Laws Give Tax Breaks for Land Conservation
June 3, 2013
By Wallace Wood, Executive Director, Upper Savannah Land Trust
It can pay to protect your farm and forest land from industrial and commercial development. Tax legislation signed at the beginning of the year renewed generous federal tax breaks for landowners who permanently preserve scenic, environmentally sensitive, prime farm land or historical properties. But landowners need to take action now as the “enhanced” conservation easement incentives will end December 31, 2013.
The preservation technique, known as a conservation easement, is a binding agreement typically made between a landowner and a nonprofit group called a land trust that places development restrictions on the property. Restrictions usually include industrial and commercial development, high density subdivision, strip mining and outdoor advertising such as bill boards.
Land owners usually retain the right to farm the land, to practice forestry or to engage in other agricultural activities. There can be limited subdivisions of the property for house lots and agricultural buildings. The land can be sold, but the new owner has to abide by the terms of the agreement.
Under the provisions in the tax law, landowners can generally deduct the value of the contribution up to 50% of their adjusted gross income per year. If you cannot deduct the full amount of your gift in one year, you can deduct the remaining amount over as much as the next 15 years.
Farmers or ranchers or those with forestry operations who earn at least half of their income from their land can claim deductions up to 100% of their income. And this does not have to be average yearly income. Sales of products can be timed in the year that a conservation easement is made to meet this criteria.
The value of the donation for income tax purposes, treated as a charitable contribution, is the difference between the land’s unrestricted value and the value with the conservation easement. This difference is called the conservation value and is treated as a charitable deduction for income tax purposes.
The state of South Carolina along with some other states and local governments offers an incentive to conserve ag and forest land as well. In addition to accepting the charitable contribution to reduce income, South Carolina also gives a tax credit of 25% of the value of the conservation value up to $250 per acre. This credit can be used against state taxes or can be sold for cash.
There is some urgency though for interested landowners. The “enhanced” tax incentives, part of the President Bush era tax cuts, end December 31, 2013 when deductions revert back to the provisions of the original law which allows only 30% of adjusted gross income to be deducted, and a taxpayer has only five additional years to use up the value of the contribution.
Some of the “Bush” tax cuts, including the enhanced provisions for conservation easements, have been extended several times, but there is no certainty that they will be extended again.
Conservation easements have come under scrutiny of the IRS because of inflated values of the deduction. So, it is important to choose a reputable appraiser who gives an honest appraisal.
The land trust that holds the easement has the responsibility to monitor the easement property annually to make sure the wishes of the landowner are being carried out. This is especially important as land changes owners.
Before committing to an easement which is binding forever, a family has to be sure it wants to do this. Careful consideration needs to be given to tax and income implications.
It is very important to choose a land trust that has similar goals of land stewardship as those of the landowner. A list of land trusts that serve your area can be found at the Land Trust Alliance web site, www.lta.org.
The mission of Upper Savannah Land Trust is to encourage and support conservation of natural and scenic land, farms, forests, waterways and open spaces in the eight county area which includes Abbeville, Anderson, Edgefield, Greenwood, Laurens, McCormick, Newbery and Saluda. More information can be found at www.scuslt.com. Or you may contact Wallace Wood, Executive Director, at firstname.lastname@example.org or call 864-993-5012.