In 2015, Congress enacted one of the most significant conservation laws in decades. The legislation, which is intended to protect land from unwanted development, is an enhanced federal tax incentive for conservation easement donations. As a direct result of this recently enacted tax law, taxpayers who donate conservation easements are granted significantly greater tax benefits than were previously available. However, in spite of the tax advantages, conservation easements are often underutilized due to the complexity of the transaction process and the often lower tax brackets of the ranchers and other landowners who might make the donations.
The donation of a conservation easement provides the land donor with a charitable deduction in return for donated land. Under the terms of the new enhanced tax incentive, the total amount of the deduction can be as much as 50% of the taxpayer’s adjusted gross income for any given tax year. If the total amount of the deduction exceeds this ceiling, the donor may carry any unused portion forward and continue to take a charitable deduction of up to 50% of their income for up to 15 years or until the deduction is fully used. The legislation provides an even greater tax break for farmers and ranchers who are allowed to take a conservation easement deduction for up to 100% of their income. Obviously, the ability to offset 50% to 100% of taxable income is a very significant tax benefit. However, in spite of potential tax savings it offers, the conservation easement legislation faces a significant challenge in that oftentimes farmers, ranchers and owners of vacant land have little or no taxable income and therefore no incentive to utilize the tax deduction it offers.
Under the terms of the Federal Tax Code, the landowner or the partnership which owns the property and grants an easement receives a tax deduction equal to the difference between the appraised value of the highest and best use of the property if developed and the appraised value of the property at the time the easement is recorded. Once calculated, this amount is determined to be the amount of the charitable contribution available to the grantor of the easement. One key term in the wording of the tax code is “the partnership which owns the property”. In many cases, partners who are not the original owners of easement properties become the beneficiaries of charitable easement contributions. This arrangement allows taxpayers who have taxable income to reap some of the tax benefits offered by the conservation easement legislation. If done properly, conservation easement tax strategies may provide significant tax benefits for both landowners and non-landowners.
Although conservations easement contributions may provide the single largest tax incentive to the owners of an easement property, they are generally used less than many other tax incentives. Non- landowners should consider the deduction to be one of many tools available to manage periods of high income or to offset taxable transaction income. However, promoters of conservation easement partnerships are widespread so careful consideration should be given to selecting a competent tax professional or tax transaction specialist before considering a conservation easement investment. Aside from the potential tax advantages, the good done by permanently protecting open space from unwanted development should remain an important consideration.
If you are interested in investigating the possibility of making a conservation easement donation or becoming a partner in a structured conservation easement transaction, the experienced transaction specialists at CGT Solutions can provide you with the help you are looking for. Our licensed professionals have helped many clients achieve significant tax savings through the use of conservation easement contributions. Set up a free, no obligation consultation today!
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