There are several kinds of tax benefits available to donors of land or conservation easements. If you are uncertain about the differences between bargain sales and donations, or conservation easements and whole interests in property, go to Conservation 101 for a quick brush up.

Both Senate Finance Committee Chair Max Baucus (D-MT) and House Ways & Means Committee Chair Dave Camp (R-MI) support extending the tax break which made it possible for many farmers, ranchers and forest owners to deduct up to 100% of their adjusted gross income.

With 292 House members and 11 Senators signed up in support of making the conservation tax break permanent, it is considered likely that a retroactive extension will be approved within the next month or two. The delay is being blamed on partisan wrangling which makes it difficult to pass even legislation which has overwhelming bipartisan support.

Currently a 20-member congressional committee is at work on comprehensive tax legislation – which could include extending the conservation easement benefit.

The extension delay does not affect the tax treatment for land already under a conservation easement. But it does mean that easements not yet finalized are likely to be put on hold until there is an extension.

Compared to standard charitable deduction rules which continue to provide a 30% income deduction for up to six years, the enhanced conservation easement rules:

• boost the charitable deduction limit from 30% to 50% of the donor’s adjusted gross income;
• enable “qualified farmers and ranchers” to deduct up to 100% of their adjusted gross income;
• enable a closely held C-Corporation to deduct 100% of its adjusted gross income if the C-Corporation derives 50% or more of its income from farming and the C-Corporation is not publicly traded on a recognized exchange;
• enable shareholders in S-Corporations to deduct up to 100% of their adjusted gross income if they are a “qualified farmer or rancher.” The charitable deduction is not limited to the shareholder’s basis in the S-Corporation; and
• increase the carry-forward period for all donors to use the tax deductions from five to 15 years.

Unless Congress acts again, the enhanced conservation easement tax deduction will expire in December 31, 2011 - a repeat of the stress from 2010.

Representatives Mike Thompson (D-CA) and Eric Cantor (R-VA) introduced legislation (H.R. 1831) to make the easement incentive permanent. That bill had of 274 cosponsors from all 50 states at the end of the 111th Congress, including majorities of both parties.

Senators Max Baucus (D-MT) and Charles Grassley (R-IA) have introduced similar legislation in the Senate (S. 812), with 41 cosponsors.

Both President Bush’s FY 2009 budget and President Obama’s FY 2010/2011 budgets support extending the incentive. The Joint Committee on Taxation has scored a permanent easement incentive as costing $761 million over ten years.

It remains for someone to calculate the value of ecosystem services that would be preserved by that $761 million-worth of conserved land.

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In a 277-148 vote on December 16, 2010 the House of Representatives conceded without amendment to the Senate version of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. President Obama signed it into law on December 17, 2010.

The measure extends the Bush era tax cuts through 2012 and provides an AMT patch through 2011; reinstates unified estate, gift and generation-skipping transfer tax with a 35 percent top rate and inflation-indexed $5 million individual exemption; and cuts the Social Security payroll tax by 2 percent for 2011.

It also maintains the increase in valuation adjustment for donations for conservation easements (see 2008 Farm Bill Tax Provisions below), renews the charitable IRA rollover, and extends enhanced charitable deductions for contributions of food inventory, book inventories to public schools, corporate contributions of computer equipment for educational purposes, and a special rule for S corporations making charitable contributions of property.

This Senate bill adds to the House bill a permanent top estate tax rate of 45% with an inflation indexed $3.5 million exemption per individual (effective January 1, 2010 with an option to use rules in effect during 2010 until the effective date of this legislation), a two-year renewal of tax extenders that expired in 2009, and a repeal of recently expanded Form 1099 reporting rules.

Of particular interest to charitable gift planners and donors is an increase of the valuation adjustment for donations for conservation easements, a renewal of the so-called charitable IRA rollover, and extensions of enhanced charitable deductions for contributions of food inventory, book inventories to public schools, corporate contributions of computer equipment for educational purposes, and a special rule for S corporations making charitable contributions of property. Read More

The incentive, which applies to a landowner's federal income tax, will:

• Raise the deduction a donor can take for donating a voluntary conservation agreement from 30% of their income in any year to 50%;
• Allow farmers and ranchers to deduct up to 100% of their income; and
• Increase the number of years over which a donor can take deductions from 5 to 15 succeeding years.

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

The TimberTax.com hosted by the National Woodlot Owners Association provides a current list of tax preparers with training in timber tax issues.

The TimberTax.net site is sponsored by the American Resources Group, Inc., Washington, D.C., in cooperation with the National Forestry Association and National Woodland Owners Association. Every three months they add the latest Siegel Timber Tax update, as published in National Woodlands Magazine. Back issues of this column are also available.

TimberTax.info site provides you direct access to the U.S. Forest Service's list of Financial Incentive Programs for Non-Industrial Private Forest Owners. This data is provided by the Forest Service's Southern Research Station Forest Economics and Policy site.

Summary of State Tax Credits for Conservation
Here is a state by state summary of tax credits and incentives for land conservation, mostly focused on donation of conservation easements from the Land Trust Alliance.

Congressman Filner Fights For Family Farms
Congressman Bob Filner took a stand in Washington for family farms and conservation efforts by recently co-sponsoring a bill to protect family-owned ranches and farmland.

This law will help landowners and land trusts protect important lands across America. The new law extends the carry-forward period for tax deductions for voluntary conservation agreements from 5 to 15 years and raises the cap on those deductions from 30 percent of a donor's adjusted gross income to 50 percent - and to 100 percent for qualifying farmers and ranchers. This allows ranchers, farmers and other modest-income landowners to get a much larger benefit for donating very valuable development rights to their land.
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