Benefits of a Conservation Easement
Federal and State Income Tax Benefits:
- Under Treasury Regulations Section 1.170(h), a conservation easement is considered to be a charitable contribution. Its value is determined by appraisal.
- A conservation easement deduction can shelter up to 50% of an individual’s Adjusted Gross Income from all sources, or 10% of a C-corporation’s AGI, on both federal and state returns. Any excess deductions can be carried forward for up to an additional fifteen years.
- Owners (even corporations) qualifying as ranchers or farmers can shelter up to 100% of their income for up to 16 years by completing a conservation easement.
- These rules apply to all easements concluded in 2009. Lesser benefits may apply thereafter.
State Tax Credits:
- Additionally, Georgia, North Carolina, South Carolina, Virginia, Colorado, New Mexico and several other states have created opportunities for significant tax credits via conservation easements.
- Donors of qualified conservation land in Georgia are eligible for a Georgia state tax credit of 25% of the donation value of the gift, up to a limit of $250,000 for individuals, $500,000 for corporations and $1,000,000 for partnerships. Use of the tax credit can reduce state tax liability to zero.
- Unused state tax credits may be carried forward for up to ten years.
Estate Tax Benefits:
- The recognized value of the property is first reduced by the restriction of use place on the property.
- Second, in calculating estate taxes, IRS regulations allow an “exclusion” of a portion of the value of the land encumbered with a conservation easement of up to 40% of the remaining value, up to a limit of $500,000.
- Once a property is permanently preserved under a conservation easement, the property is typically classified in the lowest value classification for property tax assessment purposes.
Residual Development Benefits:
- The value of land reserved for development is often enhanced by that land’s proximity to the preserved land, although the appraised estimate of the value of this enhancement reduces the amount of the deductions that can be claimed.
- The actual value of the land reserved for development can be realized at the owner’s schedule and is ultimately based on the market.
- By partnering with those who can use the deductions and credits, an owner can be encouraged to preserve his lands even if he cannot personally use all of the tax benefits. The owner receives a discounted payment from the partner(s) for a portion of his ownership interests.
- Investing partners can receive an attractive return on their investment and feel good about facilitating the conservation of meaningful lands. Additional residual values are often included.
- The personal satisfaction from preserving ecologically significant portions of the natural environment and maintaining the essential character of farm or undeveloped land for generations to come.