USING THE ESTATE TAX BENEFITS FOR CONSERVATION EASEMENTS
Estate taxes can lead to the break-up, sale and development of family-owned farm, ranch and forest lands, even when landowners would prefer to keep these lands intact. A June 1998 tax bill expanded the estate tax benefits for donated conservation easements. In 2013, Congress provided permanent estate tax relief, setting the unified credit at $5 million per individual, indexed for inflation, with a 40% rate. Many families can benefit from both the estate tax and income tax benefits of donating a conservation easement.
REDUCTION IN VALUE
The most broadly applicable estate tax benefit of a conservation easement is the federal recognition that property encumbered by a conservation easement is valued for estate tax purposes as restricted, rather than at its unrestricted value. While this may seem common sense, it's helpful that Section 2055(f) of the Internal Revenue Code explicitly recognizes this to be the case. That section relates to donations by will, but the reduction has also been recognized for existing easements and post-mortem donations. In most cases, the reduction will apply even if the easement was sold or donated by a previous owner, without regard to qualification under section 170(h).
THE 2031(C) EXCLUSION
Section 2031(c) of the Internal Revenue Code provides an estate tax exclusion of up to 40 percent of the encumbered value of land (but not improvements) protected by a "qualified conservation easement." That exclusion is capped at $500,000 and is further reduced if the easement reduced the land's value by less than 30 percent at the time of the contribution.
To qualify, an easement must meet all the requirements of a "qualified conservation contribution" under section 170(h). In addition, to be a "qualified conservation easement," it must prohibit all but "de minimis commercial recreational use" and cannot qualify solely for purposes of historic preservation. This benefit is limited to the family of the original easement donor, although it can be taken by each spouse and subsequent generations.
Donations by will and post-mortem donations are also eligible, but please note that such donations forego the opportunity for an income tax deduction.
In 2013, Congress permanently repealed the geographic limitations that limited this incentive to about half the country prior to 2001.
Other important rules and tax implications apply, please contact your tax advisor for guidance and more details.
Click here to view Federal Tax Benefits
Click here to view State Tax Benefits