all IRS rules, the landowner can claim as a charitable donation of up to 50% of their adjusted gross income for up to 15 additional years or until the appraised value of the easement is used up – whichever comes first. Landowners who earn at least 50% or more of their income from farming can claim 100% of their adjusted gross income for the same period.
So as to maximize the financial benefit to the landowner for donating the conservation easement, the Cecil Land Trust strongly encourages easement owners to consult a certified tax professional with knowledge and experience with conservation easement.
State Income Tax Credit
In 2001, the Maryland General Assembly created a state income tax credit program for those landowners who donate a perpetual conservation easement to (or co-held by) MET. Each individual property owner who donates a conservation easement may claim a state income tax credit of up to $5,000 for a period up to 15 years after the initial year (total of 16 years), and up to $80,000, or until the easement value has been exhausted. Like with claiming a federal income tax deduction, a property owner must obtain a “qualified appraisal” by a “qualified appraiser” in order to be awarded state income tax credits. The state income tax credit can be used in conjunction with the federal income tax deduction, and are not mutually exclusive.
CASE STUDY: Income Tax Benefits of a Donated Conservation Easement
Mr. and Mrs. John Doe own a 100-acre farm near Calvert in northern Cecil County. The appraisal determined that the farm has a full market (development) value of $1,000,000 and after (farm) value of $600,000. The value of the conservation easement is the difference between these two values, $400,000, which amount the landowner can claim as a charitable gift for state and federal tax purposes.
Mr. and Mrs. John Doe have a combined income of $150,000 per year, with a maximum federal tax rate of 28%, if filing jointly. Below is a hypothetical scenario on how Mr. and Mrs. John Doe could claim their federal income tax deduction benefit:
|Year||Tax Deduction||Actual Tax Savings|
|Year 1||$75,000 (50% AGI)||$15,178|
|Year 2||$75,000 (50% AGI)||$15,178|
|Year 3||$75,000 (50% AGI)||$15,178|
|Year 4||$75,000 (50% AGI)||$15,178|
|Year 5||$25,000 (50% AGI)||$6,250|
On the state side, with an annual income of $150,000, filing jointly, Mr. and Mrs. John Doe have a Maryland income tax liability of $12,736.69. The Maryland Income Tax Credit allows landowners who donate a conservation easement to reduce that tax liability by up to $5,000 per year per person up to a total benefit of $80,000 per person. Mr. and Mrs. John Doe can each claim $5,000 for nine consecutive years for a combined total tax credit of $160,000. In total, Mr. and Mrs. John Doe are able to receive $242,975 in federal and state tax savings.
Please note that the actual tax savings will vary based upon individual circumstances including a landowner’s tax liability, other deductions, and the manner in which they file taxes (i.e. individually, jointly, head of household).
State Property Tax Credit
Those landowners who donate a perpetual conservation easement to (or co-held by) MET receive a 15-year property tax exemption on the unimproved acres of their property. After the fifteen year period, the unimproved acres are assessed at the lowest preferential agricultural assessment rate.
Federal Estate Tax Benefits
A conservation easement has for decades been recognized as an estate planning tool to assist landowners pass on their property to the next generation. A conservation easement provides the following estate tax benefits:
- Reduction in Value of the Estate – For property tax purposes, agricultural and forested lands are assessed at a significantly reduced value. However, for estate tax purposes, unprotected land in your estate is assessed at the full-market (development) value. If property has been protected with a conservation easement, however, the property is instead appraised at agricultural (preserved) value, resulting in lower estate tax liability.
- Estate Exclusion – In addition to the reduction in value of an estate that includes a conservation easement-protected property, an additional 40% of the easement-protected land’s value (capped at $500,000) may be excluded for estate tax purposes when the landowner passes away.
- Post-Mortem Easement – Heirs may receive both of the above-mentioned benefits by choosing to donate a conservation easement after the landowner’s death. The representative of the estate must decide whether to elect the exclusion on or before the due date of the estate tax return.
The above information regarding tax benefits for conservation easements is for reference and illustrative purposes only, and should not be construed as legal advice. The Cecil Land Trust strongly encourages prospective conservation easement holders to seek legal consultation and advice from a qualified attorney and/or financial advisor with experience in conservation easements.
Process for Donating a Conservation Easement
Donated conservation easements can be completed quickly – often within two to four months. This streamlined process takes significantly less time than purchased conservation easements, which take at least one year, and often more (especially if there is a waiting list of landowners).
The outline of steps to donating a conservation easement is as follows:
- Field visit – Staff from the Cecil Land Trust and MET conduct a site visit with the landowner, tour and photograph the property, identify potential conservation values, and have a discussion with the landowner about their long-term vision and objectives for the property.
- Background research & evaluation – Staff from the Cecil Land Trust and MET conduct preliminary research on the property to identify the number of available development rights, any existing legal covenants and deed restrictions, zoning restrictions, pre-existing lots of record, etc.
- Conservation easement negotiation – Staff from Cecil Land Trust and MET draft a deed of conservation easement to protect specified conservation values. A legal description of the easement boundaries is also drafted by a surveyor. Both the deed of easement and boundary of said easement are drafted with consultation of the landowner and their long-term objectives.
- Appraisal process – In order to claim a Federal income tax deduction for the donation of the conservation easement, the IRS requires a “qualified appraisal” to be completed for the property by a “qualified appraiser” no earlier than sixty (60) days prior to the recordation of the easement. As required by the IRS, the landowner pays the appraisal cost.
- Lien subordination – If the property is currently mortgaged, the landowner is required to obtain an official lien subordination from their lending institution agreeing to the terms of the conservation easement.
- Cecil Land Trust Board review and approval
- Maryland Board of Public Works ratification – All conservation easements co-held by MET, require approval from the Board of Public Works consisting of the Governor, Comptroller, and Treasurer. MET and its parent agency, the Department of Natural Resources, present easements to the Board of Public Works for approval.
- Settlement – If approved, all parties sign the Deed of Conservation Easement.
- Recordation – The deed of conservation easement is recorded in the Cecil County Land Records Office.