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: email@example.com, or by Telephone at 989-652-9923.