Federal Income Tax Deductions
Appraisals are needed when the claimed value of a gift or sale of land is more than $5,000. If the land is a gift, the value of the land can be taken as a tax deduction. If the land is sold at less than fair market value, the seller may be entitled to an income tax deduction for a charitable contribution and to a reduction in capital gains tax. The value of the income tax charitable contribution is equal to the difference between fair market value and the lower negotiated selling price for charity.
Massachusetts Tax Credit Program
Once land of important natural resource value is certified it may qualify the landowner for a $75,000 Massachusetts state tax credit. The land must be protected in perpetuity.
Type of land conservation transactions that may qualify:
- Donations and bargain sales of land and conservation restrictions (CR)
- Must be a perpetual conveyance of:
- land to state agency or town, or
- land to incorporated land trust, subject to CR, or
- CR to state agency, town, or incorporated land trust
- Must protect natural resources
How to take the credit
- Landowner does not need to be a Massachusetts income taxpayer or resident
- Need certification by the State that the land is eligible
- Tax credit is applied to the donor’s state tax liability during the year of the donation
- If credit is larger than the liability, the State will issue a check for the remainder of the approved credit. There is no carry forward into future tax years.
- Credit is allocated in proportion to each owner’s interest in the property
- Tax credit can be taken in addition to a claim for federal income tax deduction
Limitations on the taxpayer
- Credit is lesser of 50% of appraised fair market value of land (or CR), or $75,000
- If married, must file joint return with spouse
- Non-transferable (that is, the tax credit is specific to the donors/taxpayers)
Potential Estate Tax Benefit
A gift or sale of land reduces the estate, resulting in a potential estate tax benefit.
Relief from Property Taxes
By gifting land or a conservation restriction to a land trust the landowner is no longer responsible for property taxes as of the beginning of the following fiscal year.