The following is for information purposes only and is not intended to be a substitute for legal advice. For all issues related to tax law, Tall Timbers strongly advises the landowner to consult with their legal and financial advisors
Federal Income Tax Benefits
On August 3, 2006 the Congress approved a tremendous expansion of the federal conservation tax incentive for conservation easement donations. The incentives have been extended twice, and are now due to expire at the end of 2011. Land trusts are hopeful that the incentive will become permanent in the tax code.
The expanded federal tax incentives:
- Raise the deduction a landowner can take for donating a conservation easement from 30% of their income in any year to 50%;
- Allow qualifying farmers and ranchers to deduct up to 100% of their income; and
- Extend the carry-forward period for a donor to take tax deductions for a voluntary conservation easement from 5 to 15 years.
Federal tax laws allow the donor of a qualified easement to claim its value as a deduction for income, gift, and estate tax purposes. Only donated easements qualify for a tax deduction. As a charitable donation, the easement value is generally based on the difference between the fair market value of the property before and after donation of the easement. The difference between the "before" and "after" value is the amount that can be treated as a charitable donation for income tax purposes. An independent appraiser sets the value of a conservation easement.
For example, say that the owner of a 1,000-acre property valued at $2 million places an easement on his or her land precluding future residential and commercial development. A qualified appraiser determines that the land's fair market value, as reduced by the easement, is $800,000 (a 60 percent diminution). The charitable donation would thus be valued at $1.2 million. If the donor were in the 40 percent tax bracket, the approximate tax savings would be $480,000. The landowner can deduct the amount of the easement donation up to a minimum of 50 percent of his or her adjusted gross income, and 100 percent if a bona fide farmer, plus a fifteen-year carry-forward for any excess value. Corporations are limited to a 10 percent deduction.
The 2006 law also set higher standards for appraisers and appraisals of all donated property, and set higher penalties for abusive appraisals. Conservation minded organizations and individuals supported this to ensure the integrity of the charitable donation process. The law also tightened restrictions on donations of easements to protect historic buildings. These reforms are not subject to expiration.
Federal Estate Tax Benefits
Conservation easements can significantly reduce the value of an estate, making estate taxes more affordable to heirs. Unlike limits it places on deductions for federal income taxes, the Internal Revenue Code allows unlimited charitable contributions for the purpose of reducing estate and gift taxes. Essentially, the value of the property is frozen at the lower "after" value for estate and gift tax purposes.
In addition to the above tax benefits, up to 40 percent of the value of land covered by a conservation easement may be exempted from estate and gift taxation, as long as the total dollar value excluded does not exceed $500,000. The full 40 percent benefit is available for easements that reduce the fair market value of a property by at least 30 percent. Smaller deductions are available for easements that reduce the value by less than this amount. Also, heirs can donate post-mortem conservation easements to reduce estate taxes under the above provisions if the easement is completed within nine months.
There is a move afoot in Congress to enhance the estate tax incentives. For more information, click here.
For more information, click here to go to the Land Trust Alliance website.
Georgia Conservation Tax Credit Program
Signed into law on April 21, 2006, the Georgia Conservation Tax Credit Act increases the financial incentives for a willing landowner to donate land or place a conservation easement on their property. The property must be donated to a government entity or to a qualified non-profit organization (such as Tall Timbers) and must meet the conservation goals listed in the Georgia Land Conservation Act. Taxpayers can claim a credit against their state income tax of 25% of the fair market value of the donated property, up to a maximum of $250,000 per individual or $500,000 per corporation and up to $1 million (in aggregate) for partnerships. The amount of the credit used in any one year may not exceed the amount of state income tax otherwise due and any unused portion of the credit may be carried forward for ten consecutive years.
The Georgia Department of Natural Resources is responsible for ensuring that the donated property meets conservation goals and that the property is donated to a qualified organization. For more information, click here.
Local Property Tax Benefits
As a conservation easement restricts various development rights and diminishes the fair market value of the property, it has the potential to provide ad valorem tax relief.
Georgia landowners who donate an easement automatically qualify for the lowest property tax assessment under that state's Conservation Use Value Assessment (CUVA) program. Established by the Georgia Legislature in 1992, this program shifts the property tax burden away from owners of bona fide agricultural, forest, and environmentally sensitive lands. Under the fifteen-year covenant period, the land's value derives from its income-producing potential rather than its sale potential. These values are capped and set by the Georgia Department of Revenue. The Conservation Use Covenant program has resulted in approximately 50 to 70 percent savings in taxes on qualified land. In 2008 reforms to the program were made requiring a minimum acreage of 200 and the previous limitation of 2,000 acres was removed now allowing for unlimited acres. Visit the CUVA website or contact your county tax assessor's office.
In 2009, the Florida Legislature passed a bill implementing the conservation lands constitutional amendment which voters had previously approved by referendum. Tall Timbers worked hard with other organizations to get this constitutional amendment passed. This law provides full property tax exemption for land dedicated in perpetuity and used exclusively for conservation purposes. It provides a partial property tax exemption (up to 50%) for conservation land that is used for commercial purposes such as agriculture.
Florida easement donors who wish to take advantage of the ad valorem tax exemption for conservation use incentive should contact their county property appraiser's office for an application and information. Participants must reapply for this exemption each year, so please check with your county property appraiser.
For further information on this exemption, please contact the property appraiser in the county where your easement is located.