Conservation Easements – Easy Tax Savings
You may not be able to have your cake and eat it too, but you can own your land and donate it too.
Conservation easements allow a property owner to maintain ownership of their land while also ensuring that it will be preserved in perpetuity. This allows a land owner to maintain private ownership of their land while also limiting development, essentially making a charitable donation and therefore receiving a tax deduction for the reduction in value under IRC Sec. 170.
Although the landowner will maintain possession of the land, the conservation easement burdening the land is permanent and runs with the land, so the land can be transferred, but the conservation easement restrictions will always remain in place.
Why would you want to burden your land forever? Besides the charitable aspect, a landowner can save a significant amount of real estate taxes, income taxes, and estate taxes with a conservation easement. In fact, right now, a qualified farmer who puts a conservation easement on the farm can offset up to 100 percent of his or her federal taxable income, leaving the farmer with ZERO income tax for the year, and up to a 15 year carryover of any unused deduction. Additionally, there are state tax credits in Georgia and many other states for conservation easements.
However, at the end of 2013, the income deduction limit is set to revert to 30% of a donor’s income and only a five year carry forward.
For example, in 2013, if a farmer who makes $500,000 a year sets up a conservation easement worth $1.5 million, the farmer can deduct $500,000 in 2013 and carry forward the $1,000,000 excess charitable deduction to offset income in future years. However, if that farmer waits until next year and Congress does not pass the Enhanced Easement Incentive, that same $1.5 million conservation easement would only be worth a $150,000 deduction and a carryover period of only five years. Therefore, the farmer would lose out on $600,000 of the deduction.
The amount deductible from tax will be the difference between the value of the property before the conservation easement and the value of the property after that conservation easement, which must be determined by a qualified appraiser.
The landowner grants the conservation easement to either a government unit or a charity and the contribution must be exclusively for “conservation purposes.”
The state of Georgia gives a dollar-for-dollar income tax credit for 25% of the fair market value of the donation, up to a maximum credit amount of $250,000. It can be carried forward for 10 years. Additionally excess credits can be sold to other taxpayers for cash. However, there is a $5,000 application fee.
For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.
In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.
