Benefits

Enhanced Federal Income Tax Incentive for Donations in 2006-2009

In 2006, Congress changed the tax incentive for voluntary conservation donations – donations by private landowners that retire development rights to protect significant wildlife, scenic, and historic resources. This change enabled family farmers, ranchers, and other moderate-income landowners to get a significantly enhanced tax benefit for such donations.

While Congress failed to complete work on a proposed extension of the enhanced tax incentive prior to its expiration on January 1, 2010,  there is a substantial likelihood that they will do so retroactively later this year. Unless and until they do so, the incentives available to conservation easements donors are those that were in place prior to the 2006 law as shown below.

How It Works

The 2006 law

• Raised the maximum deduction a donor can take for donating a conservation easement from 30% of their adjusted gross income (AGI) in any year to 50%
• Allowed qualified farmers and ranchers to deduct up to 100% of their AGI
• Increased the number of years over which a donor can take deductions from 6 years to 16 years.

Example of How a Conservation Easement May Provide Tax Benefits

Mr. and Mrs. Jones buy a property worth $1,000,000 (fair market value). They place a Conservation Easement on the property, extinguishing two development rights. The appraised value of the property with a Conservation Easement on it is $500,000. The $500,000 difference in valuation is the value of the gift of the easement. 

This example is based on the 2006-2009 enhanced benefit

If the Congress extends the 2006 enhanced tax benefit or makes it permanent, the IRS charitable deduction would be a maximum of 50% of the Jones family's adjusted gross income per year and may be spread over a maximum of sixteen years or until the value is used up. If the Jones family's adjusted gross income is $200,000, they can take a charitable deduction of $100,000 annually for a maximum period of 16 years. In this case the charitable deduction would look like this (assuming there is no change in adjusted gross income):

• Year 1: $100,000
• Year 2: $100,000                    
• Year 3: $100,000
• Year 4: $100,000
• Year 5: $100,000
• Total benefit the Jones family could utlize if their annual income remained $200k/yr = $500,000

This example is based on the current pre-2006 benefit

If the Congress does not extend the 2006 enhanced tax benefit or makes it permanent, the IRS charitable deduction would be a maximum of 30% of the Jones family's adjusted gross income per year and may be spread over a maximum of six years or until the value is used up. If the Jones family's adjusted gross income is $200,000, they can take a charitable deduction of $60,000 annually for a maximum period of 16 years. In this case the charitable deduction would look like this (assuming there is no change in adjusted gross income):

• Year 1: $60,000
• Year 2: $60,000                    
• Year 3: $60,000
• Year 4: $60,000
• Year 5: $60,000
• Year 6: $60,000
• Total benefit the Jones family could utilize if their annual income remained $220k/yr= $360,000

Property taxes may also be reduced since fair market value is usually based on the development potential of the site. This example is for illustrative purposes only. The Bainbridge Island Land Trust urges landowners to consult their personal legal and tax advisor(s).

Please review the Land Trust Alliance Tax Incentives brochure for more information.

A Conservation Easement May Also Provide Property Tax Benefits

A conservation easement may also provide the landowners (and their successors) with a significant property tax savings, particularly when coupled with enrollment in the County's Current Use Program as Open Space, Agricultural Land, or Timber Land.

Contact Maxine Schoales at the Kitsap County Assessor's office for more information: 360-337-4511.