The motivation behind most conservation easement donations is the owner's love for the land and their desire to see it preserved for future generations. However, these donations can also result in substantial tax savings for the landowner, thereby benefiting both the land and the landowner. A brief overview of the potential tax benefits is presented below.
1. Income Tax Benefits Associated With Conservation Easement Donations.
Prior to 2006 a landowner could use the fair-market value of their donation as a tax deduction to offset as much as 30% of their adjusted gross income, and the unused portion of the deduction could be carried forward for up to five (5) years. In 2006, Congress passed a law allowing landowners to apply the fair-market value of their donation to offset as much as 50% of their adjusted gross income and increased the carry forward provision to 15 years. This enhanced incentive is set to expire at the end of 2011, and the tax incentives will revert to pre-2006 provisions.
2. Special Benefits for Farmers.
The 2006 law allows a farmer to use the fair-market value of a donated conservation easement as a deduction to offset as much as 100% of their adjusted gross income, provided the land remains available for agriculture production. "Farmers" are defined as landowners who receive more than 50% of their income from "the trade or business of farming" in the year of easement donation. This provision also allows the unused portion of the deduction to be carried forward up to 15 years. Again, this enhanced incentive is set to expire at the end of 2011, and the tax incentives will revert to pre-2006 provisions.
3. Donation May Lower Your Property Taxes.
Property taxes may be reduced when a conservation easement lowers a property's full market value, which is typically the developed or "highest use" value.
4. Donation May Lower Estate Taxes.
Donation of a conservation easement can also reduce estate taxes when the easement reduces the property value as described above.