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Federal Income Tax Deduction
The value of a conservation
easement is calculated by subtracting the fair market value of the
property with the easement restrictions in place, from the fair market
value of the property without easement restrictions.
The IRS provides a deduction under the "Charitable
Contribution" regulations for donations of property interests, which
includes conservation easements. You will file IRS form 8283 to qualify
for this deduction.
Expenses associated with the placement of the easement
are also deductible.
The total deduction was limited to 30% of your adjusted
gross income. The deduction can be used in the year of the donation and
carried forward for additional years.
Recently signed legislation increases the cap to 50%
of adjusted gross income and the time it can be carried forward was
increased from five years to fifteen years.
In addition, qualifying farmers and ranchers who earn
more than 50% of their income from farming can now deduct 100% of their
income.
These changes allow moderate-income donors to capture
more of the easement’s value. For example, under the old law a landowner
with a $50,000 annual income donating a conservation easement worth
$500,000 could deduct a total of $90,000. The new law allows that donor
to claim $25,000 per year for 16 years totaling $400,000.
This tax law change is expected to encourage many more
conservation easement donations.
Be aware, this tax law
change was to be effective through 2007 and retroactively since
January 1, 2008 so
easement donors taking advantage of the new tax law need to consult
their tax preparer for details.
Federal Estate Tax Exclusion
For the purposes of calculating estate taxes, a
conservation easement donated during your lifetime can reduce the value
of your property and therefore reduce the value of your taxable assets.
Additionally, the IRS allows you to exclude up to 40% of
the value of your property, if a conservation easement is in place, from
the calculation of your assets.
Heirs who donate a post-mortem conservation easement can
also receive a deduction in the amount of the conservation easement
value over and above the 40% exclusion described above.
We strongly encourage you
to seek your own counsel regarding legal and tax issues specific to your
personal situation and to your conservation easement. |