Friday, August 1, 2008

“Farm Bill” Creates a Short, but Wide Open “Window”

Conservation Easements create an opportunity for a landowner to own and use their land, pass them to successive generations, and realize substantial tax benefits.

Traditionally, the Federal Tax Code has allowed deductions for the value of a “Qualified Conservation Easement”, for Income and Estate Taxes.  These provisions apply to any landowner who creates an easement for permissible conservation purposes, as defined by the code and regulations.  A “Qualified Conservation Easement” must be a permanent restriction on land, generally limiting its use to conservation (open space, wetlands, nature preserves, etc.), agriculture or historic preservation purposes.  The easement itself must be donated to either a unit of government or a qualified charitable organization (often, a Land Trust).  But the landowner continues to own and use the land.

The value of the easement, is eligible for a charitable deduction.  The deduction may be taken in the year of the donation, and any unused amounts carried forward for additional years.  Traditionally, this carry-forward has been limited to 5 years, and, because land is a capital asset, the amount of the deduction has been limited to 30% of a taxpayer's adjusted gross income.

The 2008 Farm Bill dramatically changes this, but only for a short time!  "Qualified Farmers and Ranchers" may now deduct up to 100 percent of their Adjusted Gross Income, and may carry forward the unused deduction for 15 years.  Unfortunately, this very favorable provision applies only to donations made before January 1, 2010.  A "Qualified" Farmer or Rancher is one whose gross income from Farming is more than 50% of his total gross income in the year of the contribution.

There is good news for other landowners, too (subject to the January 1, 2010 deadline).  Now other donors of  “Qualified Conservation Easements” may deduct up to 50% of their adjusted gross income and may carry unused deductions forward for 15 years.

Other tax benefits from Conservation Easements still remain.  A deduction from Federal Estate Taxes may be taken (even on easements created post mortem, by an estate or heirs).  The easement, itself, should also reduce the value of the property for real property tax purposes (A 2006 Michigan State Tax Commission letter in fact, directs assessors to take this into consideration).  And, there is currently pending Michigan Legislation which would allow a tax credit of up to $10,000 for a donated conservation easement.

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at:, or by Telephone at 989-652-9923.

Andy Richards


About Issues For Advisors

About 3 years ago, I started publishing a Quarterly E-Newsletter targeted directly at professional colleagues and valued referral sources. The intent of the newsletter was to be a resource for professional advisors, including Accountants, Insurance Professionals, Financial Planners, Brokers, Bankers and Planned Giving professionals. The "Issues For Advisors," newsletters have 2 primary goals: (1) To provide timely, useful information about issues that are either of current significance, have caused a recent problem, or are of a recurring nature to our mutual clients, and (2) To keep the content brief (no more than a single page). It recently occurred to me that there is no "archive" where advisors can go to retrieve, or re-read prior Issues. Rather than "burying" them somewhere in the Smith Bovill website, I created an on-line Resource specifically dedicated to the Professional Advisors enumerated above. In addition to the "Issues For Advisors" Archive, Links to other resources (including, of course, the MICHIGAN ESTATE PLANNING BLOG and THE SMITH BOVILL LAW FIRM SITE), will be featured here.

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