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Financial Benefits of Land Conservation |
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Financial Benefits of Land Conservation
Purchase of the Property or Conservation Easement at FMV
In some cases, where a property has significant resource value and the landowner is not interested in an easement, MCWD may purchase the entire property. Fair Market Value (FMV), according to the IRS, is “the price at which a property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of all the facts”. Or to put it in simpler terms, the price a landowner could sell a property in the existing market. MCWD policy requires that we have an appraisal done to determine the value, and that the District may not pay any more than the appraised, or fair market, value for the property.
In these cases the financial benefit to the landowner is the agreed upon purchase price. There are no income tax benefits for this type of exchange. However, in the case of a permanent conservation easement sale, there could be future estate tax benefits because the easement reduces the total value of the owner’s estate.
Purchase of the Property or Conservation Easement at a Bargain Sale Price
Another land conservation option is for the landowner to sell at a price lower than the FMV, and to take an income tax deduction for the value of the donation, which is the difference between the price paid and the market value price (as determined by a qualified appraisal). For example, a landowner could sell an easement that has a value of $100,000 to the District for $70,000. The landowner would receive the $70,000 for the sale and the amount of the charitable donation for income tax purposes would be $30,000 (the difference between 100,000 and 70,000).
In this case the financial benefit is the agreed upon purchase price, plus any additional income tax deductions, and in the case of a conservation easement, possible estate tax benefits.
Donation of Property or a Conservation Easement
A landowner can also donate the entire value of the property or easement to the District. Obviously in this case the landowner does not receive any payment for a purchase, but is able to deduct the value of the donation from their income taxes. Recent changes in the tax law have increased the amount that can be deducted for a conservation donation as well as increasing the amount of time over which those deductions can be taken (see below for more detail)
Tax Incentives
***Note- tax information provided by MCWD is for information purposes only. You should consult your own tax representative to determine the specific income and estate tax implications of any land conservation agreements with the District.***
In 2006 congress passed legislation that expanded the income tax deduction for qualified conservation contributions. That legislation was set to expire at the end of 2007, but a provision was added to the 2008 Farm Bill that renewed the tax incentives and extended them to the end of 2009. In addition Conservation Easement Incentive Act, HR 1831 was introduced on March 31, 2009 which would make the tax incentive for conservation easement donations permanent.
The tax incentive for conservation contributions does three primary things
- Raises the deduction a donor can take for donating a voluntary conservation agreement from 30% of their income to 50%,
- Allows farmers and ranchers to deduct up to 100% of their income, and
- Increases the number of years over which a donor can take deductions from 6 years to 16 years.
For an example of how this works visit the Conservation Tax Center.
When property is subject to a conservation easement the total value of the property is reduced. Under Section 2031(c) of the Internal Revenue Code (IRC) a donor may save substantially on estate taxes if he or she donates a conservation easement. Under this section, up to $3,500,000 (as of 2009) may be excluded from one’s taxable estate if he or she had donated a qualifying easement. The Federal estate tax is scheduled to be repealed entirely effective January 1, 2010, but the repeal sunsets and the exemption amount reverts to $1,000,000 on January 1, 2011. In addition if a landowner dies while still owning land subject to a conservation easement the estate can take an additional 40% exclusion from the already reduced land value (up to $500,000).
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