Donating an Easement

If all IRS requirements are met, the easement value ($ value of development rights “given up” with the easement) can be deducted from federal income tax, up to 50% of adjusted gross income (AGI). Remaining value may be deducted in future years (up to 16 years total). Qualifying farmers and ranchers may deduct up to 100% of their AGI.

Example: A landowner donates an easement worth $180,000 and has an AGI of $50,000. The landowner can deduct $25,000 (50% of AGI) in the year of the donation and can carry-over the remaining $155,000 in easement value, deducting another $25,000 each year until the full easement value is used or the 15 year limit is reached.

Conservation easements can reduce property taxes by reducing the property’s market value. In West Virginia, conservation easement property is assessed at the agricultural tax rate (usually the lowest rate), even if the landowner is not engaged in agriculture.

We’ve talked a lot about easement value. What is it?

Easement value is the difference between the market value of a property before the easement and the value of a property after the easement. Because land protected by an easement can no longer be subdivided or
developed to the extent it could previously, its “after” value
is usually less. Put another way, easement value is the value of the development rights “given up” in the easement. 

EXAMPLE:

• Fair market value of a property without the easement (“before”) = $300,000
• Fair market value of a property with the easement (“after”) = $120,000
• Easement value = $180,000

Easement value is determined by an independent, specially qualified appraiser. It tends to be 20-60% of a property’s fair market value and depends on the property’s location, ease of being developed, value of nearby lands, and other factors.