Federal Tax Benefit Information

If a conservation easement meets the IRS’s eligibility criteria, as specifically defined in IRS Code 170(h), the donation of part or all of a conservation easement’s value may be treated as a charitable contribution that can be used to offset a landowner’s federal tax liability.

To qualify for federal tax benefits under IRS regulations, a “qualified conservation contribution” must be donated to a “qualified conservation organization” for “conservation purposes.” A qualified contribution must be a donation of “land, a perpetual easement or other interest in real property that under state law has attributes similar to an easement.” A qualified conservation organization can either be a charitable organization such as a land trust with a non-profit, 501(c)(3) status or a governmental entity. Conservation purposes include such things as the protection of relatively natural habitat, scenic open space and other open space (which may include the protection of farm, ranch or forest lands if their protection is pursuant to a clearly defined government policy), and historic and cultural sites; and the provision of public educational or recreational opportunities.

The appraised value of the conservation easement represents the value of the charitable contribution that can be used to offset a landowner’s federal income taxes. The value of the charitable contribution may be used to offset up to 50% of the landowner’s adjusted gross income in the year the gift is made and, as needed, for up to fifteen (15) additional years or until the value of the charitable contribution is used up. A landowner’s adjusted gross income includes ordinary personal income and any capital gains incurred from the sale of personal assets (land, easements, stock, etc.).

Qualifying farmers or ranchers may deduct the conservation easement value at a rate of up to 100% of their AGI, with the same 15 year carryforward period, for donations of conservation easements that satisfy the following requirements:

• A qualifying farmer or rancher is a taxpayer who earns more than 50% of his or her gross income from the business of farming in the taxable year in which the conservation contribution is made. The definition of 'farming' is a narrow definition set forth in the Code.
• The conservation easement must cover property that is used, or is available for use, for agricultural or livestock production.
• The conservation easement must contain a restriction that the property will remain available for agricultural or livestock production.

Qualifying corporations earning more than 50% of their income from the business of farming and ranching may deduct up to 100% of their taxable income for a qualifying agricultural conservation easement, with a 15 year carryforward period. In order to qualify, the stock of a farming or ranching corporation cannot be readily tradable on a securities market.

In the case of purchased conservation easements, the proceeds from the sale of a conservation easement are treated as taxable capital gains just as the sale of any other kind of real estate. If the conservation easement was purchased below fair market value, the difference between the fair market value and the actual purchase price paid may constitute a charitable contribution that may be used to offset these capital gains.

We cannot provide tax and legal advice, and recommend that you consult with your own tax and legal advisors when considering placing your land into a conservation easement.

Click here to view illustrated scenarios for potential income tax savings for individuals based on the Federal Tax Incentives of August 2006.

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