Despite the fact that it has the fifth highest population density, Maryland is known nationally for its local and state land preservation programs. For its size, it has preserved the most land of any state. However, the rate of land preservation has slowed due to the recession and reduction of funding in most land preservation programs. Landowners who still have not preserved their land might want to consider donating an easement to the Maryland Environmental Trust.
The table on the right indicates that 806,985 acres of private land is held under easement via state programs, county programs or private conservation organizations. Most of the easements were purchased via easement or transferable development right (TDR) sale. A noted exception is the land preserved by the Maryland Environmental Trust (MET), which accepts voluntary donated conservation easements. To date, MET holds 1,050 conservation easements protecting forever over 129,000 acres.
Here is how it works and why this is the year to donate an easement!
As per the MET website page Federal Tax Benefits, “the gift of an easement is a charitable donation that may be deducted from Federal income taxes. The value of the donation is determined by an appraisal.” After a donation of an easement to MET, landowners can deduction up to 50% of adjusted gross income from their federal income tax and they can continue to take the deduction for another 15 years, or until they reach the value of the easement. They can deduct up to 100% of their adjusted gross income per year if the majority of their income came from farming, ranching, or forestry, until they reach the value of the easement.
Let’s say that you have a 100 acre farm worth $600,000. For this exercise, we will assume that the easement that you would be donating is appraised at 40% of market value, or $240,000. Dividing $240,000 by 16 (the maximum number of years), you would be eligible for up to a $15,000 federal tax credit per year. Of course, the value of your easement and your annual federal tax burden both play a role in the level of financial advantage you would get from the easement.
There may also be some benefits with regards to federal estate tax exclusions and state taxes benefits that you will want to discuss with the MET Planner.
As stated on the MET website, to determine the easement value, the land must be appraised at both its fair market value without the easement restrictions, and its fair market value with the easement restrictions. “The difference between these two appraisals is the easement value, from which the tax deductions are derived.”
Why is this the best year to preserve your land? It is expected that the percentage of adjust gross income for which you get the tax credit will be reduced after this year for all landowners. In years past, the maximum annual deduction has been 30% of adjusted gross income.To get a full understanding of the program, I recommend that you start by reading MET’s Frequently Asked Questions (FAQs). Then it will be time to contact your regional MET Planner!