Benefits For Land Conservation
Landowners conserve their farms, forests, scenic mountainsides
and trout streams because they care about their land and their
heritage. To reward this conservation, the federal and state governments
now offer thousands of dollars in tax deductions, tax credits and
estate tax savings as an incentive to save Virginia’s natural
A conservation easement: A qualifying easement
must be forever, must be held by a qualifying government agency
or non-profit organization and must conserve a valid conservation
purpose. The government considers this a charitable gift that is
tax deductible. Your easement’s value must be determined
by a qualified appraiser; it equals the difference in the land’s
value with all its development rights before the
easement and its value after the land’s
uses are restricted by an easement.
I. Federal Income Tax Deduction:
Congress recently extended the most generous federal income tax deductions in history for landowners who donate a conservation easement. This law:
- Raises the deduction a donor can take for donating a conservation
easement from 30 percent of his or her adjusted gross income
in any year to 50 percent;
- Allows qualifying farmers to deduct up to 100 percent of their
adjusted gross income. A qualifying farmer is one who earns 50%
or more of his or her income from agriculture;
- Extends the carry-forward period for a donor to take tax deductions
for a voluntary conservation agreement from 5 to 15 years.
Now, small farmers and those of modest means in the New River
region can receive greater tax benefits for donating valuable conservation
easement. (See Q&A below for details.)
You must donate your easement in 2008to 2011 to qualify.
II. State Tax Credit
Virginia gives landowners a tax credit equal to 40 percent of their easement’s value – which can equal thousands and sometimes hundreds of thousands of dollars. The landowners can use the tax credit to eliminate all their state income taxes over 11 years [the year the easement is donated plus a 10-year carry forward]. Or this tax credit can be sold for cash. Brokers will purchase these credits at 73-78 cents on the dollar. A landowner can also recruit buyers or work with the New River Land Trust to find buyers at 80-85 cents on the dollar.
- Will only register $108 million a year in state tax credits.
Any tax credits that can’t be registered in a given year
will be carried over to the next year.
- Will charge a fee equal to 5 percent of the tax credit for
sale and transfer of credits.
- Will review and verify all easements with a tax credit valued
at $1 million or more.
III. Estate Taxes
Large properties may also push estate values over the $5 million inheritance tax exemption. A conservation easement lowers the value of a farm, thus reducing or even eliminating inheritance taxes, now at 35%. In addition, the IRS exempts 40 percent of the remaining value of land under easement from inheritance taxes up to $500,000. There are exceptions, so check with your tax advisor. “If you don’t do the planning, UNCLE SAM is going to tell your heirs what to do with that real estate and they aren’t going to like what they hear. - Stephen Small, tax attorney
IV. Property Taxes
Land under easement is taxed at its “land use” value
in counties with land use assessment. In counties such as Grayson
County, which do not have land use, the property must be assessed
at its restricted value, thus lowering your county property taxes.
Q&A on Federal Income
1. Can you give me an example of the difference
the new changes make?
Under the previous rules, a landowner earning $50,000 a
year who donated a $250,000 conservation easement could take a
30 percent deduction–$15,000–for the year of the donation
and for an additional 5 years–a total of $90,000 in tax deductions.
The new rules allow that landowner to deduct 50 percent of his
or her income–$25,000–for the year of the donation
and then for an additional 15 years–or up to the full value
of the easement. In this case, the landowner could deduct $25,000
for 10 years. If the landowner qualifies as a farmer or rancher,
he could deduct his full $50,000 income for five years.
2. Who qualifies as a farmer or rancher?
The law defines a farmer or rancher as someone who receives
more than 50 percent of his or her income from “the trade
or business of farming.” Activities that count as farming
- cultivating the soil or raising or harvesting any agricultural
or horticultural commodity (including raising, training, and
management of animals) on a farm;
- handling, drying, packing, grading, or storing on a farm any
agricultural or horticultural commodity in its unmanufactured
state, but only if the owner or operator regularly produces more
than one-half of the commodity so treated; and
- planting, cultivating, caring for, or cutting of trees, or
the preparation (other than milling) of trees for market.
The qualified farmer provision also applies to farmers who are
organized as C corporations. The easement must require the land
remain “available for agriculture.”
is the timeline for this expanded incentive?
The law applies to all easements donated in 2008 through 2011.
4. Will donors who use this provision be
Taking advantage of this law will not necessarily affect one’s
likelihood of being audited. All donors should note, however, that
the IRS has been increasing the number of tax returns it audits.
That makes it particularly important for a donor to know and follow
the law, and utilize a reputable professional appraiser who has
experience in the appraisal of conservation easements.
To learn more, contact New River Land Trust: email@example.com or
call (540) 951-1704
Click here for VA tax credit
pdf and instructions
Click here for
a list of lawyers, tax credit service providers and appraisers