• How The Tax Benefits Work For Federal And State Income Tax Purposes

  • Under the current Federal Tax Code, the landowner or the partnership which owns the property which grants the conservation easement receives a tax deduction equal to the difference between: (1) the appraised value of the highest and best use of the property if developed and (2) the appraised value of the property once the conservation easement is recorded which prevents development. This difference is referred to as the value of the charitable donation or charitable gift and equals the total tax deduction that may be taken for federal and state tax purposes subject to certain rules and limitations. This charitable donation which produces the federal and state tax deduction can be taken against current year income and carried forward a number of years until it is used or the time expires.
    Under Federal Tax Law in 2011, the amount of the deduction that can be used the same year the easement is recorded, is limited to 50% of a taxpayer's adjusted gross income in the year the easement is recorded and the balance could be carried forward up to fifteen years until it is used or lost. In prior years, and starting in 2012 unless Congress extends the current rules, the deduction of up to 30% of a taxpayer's adjusted gross income can be taken the year the easement is recorded and carried forward up to five years.

  • Other Financial benefits

  • Other financial benefits include lowering the tax basis for estate tax purposes when the land is passed by will once the current land owner dies, as well as lowers the property or advalorem taxes on the land.

  • State Tax Credits

  • Certain states also have additional tax credits for conservation easements subject to certain requirements imposed by the state, this is in addition to already receiving the same tax deduction from the state as recieved from the Federal Government for the granting of the conservation easement.

  • Type Of Easement That Qualifies For A Conservation Easement

  • A donated easement may be treated as a charitable gift, making the value of the easement tax deductible. In order to qualify for the federal tax deduction, the easement must be: (1) perpetual; (2) held by a qualified conservation organization; and (3) serve a valid conservation purpose, which includes (a) the preservation of land areas for outdoor recreation by, or education of the general public; (b) the protection of a relatively natural habitat of fish, wildlife, plants, or similar ecosystem; (c) the preservation of open space (including farmland or forest land); and (d) the preservation of a historically important land area or certified historic structure. In addition, the value of the conservation easement must be determined by a "qualified appraisal".

  • How The Federal And State Income Tax Deductions Work For Farmers

  • In 2011, the Federal Tax Incentive rewards agricultural easement donors at a higher rate. Eligible farmers or ranchers are defined as tax payers who earn more than 50 percent of their gross income from the business of farming during the taxable year in which the contribution is made. In 2011, the farmer may deduct the easement's value up to 100 percent of their adjusted gross income, with a fifteen year carry-forward period. Other landowners are able to deduct up to 50 percent of their AGI with a fifteen year carry forward. If this incentive doesn't attain a permanent status by the end of 2011, the deduction reverts back to 30% of a landowner's AGI for everyone in the year of the donation with a five year carry-forward. Many states also offer income tax credits for the donation of conservation easements.

  • Estate Tax Benefits

  • Another important tax benefit is the reduction of estate taxes. Because estate taxes are based on the highest economic use of the parcel, these taxes can be substantial even if the land is being used as a farm or ranch. This can put considerable financial strain on heirs and in many circumstances may force them to sell all or part of the land in order to pay estate taxes. Conservation easements can help prevent this and aid in the intergenerational transfers of intact properties. By granting away development rights the value of the land is decreased, which lowers the value of the land for estate tax purposes, and can provide a significant reduction in the estate tax burden on family members. This is particularly helpful in situations where the cultural, sentimental, and historical uses of the land are much more important to the heirs than its economic value.
    In addition to this decrease, under the 1997 Taxpayer Relief Act, a conservation easement may reduce estate taxes by 40%, up to a maximum of $500,000, if it meets the requirements for a qualified conservation easement. It would be prudent to consult a tax professional to determine if a conservation easement qualifies as a qualified easement, but some of the key conditions are: (1) Ownership of land for more than 3 years prior to death, (2) Donation of the easement occurred by the descendent or a member of his family, (3) Easement must prohibit all but minimal commercial recreational use of the land, and (4) the easement must decrease the value of the land by at least 30% to qualify for maximum estate tax benefits.

  • Reduction Of Property Taxes

  • The granting of a conservation easement can in some cases also lead to a reduction in property taxes. Because states vary widely in how they assess property taxes the effect of a conservation easement on such taxes is equally variant. In some states landowners may see a reduction of property taxes, but it is not guaranteed. Because the tax benefits vary between states, those considering the grant of a conservation easement should consult a tax professional that has a solid foundation in this complex topic to determine the benefits they can reasonably expect and the specific requirements they must meet to be eligible for those tax benefits.
    It is important to note that granting a conservation easement by a private landowner will not completely eliminate tax burdens on the owners. The property will remain on the tax rolls but the restrictions placed on the property can often lead to a reduction in the taxes assessed. Please remember that the landowner retains responsibility for any property tax liabilities.

  • Granting Of A Conservation Easement Does Not Contribute To, Or Trigger AMT

  • The Federal And State Tax Deductions Generated By The Charitable Donation Of Placing A Conservation Easement On Land Does Not Contribute To, Or Trigger The Alternative Minimum Tax, Or AMT.
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