Enhanced Tax Incentives

Compiled by Nancy Brannon
 

In December 2015, in rare bipartisan action, the U.S. Senate and House passed the bill to make the tax incentive for conservation easement donations permanent. The president signed the bill into law on December 18, 2015, and the incentive will apply retroactively to January 1, 2015. This incentive is considered to be some of the most important conservation legislation in 20 years. Farmers, landowners and the public will directly benefit from the incentive that encourages landowners to place a conservation easement on their land to protect important natural, agricultural, historic, and working lands.

First enacted as a temporary provision in 2006, the tax incentive expired December 31, 2014, yet is directly responsible for conserving more than 2 million acres of America’s natural outdoor heritage. With the enhanced incentive in place, the pace of land conservation increased by about 33 percent, exceeding one million acres per year.  
 

“This legislation is good news for Tennessee’s small and large family farms,” said Gary Moore, the farmland conservation director for The Land Trust for Tennessee. 
 

“Tennessee family farmers who keep our farmland productive, support our economy, and protect the health and cultural heritage of Tennessee communities have earned a break,” said Moore. “These enhanced tax incentives will protect Tennessee farmland by supporting the families who are the backbone of our rural economies and better enable them to pass along the farming way of life to the next generation.”

In an op-ed to the Nashville Tennessean, Todd Jennings, talked about how the enhanced incentives can be a game-changer for full-time farmers and land owners alike in Tennessee. Todd has a Century Farm with a conservation easement. Just as important, he is in the agriculture business, visiting farmers in nearly every county across the state each year. 

The Land Trust Alliance explains how to use the Federal Conservation Tax Deduction. “The federal conservation tax deduction allows landowners to deduct all or part of the value of a donated easement from their taxable income. If you own land with important natural or historic resources, donating a voluntary conservation easement (also called conservation agreement) can be one of the smartest ways to conserve the land you love, while maintaining your private property rights and realizing significant federal tax benefits. The conservation tax incentive:
 

Raises the deduction a donor can take for donating a conservation easement from 30 percent of his or her income in any year to 50 percent;

Allows qualifying farmers and ranchers to deduct up to 100 percent of their income; and Extends the carry-forward period for a donor to take tax deductions for a voluntary conservation agreement from 5 to 15 years.

“These changes apply to donations made at any time in 2016 and to all donations made after that. This is a powerful tool for allowing modest-income donors to receive greater credit for donating a very valuable conservation easement on property they own. For land trusts, this translates to the possibility of protecting much more land through the use of conservation easements.
 

“A conservation easement is a legal agreement between a landowner and a land trust or government agency that permanently limits uses of the land in order to protect its conservation values. It allows landowners to continue to own and use their land, and they can also sell it or pass it on to heirs.

“When you donate a conservation easement to a land trust, you give up some of the rights associated with the land,” such as the right to build a subdivision or commercial development, “while retaining the right to grow crops” or animals or hunt the land, and other uses. Future owners will also be bound by the easement’s terms. The land trust is responsible for making sure the easement’s terms are followed.

“Conservation easements offer great flexibility. An easement on property containing rare wildlife habitat might prohibit any development, for example, while an easement on a farm might allow continued farming and the addition of agricultural structures. An easement may apply to all or a portion of the property, and need not require public access.

“A landowner sometimes sells a conservation easement, but more often easements are donated to a land trust. If the donation benefits the public by permanently protecting important conservation resources, and meets other federal tax code requirements, it can qualify as a tax-deductible charitable donation. Easement values vary greatly; in general, the highest easement values result from tracts of developable open space under intense development pressure. In some jurisdictions, placing an easement on your property may also result in property tax savings.

 “The new law defines a farmer or rancher as someone who receives more than 50 percent of his or her gross income from “the trade or business of farming. The law references Internal Revenue Code (IRC) 2032A(e)(5) to define activities that count as farming.

“The expanded incentive applies to all donations covered in IRC section 170(h)(2), which includes donations of the entire interest of the donor other than a qualified mineral interest; a remainder interest; or a permanent conservation or historic preservation easement.

“In addition to the federal tax deduction, 16 states offer some form of tax credit for conservation easement donations.
Many state incentives apply to fee-simple donation of land as well as conservation easements. Nine states offer some form of non-transferable income tax credit — Arkansas, California, Connecticut, Delaware, Iowa, Maryland, Massachusetts, Mississippi and New York.

To learn more about using the conservation easement tax incentive, visit The Land Trust for Tennessee at: http://landtrusttn.org or call Gary Moore at (931)581-1148; or the Land Trust Alliance at www.landtrustalliance.org. Find additional information at the Equine Land Conservation Resource: https://elcr.org/