Federal Tax Benefits

Expanded Federal Tax Incentives - Extended Federal Tax Benefits were passed with the 2008 Farm Bill. These new incentives apply to all easements donated between January 1, 2006 and December 31, 2009. While the incentive expired for several months in early 2008, it was renewed retroactively such that there will be no gap in eligibility.

Specifically, the new incentives:

• Raises the deduction a donor can take for donating a conservation easement from 30% of their adjusted gross income in any year to 50%;
  
  
• Allows qualifying farmers and ranchers to deduct up to 100% of their income; and
  
  
• Extends the carry-forward period for a donor to take tax deductions for voluntary conservation agreements from 5 to 15 years.

Conservation easement donations are subject to the same restrictions as they were before. For example, easements must meet the “conservation purposes” test defined in the existing law; they cannot be donated as part of a “quid pro quo” agreement; and they must be donated to a qualified organization – a governmental unit or a publicly-supported charity that has “a commitment to protect the conservation purposes of the donation, and …the resources to enforce the restrictions.”

One can never deduct more than the fair market value of the gift. This change simply allows landowners who previously could not deduct the full value of their gift to deduct more of that value.

Source: Land Trust Alliance

Learn more at http://conserveland.org/pp/fedtax/fedtaxbenefits08_QA.

Donors of land and conservation easements may claim an income tax deduction under § 170 of the Internal Revenue Code. The IRS specifies that to qualify for the deduction, the perpetual easement must be conveyed to a governmental unit or a “qualified organization” that is a §501(c)(3) charitable organization with the commitment and resources to enforce the easement’s restrictions.

Additional IRS requirements state the conveyance be “exclusively for conservation purposes,” which are defined as:
1) Preservation of land for outdoor recreation by the general public or for education of the general public;
2) Protection of relatively natural fish, wildlife, or plant habitats;
3) Preservation of open space (including farmland and forest land) which yields a significant public benefit AND is either 1) for the general public’s scenic enjoyment, or 2) pursuant to a clearly delineated federal, state, or local conservation policy (e.g., an open space plan); or
4) Preservation of historically important land areas or certified historic structures. ^[1]

The exact amount of tax savings depends on several factors:

• How long the donor has owned the property (benefits are generally greater if owned for more than one year);
• How the donor has used the property (residence, investment, agricultural);
• The income of the donor (the higher one’s income, the more one will save on taxes); and
• The value of the donated property (the more valuable the property, the bigger the deduction).^[2]

Federal Estate Tax Benefits - A donor may also save substantially on estate taxes if he donates a conservation easement. Under § 2031(c) of the Code, up to $500,000 may be excluded from one’s taxable estate if he or she had donated a qualifying easement. As with the income tax benefits, the larger the value of the donated easement, the bigger the deduction.

Under the American Farm and Ranch Protection Act of 1997, a landowner’s estate also now may totally exclude from federal estate taxation up to 40% of the value of the eased land, with a cap of $500,000. A landowner can donate an easement prior to death or the heirs may choose to donate the easement within a limited time after the landowner’s death. ^[2]

Additional Links:

U.S. Treasury Regulations on Donations of Conservation Easements

The Federal Law on Donations Of Conservation Easements (and other partial interests)

Private Landowner Network: Conservation Easements – The Latest Tool in the Protection of Lands and Landscapes in the Mississippi Delta. by Laurel A. Florio, J.D.
http://www.privatelandownernetwork.org/plnlo/easementquestionsanswers.asp

Private Landowner Network: What is a "Conservation Easement"?
http://www.privatelandownernetwork.org/plnlo/conease.asp

Brandywine Conservancy - Conservation Easements
http://www.brandywineconservancy.org/conservation_easments/page2.html

Using Conservation Easements to Preserve Open Space: A guide for Pennsylvania Municipalities
http://conserveland.org/lpr/download/6735/using_conservation_easements.pdf

Land Trust Alliance: Tax Benefits for Conservation
http://www.lta.org/publicpolicy/taxbenefits.htm