Conservation Contributions: New Incentives, New Perspectives

Conservation Contributions: New Incentives, New Perspectives presents the benefits (tax and other benefits) of dedicating land for conservation purposes and compares alternative methods of achieving such benefits.
Without adversely affecting current enjoyment of real property, a land owner can achieve significant economic benefits (enhanced value of surrounding property and income tax savings) by dedicating an interest in land for conservation purposes.

A dedication of land made with a 501(c)(3) conservation organization--a land trust--will qualify as a charitable contribution deduction if it is for any of four purposes listed below, whether in the form of (a) the donor's entire surface interest, (b) a remainder interest, or (c) a conservation easement.
This article shows how the dedication of an entire interest in land yields greater benefits for the donor than the more commonly used conservation easement. Most donors in the past have favored the form of the conservation easement because the donor retains title, though permanently restricting development of his land. As suggested in the article, a donor can achieve the same rights of use of land for himself and successors by executing a land lease with a related entity and donating the land to a land trust, subject to the lease. A donor can give or sell an undivided interest in the land to others and then give the remaining undivided interest to a land trust. Note that the donor can also reserve all subsurface mineral rights. A landowner who has already created a conservation easement on land can give the title (with a lease back) of all or part of that land to a Land Trust and generate a second deductible contribution for the same land. He can also give an undivided interest, a remainder interest, or a remainder interest in an undivided interest in land subject to a conservation easement and qualify for another contribution deduction on the same land.
Land that is dedicated for conservation purposes enhances the value of surrounding land because of the desirability of owning land (whether commercial or residential) contiguous to property which will be perpetually held for a conservation purpose. It is better for the donor if the property that is enhanced is his property, rather than his neighbor's property. For that reason, a donor may consider a donation of only part of a tract of land that he owns, for example in the middle of the tract, and retain the balance of the acreage for future development potential.
Since 1976 the Internal Revenue Code has provided that qualified conservation dedications are considered charitable contributions for federal income tax purposes. In 2006 Congress expanded the favorable treatment of conservation dedications so that they now receive even more favorable tax treatment than outright gifts of cash to churches and universities. Like other charitable donations, they are deductible in an amount up to 50% of adjusted gross income (contribution base) for the year of contribution. However, if the value of the conservation donation is greater than 50% of your contribution base for the year of contribution, you can carry-forward the unused excess gift for 15 years. The carry-forward limit for all other charitable gifts is only five years. Remarkably, under the law a qualified farmer or rancher can obtain a charitable deduction for conservation contributions up to 100% of AGI, with the same 15 year carry-forward for any unused excess. If a donor selects the preservation of ranch land as the purpose of the donation, the land must be kept available for ranching and may be used for ranching. The donor or his children may be the ones to live on the land and ranch it.
A donor may choose any one or more of the four qualified conservation purposes:
(i) outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland, ranch land and forest land), and
(iv) the preservation of a historically important land area or a certified historic structure.
If a conservation contribution is made during the donor’s life, he will receive both the current income tax benefits outlined above and estate tax benefits, including exclusion from gross estate of $500,000, as discussed in the article
The increased tax incentives are set to expire on December 31, 2011. Proposed legislation would make the incentives permanent.
Further, conservation contributions can be used to help avoid and resolve land disputes, including disputes involving co-ownership of land (both current co-ownership and future co-ownership by successors), trust and inheritance matters (including providing liquidity), access easements, and adverse possession. They can also protect land along common boundaries of neighbors.