The legislation increases an individual’s deduction from 30% to 50% of their adjusted gross income in any year based on the fair market value of their qualified conservation contribution. The contribution must be made to a qualified non-profit organization. The conservation contributions are not taken into account in determining the amount of other allowable charitable contributions.

The carryover period for these deductions will be expanded from 5 to 15 succeeding years.

A qualifying farmer or rancher can deduct up to 100% of their income, provided their land remains available for agricultural production.

A qualified farmer or rancher is a taxpayer whose gross income from the trade or business of farming is greater than 50 percent of the taxpayer’s gross income for the taxable year.

Example:
A land owner, who has a taxable estate, owns 100 acres with a fair market value of $3,000,000. Placing a conversation easement on the property restricts the ability of the owner to develop the land and reduces the fair market value of the land. If the value of the land was reduced by the easement from $3,000,000 to $1,500,000, the estate tax savings would be $675,000 ($1,500,000 x 45%).

In addition to reducing estate tax, the landowner receives a current income tax benefit by being able to deduct the $1,500,000 reduction in value as a charitable contribution on their individual income tax returns, if the easement was donated to a qualified charity or certain government entities.

The old rules limited the amount that the individual could deduct annually to 30% of their adjusted gross income (AGI). Continuing the above example, if a taxpayer had a $1,500,000 charitable contribution but AGI of $200,000, they could only deduct $60,000 in the year of the contribution. The old rules allowed you to carry-forward unused charitable contribution deductions, but only for five years. Under the old rules, the taxpayer would only be allowed $360,000 in income tax deductions ($60,000 in the 1st year and $60,000 in each year of the following 5 years). The remaining balance of $1,140,000 would be lost due to the carry-forward limitation.

The new rules are more favorable. The first change raises the AGI limit from 30% to 50%. In our example of a taxpayer with a $200,000 AGI, they would be allowed a deduction of $100,000 ($200,000 X 50%) in the first year. The second change is that the unused amount can be carried forward in each year of the following 15 years instead of 5 years. Continuing the above example, under the new law, a business owner could potentially deduct the entire $1,500,000 amount before the carry-forward period expires.

Here is the IRS code (Internal Revenue Bulletin: 2007-25 ) for the extended tax provisions.