The new law:

• Raises the deduction a landowner can take for donating a 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; and
• Increases the number of years over which a donor can take those deductions from 5 years to 15 years.

It is important to note that this only applies to easements donated in 2006 and 2007.

Other resources from LTA:
A Fact Sheet for Tax Planners and Their Clients on HR 4
Answers to Frequently Asked Questions
Conservation Tax Law Update Brochure

I know many ranchers who want to protect the land that they have lived and worked on for generations, but need some help to make it happen,“ said John Lunt, a family rancher and conservationist from Wyoming. “Better conservation tax incentives will help my friends and neighbors preserve their land without putting their family’s economic future at risk.”

Voluntary conservation agreements, also known as conservation easements, are an important tool for land conservation. When landowners donate voluntary conservation agreements, they protect resources important to the public by giving up future development rights, while retaining ownership and management of the land.

The new law also protects the public interest by including a significant tightening of the rules for appraisals of all donated property, including stiff penalties for inflated appraisals.

The Land Trust Alliance recently launched a training and accreditation program that will give a seal-of-approval to local land trusts who work directly with private landowners to protect important lands in their communities.

In addition, the Internal Revenue Service has stepped up its scrutiny of land conservation donations, creating a task force to focus on strategic ways for preventing abuses while supporting legitimate conservation practices.

“Congress, the IRS and the private-sector have all taken decisive action,” added Wentworth. “This three-pronged approach will solidify and build public confidence in the private land conservation system.”

Here is an example of the new law in action
Under the previous rules, a landowner earning $50,000 a year who donated a $1 million conservation easement could take a $15,000 deduction 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 $25,000 for the year of the donation and then for an additional 15 years. That’s $400,000 in deductions. If the landowner qualifies as a farmer or rancher, they can zero out their taxes. In that case, they could take a maximum of $800,000 in deductions for their million dollar gift.

Who qualifies as a farmer or rancher?

The new law defines a farmer or rancher as someone who receives more than 50% of their income from “the trade or business of farming”.  The law references an estate tax provision (Internal Revenue Code (IRC) 2032A(e)(5)) to define activities that count as farming.  Specifically, those activities include:

• cultivating the soil or raising or harvesting any agricultural or horticultural commodity (including the raising, shearing, feeding, caring for, 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, tenant, or operator of the farm regularly produces more than one-half of the commodity so treated; and
• the planting, cultivating, caring for, or cutting of trees, or the preparation (other than milling) of trees for market.

The qualified farmer or rancher provision also applies to farmers who are organized as C corporations.  For an easement to qualify for the special treatment, it must contain a restriction requiring that the land remain “available for agriculture”.

For more information visit the Land Trust Alliance's Question and Answers Page