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Financial Incentives for
Donating Conservation Easements

The following is for information purposes only and is not intended to be a substitute for legal advice. For all issues related to tax law, Tall Timbers strongly advises the landowner to consult with their legal and financial advisors.

Federal Income Tax Benefits

In May 2008, Congress passed the Farm Bill which included a two-year extension of the expanded tax incentives for conservation easement donations through the end of 2009 and retroactive to January 1, 2008.

The expanded federal tax incentives include the following:

  • Raises the deduction a landowner can take on the value of their donated conservation easement from 30% of their income in any year to 50%;
  • Allows qualifying farmers and ranchers to deduct up to 100% of their income on the value of the easement; and
  • Extends the carry-forward period for a donor to take tax deductions for a voluntary conservation easement from 5 to 15 years.

Federal tax laws allow the donor of a qualified easement to claim its value as a deduction for income, gift, and estate tax purposes. Only donated easements qualify for a tax deduction. As a charitable donation, the easement value is generally based on the difference between the fair market value of the property before and after donation of the easement. The difference between the “before” and “after” value is the amount that can be treated as a charitable donation for income tax purposes. An independent appraiser sets the value of a conservation easement.

For example, say that the owner of a 1,000-acre property valued at $2 million places an easement on his or her land precluding future residential and commercial development. A qualified appraiser determines that the land’s fair market value, as reduced by the easement, is $800,000 (a 60 percent diminution). The charitable donation would thus be valued at $1.2 million. If the donor were in the 40 percent tax bracket, the approximate tax savings would be $480,000. The landowner can deduct the amount of the easement donation up to a minimum of 50 percent of his or her adjusted gross income, and 100 percent if a bona fide farmer, plus a fifteen-year carry-forward for any excess value. Corporations are limited to a 10 percent deduction. For questions and answers concerning the expanded federal tax incentives, click here.

Georgia Conservation Tax Credit Program

Signed into law on April 21, 2006, the Conservation Tax Credit Act increases the financial incentives for a willing landowner to donate land or place a conservation easement on their property. The property must be donated to a government entity or to a qualified non-profit organization (such as Tall Timbers) and must meet at least one of ten conservation goals listed in the Georgia Land Conservation Act. Taxpayers can claim a credit against their state income tax of 25% of the fair market value of the donated property, up to a maximum of $250,000 per individual or $500,000 per corporation. The amount of the credit used in any one year may not exceed the amount of state income tax otherwise due and any unused portion of the credit may be carried forward for ten succeeding years.

In the spring of 2008, Governor Sonny Perdue signed into law new legislation that amends the Conservation Tax Credit in the following ways:

  • Fair market value is now determined by a qualified appraisal, and not the county tax assessor. New pendalties are defined for appraisers who make substantial value misstatements.
  • Members of a partnership are eligible for a total tax credit (in aggregate) of up to $1 million. Individuals are still limited to $250,000 and corporations to $500,000.
  • If a parcel of land is subdivided but remains under one ownership, only one qualified donation may be made in a given year.

The Georgia Department of Natural Resources is responsible for ensuring that the donated property meets conservation goals and that the property is donated to a qualified organization. For more information on the Georgia Conservation Tax Credit Program, click here.

Federal Estate Tax Benefits

Conservation easements can significantly reduce the value of an estate, making estate taxes more affordable to heirs. Unlike limits it places on deductions for federal income taxes, the Internal Revenue Code allows unlimited charitable contributions for the purpose of reducing estate and gift taxes. Essentially, the value of the property is frozen at the lower “after” value for estate and gift tax purposes.

In addition to the above tax benefits, up to 40 percent of the value of land covered by a conservation easement may be exempted from estate and gift taxation, as long as the total dollar value excluded does not $500,000. The full 40 percent benefit is available for easements that reduce the fair market value of a property by at least 30 percent. Smaller deductions are available for easements that reduce the value by less than this amount. Also, heirs can donate post-mortem conservation easements to reduce estate taxes under the above provisions if the easement is completed within nine months.

For more information, click here to go to the Land Trust Alliance website.

Local Property Tax Benefits

As a conservation easement restricts various development rights and diminishes the fair market value of the property, it has the potential to provide ad valorem tax relief..

In Florida, the lowest assessed rate is for agricultural land, which most easements fall under. Florida law requires property appraisers to recognize the reduced market value of a property under easement. In November 2008, Florida voters will have an opportunity, through Constitutional Amendment 4, to exempt ad valorem taxes for real property encumbered by perpetual conservation easements

Georgia landowners who donate a convservation easement automatically qualify for the lowest property tax assessment under that state’s Conservation Use Assessment program. Established by the Georgia Legislature in 1992, this program shifts the property tax burden away from owners of bona fide agricultural, forest, and environmentally sensitive lands. Under the ten-year covenant, the land’s value derives from its current rural use rather than its sale potential. These values are capped and set by the Georgia Department of Revenue. The Conservation Use Assessment program has resulted in approximately 50 to 70 percent savings in taxes on qualified land.

If approved by voters through a constitutional amendment in November 2008, the Conservation Use Assessment program will include the following:

  • Both privately-owned and corporate ownership will be eligible
  • No limits placed on how many acres can be enrolled
  • Will require a fifteen year covenant to keep the property in a qualifying rural use
  • New penalties for breach of the covenant
  • Counties whose digest would be adversely impacted by more than 3% would be made whole through a state refund. Counties whose digest would be reduced by 3% or less would receive a refund equal to 50% of the digest reduction
  • The legislation caps the year to year land value increases at 3% and also defines ‘fair market value of forestland’ to reduce the temptation of taxing authorities to raise fair market values on forestland to increase the size of the refund from the state.

Click here for more information on the current Conservation Use Assessment program.