Taking a Tax Deduction
The donation of a conservation easement often qualifies as a charitable contribution, allowing the donor to take a federal income tax deduction for the value of the contribution. The following summarizes some specific Internal Revenue Service rules governing these contributions.
Arranging for an appraisal
To claim a deduction, a landowner must obtain a qualified appraisal of the conservation easement from a qualified appraiser. The appraiser will determine the value of the easement, most frequently based on the value of the land before and after being encumbered by the conservation easement. The difference is the value of the conservation easement and the amount that may be taken as a tax deduction.
The appraisal must be completed no earlier than 60 days before the conservation easement was accepted by the Land Trust and before the tax return for the year in which the easement was completed is due.
Required IRS forms
To document the value of their gift, conservation easement donors must attach IRS Form 8283 to their tax returns. Section B is the portion of Form 8283 that applies to easements valued at more than $5,000. This form must be signed by the appraiser and by the Minnesota Land Trust.
In addition to Form 8283, the IRS requires a supplemental statement summarizing:
- The conservation values of the donated easement.
- The appraiser's valuation assumptions and conclusions, including fair market value of the property before the easement was in place and the fair market value of the property after the easement was conveyed to the Land Trust (if the before-and-after approach was used).
- Whether the easement was required by any contract, permit, or government approval.
- A description of any interest in any nearby land held by the donor or a related person.
The appraiser should be able to assist the donor in preparing this supplemental statement and may wish to include this required information as part of an overall appraisal summary. The Minnesota Land Trust can also provide assistance in identifying the conservation purposes of the easement.
Additionally, for easements valued at more than $500,000, a copy of the entire appraisal must be included with the tax return.
Obtaining the Minnesota Land Trust's signature
The Minnesota Land Trust requests that donors submit IRS Form 8283 to the Land Trust after the donor and the appraiser have completed the appropriate sections and attached the supplemental statement. The Land Trust will then complete its portion of the form and return it for attachment to the donor's tax return.
The Minnesota Land Trust also requests that donors provide the Land Trust with a copy of the appraisal for the Land Trust's files.
In addition to the detailed instructions for Form 8283, the Internal Revenue Service has a number of publications that provide information related to claiming a charitable contribution for the donation of a conservation easement. See IRS Publication 526, Charitable Contributions and IRS Publication 561, Determining the Value of Donated Property. These publications are available on the internet at www.irs.gov and from the Internal Revenue Service.
As with other aspects of donating an easement, the Minnesota Land Trust highly recommends that all easement donors obtain professional advice from a knowledgeable attorney, accountant or other financial advisor before completing their tax returns.