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Donating a conservation easement (CE) allows landowners to continue to own their land while at the same time conserving and protecting Georgia’s forests and farms. In addition, donors may be eligible for certain federal, state, and estate tax benefits for qualifying donations.
The following summary is for general informational purposes only. Landowners must obtain professional financial and legal advice in order to determine if and how the various benefits might apply to their specific situation.
Federal income tax incentive
The tax code provides for a charitable tax deduction of the value of a conservation easement for qualifying donations. The value of the easement is determined by a qualified, independent appraiser. The taxpayer must have donated a perpetual conservation easement to a qualified organization such as a land trust, exclusively for one or more of the following conservation purposes:
Public recreation or education resources.
Protecting relatively natural habitat.
Maintaining open space, including farms and working forests, for either the scenic enjoyment of the public or pursuant to a governmental policy, and providing a significant public benefit.
Preserving historic land or structures.
In addition, the donor must also:
· Obtain a qualified appraisal.
· Have a baseline inventory of the property describing the natural and man-made features.
· Include IRS Form 8283 and a Supplemental Statement with the donor’s income tax return.
· Provide a written acknowledgement letter from the land trust documenting the acceptance of the easement donation.
How the tax deduction works:
The conservation easement’s value (the landowner’s charitable donation) is calculated by finding the difference between the property’s value before the CE, and the value of the property with the CE, as determined by a qualified appraisal. Typically, the more rights given up in a CE, the higher the CE value. The deduction is generally equal to 50 percent of the landowner’s adjusted gross income (AGI) with a carry forward period of 15 years.
Landowner donates CE on land that is valued at $1 million before the conservation easement is placed. After the CE, the land is valued at $600,000. The value of the CE is therefore $400,000. The landowner may deduct a portion of the CE value equal to 50 percent of his or her AGI. If the landowner’s AGI is $50,000, then she or he may take a $25,000 deduction for the year of the donation and assuming the same AGI, take the same deduction for an additional 15 years, for a total of $400,000 in deductions.
State income tax benefits
In Georgia, taxpayers who meet state requirements may claim a credit on their state income tax for 25% of the value of their qualifying CE or fee simple donation, up to certain limits, through the Georgia Conservation Tax Credit program. This program has a $3 million annual cap and an approval process. Please note that ORLT, as an independent land trust, is not able to participate in this program. ORLT's easements, however, are drafted so as to support state conservation policies.
The donation must meet the following state requirements to qualify:
1. The property must support two of five possible Conservation Purposes:
Water quality protection for wetlands, rivers, streams, or lakes.
Protection of wildlife habitat consistent with state wildlife conservation policies.
Protection of outdoor recreation consistent with state outdoor recreation policies.
Protection of prime agricultural or forestry land, managed according to best management practices.
Protection of cultural sites, heritage corridors, or archeological and historic resources.
2. The conservation easement must
Provide for a minimum100-foot vegetated riparian buffers
Prohibit new construction permitted within 150 feet of streams,
Prohibit subdivision of parcels under 500 acres and limit to one subdivision if property is greater than 500 acres
Limit new construction limited to 1 percent of property
Be held by an accredited land trust (ORLT is an independent land trust and does not participate in the state tax credit program. )
3. A $5,000 application fee to the state
4. The landowner must have the CE certified by the Georgia Department of Natural Resources.
5. The State Property Commission must review and approve the appraisal.
How the state tax credit works:
The tax credit is equal to 25 percent of the conservation easement’s value, up to a maximum of $250,000 for individuals and $500,000 for corporations and partnerships.
The taxpayer's tax credit may not exceed the amount of tax owed.
Any unused portion of the tax credit may be carried forward for the next 10 years.
The Georgia Conservation Tax Credit is transferable.
There are other requirements that must be adhered to, and possible federal tax adjustments required, and consultation with your tax adviser is strongly recommended.
There is a process for pre-certification and certification of the conservation easement.
Estate tax benefit
CEs typically reduce the value of a property, which in turn reduces the value of a landowner’s estate and the donor’s potential estate tax liability. Because each landowner’s situation is unique, landowners must determine, with the help of their advisers, if a CE would play a useful role in their estate planning. In addition to the reduction in the property’s value, qualifying CEs may also allow the landowner to exclude an additional 40 percent of the property values from their estate (up to a maximum of $500,000).
A landowner placed a qualifying conservation easement on her property, originally valued at $1 million dollars. At her death, her easement-restricted property is valued at $600,000. Thus, the value of the estate has been reduced by $400,000, thereby reducing potential estate taxes.
In addition, the landowner’s executor may elect to exclude 40 percent of the property’s value from the estate—in this case, an additional $240,000. The conservation easement has therefore reduced the taxable value of the landowner’s property by $640,000: $400,000 from the initial reduction in value and $240,000 due to the exclusion.
Property tax benefits
The donation of a CE may also reduce the donor’s property taxes. If the easement reduces the fair market value of the land, the local tax assessor should recognize that the property taxes should likewise be decreased. The local assessor is required by state law to reevaluate the property once the easement is recorded, but there is no standardized treatment by assessors. Property owners must work with their local assessor to determine the conservation easement’s effect on property taxes.
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