Hypothetical Case Study:
Meet Lewis Lander*

      Lewis Lander owns 300 acres of property in South Carolina where he and his ancestors have lived for over 150 years. When the family home was built in 1845, the closest neighbor was 10 miles away. The property was the site of an important Civil War battle. Today, the property is less than half a mile from a residential subdivision where over 2,000 people live. In the last 20 years, Mr. Lander's land has increased in value from $500 per acre to $4,000 per acre. Developers are knocking on Mr. Lander's door every day, wanting to buy the property and construct a new subdivision. The last offer was $1.2 million. That's a lot of money, and several of Mr. Lander's friends think he is crazy not to sell.

But Mr. Lander loves this piece of property, and he doesn't want to see it covered by houses, streets and gutters. His ancestors are buried on the land near the river where he still fishes and walks his dogs. There is a beautiful wetland along the river rich in plant and animal life, and up on the ridge there are several oak trees over 200 years old.

Assume that Mr. Lander signs a conservation agreement that does not allow any development on the property, except to maintain the family home and to build three new residences for his children. Now, as far as the market is concerned, the "value" of the property is the family home, the three residences and the undevelopable surrounding land. Assume that the conservation agreement, also known as a conservation agreement reduces the property's fair market value from $1.2 million to $600,000, that the agreement meets the tax code's requirements as a deductible contribution, and that Mr. Lander's adjusted gross income is $200,000. Mr. Lander is entitled to an income tax deduction of $60,000 and if his adjusted gross income does not change, he can claim the same deduction for the next five years, resulting in a total deduction of $360,000. (It should be noted that itemized deductions, including charitable deductions, are subject to certain "cut backs" if gross income exceeds specified amounts).

South Carolina annually conforms its income tax laws to the Internal Revenue Code. Therefore, any contribution that qualifies for a charitable deduction for federal income tax purposes would also be deductible on the landowner's South Carolina income tax return. In addition, under the 2002 South Carolina Conservation Incentives Act, Mr. Lander would be entitled to a total income tax credit of $75,000 (300 acres x $250 per acre).

Let us assume further that Mr. Lander grants the conservation agreement and passes away a few years later; that at the time of his death the property would have been worth $1.4 million without the conservation agreement and is worth $800,000 with the agreement;that the agreement meets the requirements for excluding 40 percent of the land's value from the estate; and that he has other taxable assets of $400,000. Mr. Lander's estate would pay approximately $345,000 in taxes (based on 2003 rates) if the conservation agreement had not been granted. Because of the agreement, however, no estate taxes are owed.

We can change the assumption about income to show the results for an owner of more modest means. If Mr. Lander's adjusted gross income is $60,000 per year (rather than $200,000) for six consecutive years, he would receive a total income tax deduction of $108,000. The state income tax credit and estate tax benefits would be the same.

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