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Expanded Tax Incentives for Conservation Easements

After years of advocacy by the land conservation community, Congress recently approved expanded federal income tax deductions for conservation easement donations. These incentives may accelerate the pace of land protection in Maine during the next two years. This law applies only to easements donated in 2006 and 2007 so land trusts should get the word out soon to potential easement donors, and to the lawyers, appraisers and accountants with whom they work. The Land Trust Alliance is working to make these changes permanent and will be seeking help from land trusts in this effort during 2007.

The law combines stronger tax incentives with several important reforms to the rules for easement donors (outlined below). The LTA web site (www.lta.org) has more detailed information on these changes and their implications.

Expanded Charitable Deductions

Individual taxpayers donating an easement in 2006 or 2007 can now claim a charitable deduction up to 50 percent of their adjusted gross income (up from 30 percent previously), with the remainder eligible to be carried forward for up to 15 years (increased from 5 previously). Easement donors who previously could not have deducted the full value of their gifts will be able to deduct more of that value over a longer time period, and will not lose these benefits simply because their income level is modest.

Under the former rules, an individual with an annual adjusted gross income of $50,000 who donated a conservation easement worth $200,000 could deduct up to $15,000 of the easement gift in year one, and another $15,000 over each of the next five years, for a total deduction of $90,000 spread over six years. Under the new rule, this same donor can deduct up to $25,000 in the year of the donation and an additional $25,000 in each of the ensuing seven years so no part of the deduction goes to waste.

The benefits are even greater for farmers, who can deduct up to 100 percent of their adjusted gross income (assuming that 50 percent or more of their gross income comes from farming).

Reforms to the Rules Governing Appraisals and Property Valuations

Deliberate overvaluations of conservation gifts rarely occur in Maine, but land trusts should be mindful of the increased penalties for donors and appraisers in these cases. The bill sets higher standards for “qualified appraisers,” raises standards for appraisals of all donated property (worth $5,000 or more) and sets higher penalties for both appraisers and donors who engage in a “substantial” or “gross” misstatement of value. The bill defines a “substantial valuation misstatement” as 150 percent or greater than the correct valuation (down from 200 percent), and a “gross valuation misstatement” as 200 percent or greater than the correct valuation (down from 400 percent). Under the new rules, “reasonable cause” is no longer a valid defense for a gross valuation misstatement. These new appraisal standards are permanent and apply to all donations made after August 17, 2006.

The Land Trust Alliance recommends that land trusts review the new law, and use LTA’s grassroots toolkit to help prepare landowner outreach materials. Since revisions are made frequently to state and federal tax laws, advice from legal counsel and tax professionals should be sought in any conservation transactions.

This article draws on material prepared by the Land Trust Alliance and on the August 2006 Maine Land Conservation Law E-Bulletin written by Robert H. Levin, Esq. (e-mail rob@roblevin.net for a free subscription).