Interested in helping to conserve land for public use or preserve an historic structure from real property that you own?
Consider a qualified conservation contribution, also known as a conservation easement. This is a federal tax benefit for taxpayers.
Through this federal tax benefit, you may be able to claim a charitable deduction by placing conservation restrictions on the property while you continue to use the property and enjoy it. Likewise, the tax benefit can also apply to placing restrictions that preserve the facade of an historic building that you own.
How Charitable Conservation Contributions Work
To qualify, you must grant an easement on the property in perpetuity to a charitable organization or governmental unit that is committed to protecting the gift’s conservation purpose and has the resources to enforce the restrictions. Conservation groups generally qualify.
The conservation contribution must be exclusively for one of the following conservation purposes:
- Preserving land areas for outdoor recreation or education purposes for the general public. This includes preserving a water area for boating or fishing, or preserving a nature or hiking trail. The public recreation or education use must be substantial and regular.
- Protecting a significant natural habitat of fish, wildlife, plants, or a similar ecosystem. Public access may be restricted to protect the habitat.
- Preserving open space (including farmland and forest land) for the general public’s scenic enjoyment or under a governmental policy. The public must receive a significant benefit.
- Preserving a historically important land area or a certified historic structure. In this case, an easement on a private residence may qualify.
A significant advantage of making a qualified conservation contribution is that you can continue to use the property, as long as the conservation easement restrictions aren’t violated.
You can donate an easement on scenic farmland next to a national park and continue to farm the property.
If your home is a historic structure, you can donate a conservation easement on the home and continue to live there. You may have to grant some degree of access to the public. However, depending on the circumstances, this can be limited to enable your continued enjoyment of the property.
Determining Conservation Contribution Tax Deduction
The amount of the charitable deduction is equal to the value of the donated easement.
The conservation charitable deduction may be determined by:
- Comparing the contribution to similar easements that have already been valued.
- Comparing the value of the property without the conservation restrictions to its value subject to the restrictions. The difference will generally be the value of the charitable gift.
You must adjust your tax basis in the property by subtracting the portion allocable to the gift.
For example, if you make a qualified conservation contribution valued at $100,000 with respect to property worth $1 million, your basis in the property will be reduced by 10%, reflecting the fact that you’ve donated 10% of the property to charity.
Estate Tax Benefits
In addition to the income tax benefits, qualified conservation contributions can also have estate tax benefits.
You may exclude up to $500,000 from your gross estate if you’ve granted a qualified conservation easement on a certified historic structure.
If the property subject to the qualified conservation easement is land, then the limit on the exclusion is the lesser of $500,000 or 40% of the value of the land subject to the qualified conservation easement.
If you have questions, reach out to us at 314-961-1600 or contact us to discuss your situation.
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James Curran works with individuals and businesses and is passionate about getting to know his clients and their goals, both personal and professional. He spends time with them, helping to identify and solve their most pressing questions and concerns.
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Smith Patrick CPAs is a boutique, St. Louis-based, CPA firm dedicated to providing personal guidance on taxes, investment advice and financial service to forward-thinking businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to business owners and high-net worth families across the country. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.