Posted on March 16, 2016 by Philip Tabas
Federal tax policy greatly influences the donation of conservation easements and thus the contribution to habitat and natural resources that such easements provide. Recently enacted and proposed federal changes go in two somewhat opposite directions on this important tool for environmental protection .
The Good News: Enhanced tax benefits for conservation easement gifts made permanent: After a number of years of temporary extensions, Congress passed and the President signed in December, 2015 a permanent extension of the enhanced Federal income tax benefits for gifts of conservation easements. Enacted in Section 111 of Division Q of the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) (P.L. 114-113, 12/18/2015) this now permanent tax incentive provides a cost-effective way to help private landowners protect much more land through the use of conservation easements. Since 2006 when the provision was first established, it has helped landowners conserve more than 2 million acres of America’s most important natural, scenic and open lands and historic resources. Considered by many to be the most important conservation legislation in 20 years, the tax incentive:
- Raises the deduction a donor can take for donating a conservation easement from 30 percent to 50 percent of his or her adjusted gross income in any year;
- Allows qualifying farmers and ranchers to deduct the value of the donated easement up to 100 percent of their income; and
- Extends the carry-over period for a donor to take the easement tax deductions from 5 to 15 years beyond the tax year that the gift was made.
These changes apply to easement donations made at any time in 2015 and to all donations made after that. This will be a powerful tool to enable modest-income donors to receive greater financial benefit and thereby encourage them to donate a very valuable conservation easement on their property.
The (Sort of) Bad News: President’s budget proposes major changes to conservation easement deductions: Released on February 9, 2016, the President’s budget blueprint for Fiscal Year 2017 contains proposals to modify the now-permanent tax deduction for donations of land conservation easements. Although these are only proposals at this time, should they be enacted it is generally considered that they would significantly constrain land conservation efforts. The proposals are:
- Increasing the standards for being a “qualified conservation organization.” This replaces the four current “conservation purposes” for deductible easements with one: that any easement must be pursuant to a clearly delineated federal, state or tribal conservation policy and yields a significant public benefit.
- Making land trusts liable for any misreporting of the conservation purpose, public benefits and fair market value of an easement by the donor.
- Requiring additional reporting to IRS and public disclosure of easement purposes and valuations.
- Eliminating deductions for easements on golf courses.
- Prohibiting deductions for historic building easements attributable to the development potential above the existing profile of the building.
- A proposal for a new “pilot program” in which an interagency federal board distributes tax credits to land trusts, with the land trusts then allocating them to donors based on the importance of the easement for the mission of the land trust.
Although the Obama Administration has been supportive of land conservation generally, it has sought for a number of years to make changes in the tax administration of conservation easement deductions to place a greater burden on land trusts to police the conservation merits and proper valuation of easements. None of these items currently have support outside the Treasury Department however, and therefore are unlikely to be acted on by the current House of Representatives or Senate in the near future. Stay tuned to see if the balance of burdens and benefits on conservation easements sees major changes.