There are significant tax benefits available to property owners who enter into a voluntary land protection agreement, known as a “conservation easement,” with the Cacapon and Lost Rivers Land Trust. These include:
Federal Income Tax Deduction
The value of a conservation easement is calculated by subtracting the fair market value of the property with the easement restrictions in place, from the fair market value of the property without easement restrictions.
The IRS provides a deduction under the “Charitable Contribution” regulations for donations of property interests, which includes conservation easements. You will file IRS form 8283 to qualify for this deduction. Expenses associated with the placement of the easement are also deductible.
In the past, the total federal income tax deduction was limited to 30% of your adjusted gross income. The deduction was used the year of the donation and carried forward for five additional years.
Recently signed legislation increased the cap to 50% of your adjusted gross income and the time it can be carried forward was increased to sixteen years. This increased benefit is only available to landowners who donate their conservation easement in 2009. As the legislation stands now, in 2010 the federal tax deduction will return to 30% over a 6 year period.
In addition, qualifying farmers and ranchers who earn more than 50% of their income from farming can now deduct 100% of their income.
These changes allow moderate-income donors to capture more of the easement’s value. For example, under the old law a landowner with a $50,000 annual income donating a conservation easement worth $500,000 could deduct a total of $90,000. The new law allows that same donor to claim $25,000 per year for 16 years totaling $400,000.
This tax law change is expected to encourage many more conservation easement donations. Easement donors wishing to take advantage of the new tax law need to consult their tax preparer for details.
Federal Estate Tax Exclusion
For the purposes of calculating estate taxes, a conservation easement donated during your lifetime can reduce the value of your property and therefore reduce the value of your taxable assets.
Additionally, the IRS allows you to exclude up to 40% of the value of your property, if a conservation easement is in place, from the calculation of your assets. Heirs who donate a post-mortem conservation easement can also receive a deduction in the amount of the conservation easement value over and above the 40% exclusion described above.
New Landowner Benefits in the 2009 Farm Bill
The 2009 Farm Bill offers the following conservation tax benefits for landowners:
1) Raises the federal deduction a conservation easement donor can take from 30% of their adjusted gross income in any year to 50%.
2) Allows qualifying farmers to deduct up to 100% of their income, provided the land remains available for agriculture production.
3) Increases the number of years over which a donor can take federal income tax deductions from 6 total years to 16 total years.
This incentive only applies to conservation easements donated January 1 2008 – Dec 31 2009, including bargain sales. *
The Trust is experiencing a backlog of easement signings due to these changes . We urge you to contact us immediately if you are interested in taking advantage of this opportunity — (304) 856-1010.
* The Trust strongly suggests professional guidance when making accounting and estate planning decisions. For more specific IRS information about the new tax law, you and your accountant or attorney should visit Land Trust Alliance’s website at www.lta.org.