ENHANCE AND MAKE PERMANENT INCENTIVES FOR THE DONATION OF CONSERVATION EASEMENTS
A deduction is generally available for charitable contributions of cash and property to certain tax-exempt organizations. A donor must generally contribute his or her entire interest in donated property to take a deduction; donations of partial interests (i.e., only some of the owner’s property rights) are generally not deductible. However, under a special provision, a donor may deduct the fair market value of a qualified conservation contribution – including a contribution of a restriction granted in perpetuity on the use of real property made to a qualified charitable organization exclusively for conservation purposes (a “conservation easement”).
This deduction is generally limited to a certain percentage of a taxpayer’s income. For individual taxpayers, the deduction is limited to 30 percent of the individual’s contribution base (generally, adjusted gross income) in the year of the contribution. If the value of the property contributed exceeds this limitation, the individual may deduct the remaining value over the succeeding five years. For corporate taxpayers, the deduction is limited to 10 percent of their taxable income.
The Pension Protection Act of 2006 temporarily raised the percentage-of-income limitations for gifts of conservation easements made after December 31, 2005, allowing individuals to deduct up to 50 percent of their contribution base and allowing individuals who are qualified farmers and ranchers to deduct up to 100 percent of their contribution base. In addition, certain corporate farmers and ranchers could deduct the value of contributions of property used in agriculture or livestock production (and restricted so as to remain available for such production) up to 100 percent of taxable income. Additionally, all of these donors could deduct any remaining value of the donated easement over the succeeding 15 years. Although these provisions were extended three times, they lapsed on December 31, 2013.
Reasons for Change
A deduction is permitted for contributions of conservation easements to encourage land owners to restrict development of their land, thereby preserving fragile ecosystems and wildlife habitats, environmentally important open spaces, public recreational areas, and historic buildings.
Because conservation easements may significantly reduce the value of the underlying land interests, economic incentives are needed to encourage landowners to voluntarily restrict development.
The current tax deduction for conservation easement donations has been an important incentive for conservation, but it has been of limited value to some donors. Although these donors may own very valuable property, if they have relatively modest incomes, then the current percentage of income limitations and five-year carryforward provision limit their ability to deduct the full value of their conservation easement donations. The proposal would expand the ability of conservation easement donors – particularly qualified farmers and ranchers – to deduct the full value of the property contributed, increasing the effectiveness of this conservation incentive.
This proposal would make permanent the temporary enhanced incentives for conservation easement contributions that expired on December 31, 2013.
This proposal would be effective for contributions made on and after January 1, 2014.