Determining Your Federal Income Tax Deduction
Donations of land and conservation easements and sales of land or conservation easements at below fair market value (“bargain sale”) that qualify under Section 170(h) of the Internal Revenue Code as conservation contributions to qualified holders (such as PLC, the state and local municipalities, and certain other non-profit organizations) are deductible as charitable contributions for the purposes of federal income taxes.
The amount of a federal income tax deduction that may be available to you is determined as follows:
For a gift of land, the deduction is the fair market value of the property.
Deduction = fair market value (as determined by a qualified appraisal)
For a bargain sale of land, the deduction is determined by subtracting the price the property sells for from the fair market value of the property as determined by a qualified appraisal. The difference is the deductible amount.
Deduction = fair market value minus sale price
For a donation of a conservation easement, the deduction is determined by a qualified appraisal using the “before and after test” – the value of the property as restricted by the conservation easement is subtracted from the fair market value of the property before the restrictions were granted. The difference between the two values is the value of the conservation easement “Conservation Easement Value.”
Deduction = Conservation Easement Value
For a bargain sale of a conservation easement, the deduction is determined by subtracting the price paid for the conservation easement from the Conservation Easement Value, as determined by the before and after test described above.
Deduction = Conservation Easement Value minus Price paid for Conservation Easement
(Note: the Alternative Minimum Tax, if applicable, may reduce any deduction. Its provisions are complex and should be examined on a case-by-case basis by the landowner’s qualified accountant or tax advisor.)