|
Protecting the Northern Neck
 What’s A Conservation Easement?
A conservation easement is a written legal agreement that places land into a permanently preserved state. The property owner who wishes to protect his or her property will work with a land trust, such as NNLC, a lawyer, an appraiser, his bank, and perhaps a surveyor, to create this legal, binding document. The easement deed is recorded in the county register deeds office and becomes a matter of permanent record. Easements offer great flexibility for the land is preserved as the landowner wishes; perhaps as a timbering area, a working farm, or an open space area. The use of the land and its future state is the decision of the landowner. It is a voluntary process, completely up to the landowner. Present and future owners of the property are bound by the easement’s terms and conditions. The taxes on the land are reduced, which is a benefit to the landowner, and the owner may be entitled to tax credits, which may be sold or applied to future tax payments.
ALL ABOUT CONSERVATION EASEMENTS - A BROCHURE TO HELP
CLICK HERE
Tax Benefits of Conserving Land
The primary reason most landowners donate conservation easements is to preserve the natural, scenic, and historical qualities of their land forever. Others may want to establish a legacy for their children and grandchildren. But, there also can be significant tax advantages associated with a donation.
A gift of a conservation easement may qualify as a non-cash charitable gift which may yield a deduction for federal income tax purposes and a credit for state income tax purposes. To realize those financial benefits an easement must: be given in perpetuity; be given to a qualified governmental or non-profit organization to monitor; have a qualified appraisal; and be donated exclusively for “conservation purposes” characterized by significant natural, scenic, historic, scientific, recreational, or open space value. In addition, there may be local property tax reductions and federal estate tax exemptions. A qualified appraiser must establish the fee simple value of the property and the amount by which the restrictions in the easement reduce the property's fee simple value. The difference between the fee simple value and the fee simple value as restricted by the easement is the easement value, which is primarily based on the value of the development rights forgone by the donor. The appraised easement value is the basis for calculating tax benefits.
Tax Incentive Bill Expired December 31, 2011
Landowners may take advantage of a tax deduction for donating a voluntary conservation agreement to permanently protect important natural or historic resources on their land. When landowners donate a conservation easement, they maintain ownership and management of their land and can sell or pass the land on to their heirs, while foregoing future development rights.
For information on how you could preserve your land, contact the Northern Neck Land Conservancy at nnlc@kaballero.com or 462-0979.
The following summary of the tax benefits of conservation easements is for informational purposes only. Consult an attorney and/or accountant for professional advice on the implications of a donation on your own tax situation. These benefits may also change with new legislation, so check with the IRS and Virginia state laws for the most recent donation tax applications.
-
Federal Charitable Gift Deduction
The donation of a conservation easement is treated as a charitable gift. Donors can deduct the value of the easement, within certain limits, from their income for federal tax purposes. As stated on the Land Trust Alliance website, . . "Congress did not renew the enhanced tax incentive for donations of conservation easements before it expired at the end of 2011. What is expiring is the enhanced easement incentive that raised the deduction a donor could take for donating a conservation easement from 30% of their adjusted gross income in any year to 50% and allowed qualifying farmers and ranchers to deduct up to 100% of their income. And, it extended the carry-forward period for a donor to take tax deductions for voluntary conservation agreements from 5 to 15 years. But, these provisions expired 12/31/11, returning the cap to 30% of the donor's income over a maximum of six years. There is legislation to make the previous tax incentive permanent (H.R. 1964 and S. 339) which has nearly 300 co-sponsors and is championed by the chairs of the Senate Finance and House Ways & Means Committees." If legislation is passed that may change the deductions, we will post the latest information for landowners. To learn more about the changes that have occured since the expiration of the tax incentive bill, visit the Land trust Alliance at www.lta.org.
- Virginia State Income Tax Credit
Virginia law allows a tax credit of an amount equal to 40% of the value of a gift of easement or land. The amount of credit claimed by any one taxpayer may not exceed $50,000 for tax year 2011 or $100,000 for tax year 2012 and tax years thereafter, but any unused amount may be carried over for a maximum of 13 consecutive years if the credit originates in tax year 2011 or for a maximum of 10 consecutive years if the credit originates in tax year 2012 or thereafter. Any portion of the unused tax credit can be transferred and or sold to other taxpayers. This is the most effective conservation tool in the state today, enabling landowners regardless of the income level to receive cash in exchange for conserving rural land. Since 2007, the total amount of tax credits available statewide has been capped at $100 million, adjusted for inflation annually. Currently, the 2011 cap is $108,424 million. If the cap is reached, all remaining applicants are automatically placed in the "queue" for the following calendar year.
(These tax credits can be sold for you by tax credit brokers usually at a discount on face value and typically net around 75% of their face value. The State collects a 5% transfer fee at the time of sale or transfer that is calculated on the value of the tax credits sold. In addition, the broker will charge a fee that typically ranges from 4-7% of the face value of the tax credits.)
As an example:
Original value of property: $260,000
Value of property with easement: - $160,000
Value of easement equals: $100,000
State Tax Credit: (40% x $100,000) $ 40,000
Tax Credits Sold @ 75 cents per dollar $ 30,000
State Transfer Fee (5% x $40,000) - $ 2,000
Broker Fee (6% x $40,000) - $ 2,400
NET FROM SALE OF TAX CREDITS $ 25,600
In addition, for purchased easements, a Virginia state capital gains tax exclusion permits a landowner to exclude capital gains from the sale of land on which an open space easement has been placed and on which Virginia capital gains tax would otherwise have been levied.
Local Property Taxes
Real estate taxes may be reduced by placing an easement on the property. However, if the easement is given on land devoted to agricultural, forestal, horticultural, or open-space use, which is already assessed at "use value," there may be no further reduction in local real estate taxes.
By donating an easement, landowners reduce the overall value of their estate by the value of the easement, which may translate into less or possibly no estate tax due. In addition, there may be an estate tax exclusion of up to 40% of the appraised value of land protected by a conservation easement. The intent of this provision is to provide relief from estate taxes for farmers and ranchers passing land to their children who might otherwise be forced to sell the land to pay estate taxes. Please check with the IRS on current Federal tax laws for updated information.
* NNLC does not give tax advice. Please check with your tax advisor or attorney about qualifying for any tax benefits associated with conservation easements.
|
