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New
Federal Law Gives Greater Tax Break for Voluntary
Conservation Agreements
In
August 2006, Congress passed new federal legislation
that will help moderate-income landowners, including
family farmers and ranchers, get a significant tax
benefit for making the valuable donation of a conservation
easement. Conservation easements are voluntary
agreements that allow private landowners to restrict
future development of their land and protect its unique
value. If you own land with important natural or
historic resources, donating a conservation easement can
be one of the smartest ways to preserve the land you
love, while maintaining your private property rights and
realizing significant tax benefits.
The
new tax reform allows many landowners to deduct much
more than they could under the old rules. Here are some
of the key changes:
- The
new law raises the deduction a landowner can
take for donating a conservation easement from 30%
of their annual adjusted gross income to 50%.
- Qualifying
farmers and ranchers can now deduct up to 100%
of their annual adjusted gross income.
- The
carry–forward period for a landowner to take tax
deductions for conservation easement donations has
been extended from 5 to 15 years.
Here’s an example of
how this could work for a landowner earning $50,000 a
year who donates a $1 million dollar conservation
easement:
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Previous
rules
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New
rules
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$15,000
deduction for the year of the donation and an
additional 5 years
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$25,000
for the year of the donation and an additional 15
years
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$90,000
total tax deductions
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$400,000
total tax deductions
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If
the landowner qualifies as a farmer or rancher, they can
zero out their taxes:
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Previous
rules
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New
rules
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$15,000
deduction for the year of the donation and an
additional 5 years
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$50,000
for the year of the donation and an additional 15
years
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$90,000
total tax deductions
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$800,000
total tax deductions
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Every
situation is different, and experienced legal counsel
should be consulted to determine your eligibility for
these incentives. If you are considering a conservation
gift, it is also important to note that these incentives
expire at the end of 2007, although
conservation easement donations made in this two-year
window will carry forward in tax deductions for up to 15
years. It is not too early to start work on your
transaction.
Each
year, on average, an area greater than all the existing
parks in Olympia, Lacey, Tumwater, Yelm, Tenino, and
Rainier combined is converted for development. These new
time-sensitive tax incentives provide an excellent
opportunity for landowners to preserve the invaluable
and irreplaceable natural heritage of the South Sound
for generations to come.
For
more information, visit: www.lta.org/publicpolicy/tax_incentives_updates.htm
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