I previously discussed the tax treatment of a donation of a conservation easement to a land trust by the State of Colorado (a tax credit), but how does the IRS treat it?
IRS Treatment of a Conservation Easement Donation
In the simplest terms, the IRS treats a conservation easement donation like a charitable contribution: a landowner gets a deduction (not a credit) on their federal income tax return for the donation. Additionally, you are not allowed to “sell” (transfer) your deduction to anyone else (unlike the tax credit). So, the additional benefit to landowners doing conservation easements was a very large charitable deduction on their federal income tax return.
Additional Incentives
I’m going to jump ahead for a moment: when we entered into the conservation easement program in 2005, our attorney explained that everyone loves it: “the state loves it, the feds love it, the landowners love it. It’s win-win-win.” And, here’s support for that statement.
Not only did the State of Colorado find the conservation easement plan appealing (continually increasing the incentives), but so did the federal government. In 2006, just when we were getting involved in the program, President Bush had signed a new bill putting exciting new incentives into the Conservation Easement Contribution provisions (HR4) by:
As you can see, there was plenty of bait. © Sharon Cairns Mann
IRS Treatment of a Conservation Easement Donation
In the simplest terms, the IRS treats a conservation easement donation like a charitable contribution: a landowner gets a deduction (not a credit) on their federal income tax return for the donation. Additionally, you are not allowed to “sell” (transfer) your deduction to anyone else (unlike the tax credit). So, the additional benefit to landowners doing conservation easements was a very large charitable deduction on their federal income tax return.
Additional Incentives
I’m going to jump ahead for a moment: when we entered into the conservation easement program in 2005, our attorney explained that everyone loves it: “the state loves it, the feds love it, the landowners love it. It’s win-win-win.” And, here’s support for that statement.
Not only did the State of Colorado find the conservation easement plan appealing (continually increasing the incentives), but so did the federal government. In 2006, just when we were getting involved in the program, President Bush had signed a new bill putting exciting new incentives into the Conservation Easement Contribution provisions (HR4) by:
- Raising the deduction a landowner can take for donating a conservation easement from 30% of their Adjusted Gross Income in any year to 50% (section 1206, page 792);
- Extending the carryover period for the deduction from a total of six years to 16 years (section 1206, page 792);
- Allowing qualifying farmers (people who derive more than 50% of their gross income from farming) to deduct up to 100% of their income; in this case, the land must be subject to a restriction in which the property remain agricultural or livestock production (section 1206, pages 793-794); and
- Limiting these increased deductions to the taxable years between January 1, 2006 and December 31, 2007 (after which the deductions revert to the previous 30% and 6 year carryover, unless Congress decides to extend the period again) – (section 1206, pages 793-794).
As you can see, there was plenty of bait. © Sharon Cairns Mann
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