Monday, April 23, 2012

Cutting Through the Jibberjabber of Land Trust Speak to Explain Important, New Tax Benefits for NeighborSpace Easement Donors

As a result of a new partnership with the Maryland Environmental Trust (MET), a quasi-governmental, statewide land trust, donors of conservation easements to NeighborSpace will now be eligible for both a State income tax credit and a State property tax credit.  These same individuals will remain eligible to receive a federal charitable income tax deduction and a local property tax exemption.  But what does all of this jibberjabber really mean? 

Alfred E. Neuman wrote that "today, it takes more brains and effort to make out the income-tax form than it does to make the income." The same could be said of making a land donation to a land trust like NeighborSpace. So let's see if we can boil this down to its essence and explain in plainer English just how our new partnership with MET will actually benefit donors of easements to NeighborSpace.

1) What Exactly is a Land Trust? A land trust is a nonprofit organization that works to conserve land typically by taking an ownership interest in the land (aka "a conservation easement") that will enable it to protect the land's conservation values (e.g. habitat, recreation, scenery, open space) forever.

2) What is a Conservation Easement? A conservation easement is an ownership interest in land that the underlying "fee" owner typically donates to a land trust so that the land's conservation values can be protected.  The easement restricts the owner from using the land in any way that would diminish the conservation values and, in exchange for this restriction, the owner gets some very generous tax benefits that are described in further detail, below.  As shown in the diagram below, however, the underlying owner still has the right to possession of the land, the right to dispose of it while he or she is alive or upon his or her death, and the right to use the land so long as such use does not diminish the conservation value(s).

 3) Of Credits, Deductions, Exemptions and Whatnot

When it comes to tax relief, given your druthers, you should always prefer an exemption to any other type of relief because it results in your paying nothing, as shown in the table below.  Similarly, you should always prefer a credit over a deduction because a credit reduces the amount of tax you owe, while a deduction merely reduces the amount of your income that is subject to taxation.

4) The Bottom Line Resulting from Our New Partnership with MET

Our new partnership with MET has evolved out of that organization's willingness to reconsider a long-standing rule that it would only co-hold an easement with another land trust if the tract under consideration was 25 or more acres in size, an unlikely result for NeighborSpace.  The co-holding is necessary because the State tax benefits only accrue to the handful of organizations like MET that are part of State agencies.  As shown in the table below explaining each of the tax benefits that are now available to donors of easements to NeighborSpace, the most significant new benefit is clearly the State income tax credit.

If, after reading the foregoing, you are still scratching your head, you are not alone. When Albert Einstein was asked in 1944 about filling out his tax return, he declared, "This is a question too difficult for a mathematician.  It should be asked of a philosopher." While I can't claim to be a very good philosopher, I am happy to answer any questions at 443-610-8601 or at

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