Protecting farmland isn’t just about saving scenic views or safeguarding food systems—it’s also about supporting the people who farm. While zoning and easements focus on land use, tax incentives offer direct financial relief to landowners, helping them resist the economic pressures that drive farmland conversion.
Across the United States, tax-based incentives play a central role in farmland preservation strategies. They reward landowners who keep their land in agriculture and sometimes provide significant savings that help maintain long-term farm viability.
In this post, we’ll explore the major types of farmland protection tax incentives, how they work, and how they complement other preservation tools.
What Are Farmland Protection Tax Incentives?
Farmland protection tax incentives are state or local policies that reduce property, income, or estate tax burdens for landowners who commit to keeping their land in agricultural use. These programs encourage landowners to resist development offers and continue farming by making it financially sustainable to do so.
Major Types of Tax Incentives for Farmland Protection
1. Agricultural Use-Value Assessment (Preferential Tax Assessment)
This is the most common tax incentive in the U.S.
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What it does: Assesses farmland based on its agricultural value, not its market or development value.
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Why it matters: In areas facing development pressure, land may be worth much more on paper than as a working farm. Without use-value assessment, farmers might face unaffordable tax bills.
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Who provides it: Every U.S. state has some form of this program, though rules vary.
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Example: A 100-acre farm near a city might have a market value of $1 million, but an ag-use value of $200,000, leading to significantly lower property taxes.
2. Conservation Easement Income Tax Benefits
Landowners who donate (or sell at a discount) a conservation easement that permanently restricts development may be eligible for:
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Federal income tax deduction for the value of the donated easement (as a charitable gift).
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State tax credits (in states like Colorado, Virginia, and New York).
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Estate tax benefits: Easements reduce the taxable estate value, potentially preventing heirs from having to sell the land to pay taxes.
These benefits reward landowners for preserving their land long-term and can make easement donation financially feasible.
3. Estate and Inheritance Tax Reductions
High land values can lead to crippling estate taxes, often forcing families to sell off farmland after a landowner dies.
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Solution: The IRS offers Section 2031(c)—a special provision that reduces the estate tax burden if the land is under a qualifying conservation easement.
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Some states offer additional estate or inheritance tax relief for farmland passed down within families.
These provisions help keep farmland in the family and prevent generational turnover from triggering land conversion.
4. Capital Gains Tax Exclusions or Deferrals
When landowners sell land or easement rights to a government or qualified land trust, some programs offer:
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Capital gains tax exclusions for the increase in land value.
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Installment sales that spread income across years to reduce tax burden.
These options can encourage participation in purchase of development rights (PDR) programs or easement sales.
5. Farmland Preservation Program Tax Credits
Some states, such as:
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Virginia – Offers transferable land preservation tax credits for donated easements.
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New York – Offers a Farmers’ School Tax Credit to reduce school tax burdens.
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Maryland – Has property tax exemptions for land enrolled in preservation programs.
These credits provide annual, recurring savings that reward conservation behavior.
How Much Do Tax Incentives Help?
The financial benefit varies widely depending on the:
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Size and value of the land
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Local real estate market
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Type of incentive program
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Farmer's tax situation
But in some high-growth areas, use-value assessments or conservation easements can reduce annual property taxes by thousands of dollars—enough to tip the balance toward staying in agriculture.
Tax Incentives and Other Preservation Tools
Tax incentives work best when paired with:
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Agricultural districts – which often offer access to tax relief programs.
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Zoning protections – which regulate land use, while tax incentives support financial viability.
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Purchase of development rights (PDR) – where landowners sell their rights and also receive tax benefits from the transaction.
Together, these tools create a comprehensive approach to farmland protection that addresses both land use and economic pressure.
Challenges and Considerations
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Enrollment requirements: Some programs require active farming, minimum acreage, or long-term commitment.
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Recapture penalties: If land is later converted, landowners may owe back taxes or penalties.
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Awareness gaps: Many eligible landowners don’t know these programs exist or how to apply.
Successful programs depend on outreach, education, and technical support to help farmers navigate the application process and optimize their benefits.
Conclusion: Tax Relief That Protects the Land
Farmland protection tax incentives are a powerful but underutilized strategy to reduce pressure on America’s working farms and ranches. By lowering the cost of keeping land in production, they give landowners a reason to say “no” to development and “yes” to agriculture.
Whether used alone or in combination with zoning, districts, or easements, tax incentives play a critical role in the long-term preservation of our rural landscapes.
Want to see what tax incentives are available in your state? Contact your local farmland protection agency, cooperative extension office, or land trust to learn more about what you qualify for.
