Tax Incentives for Land Protection

Upstate Forever is not qualified to give tax or legal advice. We provide the following general information for your consideration, but strongly suggest that you seek advice from a trusted and qualified professional to better understand the potential financial benefits of a conservation agreement.

Federal Tax Deductions

The donation of a conservation agreement/easement can qualify as a tax deductible contribution if the following requirements are met:

• It is donated in perpetuity;
• It is donated to a qualified charitable organization, such as Upstate Forever;
• It is donated "exclusively for conservation purposes," defined in the tax code as accomplishing at least one of the following:
  • The preservation of land areas for outdoor recreation by, or the education of, the general public;
  • The protection of relatively natural habitat for fish, wildlife, or plants or similar ecosystems;
  • The preservation of open space (including farmland and forest land) where such preservation will yield a significant public benefit and is either (a) for the scenic enjoyment of the general public or (b) pursuant to a clearly delineated federal, state or local government conservation policy;
  • The preservation of a historically important land area or certified historic structure.

The Land Trust Alliance publication, Conservation Options: A Landowner's Guide, summarizes these requirements as follows: "In essence, the income tax deduction is reserved for the protection of conservation resources that truly provide significant public benefit. However, an agreement does not have to cover all of the property, preclude all use or development, or allow public access in order to qualify for a charitable deduction."

If the conservation agreement qualifies, the landowner is entitled to an income tax deduction equal to the difference between the value of the land with the agreement and its value without the agreement, as determined by a qualified appraiser. Currently, federal tax law states that the amount that can be deducted in one year is limited to 30 per cent of the landowner's adjusted gross income. If the value of the gift exceeds 30 per cent, it can be carried forward for up to five additional years.

However, significant increases to the amount of the deduction a landowner could enjoy in a single year and the number of years in which the deduction can be applied were passed in 2007 and extended through year-end of 2011. Congress is currently considering making them permanent. For a detailed description of the increased tax incentives, click here. For the latest update on this issue, or to express your support of making these increased incentives permanent, visit the Land Trust Alliance's page on Tax Matters.

Estate Tax Benefits

Whether or not the conservation agreement qualifies as an income deductible gift, it can significantly reduce or even avoid estate taxes. This is because the agreement is a legally enforceable, publicly recorded agreement that must be considered in determining the value of the property. For owners who are "land rich-cash poor," a conservation agreement can literally save the land by not forcing the heirs to sell the property in order to pay the estate tax.

Congress has provided another significant incentive to landowners to place conservation agreements on their properties. Section 2031(c) of the Internal Revenue Code provides that 40 per cent of the value of the land subject to a conservation agreement (not to exceed $500,000) may be excluded from the landowner's estate, provided the agreement meets the requirements for income tax deductibility and the agreement reduces the value of the land by at least 30 per cent. For example, if a qualifying agreement reduces the value of the property from $2 million to $1 million, an additional $400,000 (40 per cent of the $1 million value) may be excluded from the taxable estate.

South Carolina State Tax Credit

The South Carolina Conservation Incentives Act provides that landowners who have qualified for and claimed on their federal income tax return a charitable deduction for either a gift of land for conservation or the granting of a conservation agreement on their land may claim a state tax credit, which is a dollar-for-dollar reduction in the amount of South Carolina income tax owed. The amount of the state credit is equal to 25 per cent of the total amount of the federal deduction, subject to two caps: the credit cannot exceed $250 per acre, and the total amount of the credit used in any one year cannot exceed $52,500. Any unused credit, however, can be carried forward to succeeding taxable years. There is one other notable aspect of the new law: the credits can be transferred or sold. This means that a landowner who may not need the tax credit can give or sell it to another person, provided the transaction is approved by the South Carolina Department of Revenue.