The Enhanced Tax Incentive for Conservation Easements is Renewed!

By: Amos S. Eno
Posted on:01/04/2013

President Obama has signed into law the “American Taxpayer Relief Act of 2012,” or the much talked about fiscal-cliff deal. The Act includes a provision that extends the special rule for contributions of capital gain real property made for conservation purposes.
 
The renewal of the enhanced tax incentive for conservation easements is excellent news for landowners looking to protect their property in 2013, and applies retroactively to donations made in 2012. According to the Land Trust Alliance, this incentive will help land trusts work with farmers, ranchers and other modest-income landowners to increase the pace of conservation by about a third. Not only does the enhanced tax incentive make it more feasible for landowners with farms, ranches and forests to protect their land from development, it also increases their ability to continue making a living from the land.
 
The enhanced tax incentive raises the deduction a donor can take for donating a conservation easement from 30% of their adjusted gross income in a year to 50%. Second, it allows qualifying farmers and ranchers to deduct up to 100% of their adjusted gross income. Third, it extends the carry-forward period for a donation from 5 to 15 years (in addition to the year of donation).
 
Congress also went one step further and extended the Farm and Ranch Protection Program (FRPP) for 9 months. The FRPP makes it possible for qualified organizations to purchase conservation easements from landowners by providing them with up to 50% of the fair market easement value. This closes the circle, ensuring that not only are landowners incentivized to sell their development rights, but also that a qualified organization has a greater ability to purchase them.  
 
The Act also extends the IRA Charitable Rollover and S-Corporation donation incentive. The IRA Charitable Rollover permits taxpayers 70 ½ years or older to make donations directly to charitable organizations from their IRAs without counting it as part of their AGI, which means that they would not have to pay taxes on their donation, subject to certain requirements. The S-Corporation donation incentive allows most S-Corporation shareholders to deduct their share of the full fair market value of a charitable contribution made by the company without regard to their basis.
 
No Cap on the Charitable Deduction, but….
 
During fiscal cliff negotiations there was a lot of chatter about applying a cap on the charitable deduction. A cap would have severely restricted the amount landowners could deduct for donating land or an easement, which tend to be larger deductions. Fortunately, the Act leaves the charitable deduction largely intact.
 
However, the Act reinstates a version of the “Pease Amendment,” which had been enacted in the 90’s and eliminated by Bush era tax cuts. The Pease limitation reduces a deduction by 3% of the taxpayer’s AGI that is over a certain threshold.  It applies to itemized deductions when a taxpayer’s income exceeds $250,000 for single taxpayers and $300,000 for those filing jointly. This limitation may pose a threat to charitable giving, however, it is important to note that no more than 80% of the deduction can be lost and several deductions are exempt.