Great news for farmers and land lovers

But you must act quickly A new federal law brings welcome news for Warwick’s farmers, open space enthusiasts, and historic site lovers. On Aug. 17, 2006, President Bush signed into law a significant expansion of the federal tax incentive for donations of conservation easements, as well as reforms of the provisions affecting easements on historic structures and appraisals. This is all the more remarkable because only a little more than a year ago the Joint Committee on Taxation was proposing to end tax incentives for conservation. Thanks to actions by hundreds of land trusts across the country to impress on their elected Representatives the importance of land conservation to their communities, the U.S. Senate and House of Representatives approved greatly increased tax incentives - but only for a limited time. A conservation easement is a legal restriction which a property owner may place on his or her land to limit the type and amount of development that may take place on the property. People grant conservation easements to protect their land, historic buildings or scenic values from inappropriate development while retaining private ownership. The owner conveys the right to enforce those restrictions to a qualified recipient such as a land trust, a public agency, or a historic preservation organization. Conservation easements have proved to be an extremely popular method of achieving lasting and measurable improvements to the natural environment while at the same time providing significant tax relief to qualifying landowners. The new law: • Raises the deduction a landowner can take for donating a conservation easement from 30 percent of their taxable income in any year to 50 percent; • Allows qualifying farmers to deduct up to 100% of their taxable income under certain circumstances; and • Increases the carry-forward of any unused deduction amount from 5 years to 15. Unless extended, these provisions will apply only to conservation easements donated in 2006 and 2007 (or more specifically “contributions made in taxable years beginning after December 31, 2005, and before January 1, 2008”). The changes apply to “qualified conservation contributions” under Section 170(h) of the tax code. “Qualified conservation contributions” include: a) the gift of a remainder interest in land for conservation purposes (meaning an interest which will take effect after a specified event, such as death); b) the gift of an ownership interest in real estate for conservation purposes with a reserved right to extract oil, gas or subsurface minerals; and c) the gift of a “qualified real property interest,” including a conservation easement. The purpose of an income tax deduction for land conservation is to protect important conservation values. Section 170(h) sets out the conservation purposes that must be met : 1. The preservation of land areas for outdoor recreation by, or the education of, the general public; 2. The protection of a relatively natural habitat of fish, wildlife or plants, or similar ecosystem; 3. The preservation of open space for the scenic enjoyment of the general public, or pursuant to a clearly delineated governmental policy, which will yield a significant public benefit; and 4. The preservation of a historically important land area or a certified historical structure. Every conservation easement must clearly specify the purposes of the easement and the resources to be protected, backed up by a serious and rigorous appraisal. Another interesting feature of the new law is that it dramatically extends the tax benefit available to qualifying corporations. This is important because many farms are owned by corporations, whether family or otherwise. Under the old law, a conservation easement donated by a corporation could be deducted only up to 10% of the corporation’s taxable income, with a five-year carry-forward. Under the new law, a “qualifying farmer or rancher” may be an individual or a corporation, and the deduction may be up to 100 percent of the donor’s taxable income for the year of the gift, with a 15-year carry-forward. There are two requirements for a landowner to be able to take advantage of this incentive. The donor must be a “qualified farmer or rancher” - whether individual or corporation - which means that the donor’s gross income from the business of farming (or ranching or forestry) is greater than 50 percent of his/her gross income for the relevant tax year. And the property to be donated must be used in agriculture or livestock production, or available for such production. The easement must provide that the property remain available for such production. Any landowner wishing to take advantage of this remarkable benefit may request further information from the Warwick Conservancy, Box 1277, Warwick, NY 10990. Potential donors are urged to get advice from an experienced professional on what the incentives mean in general and what they might mean in any specific case. Diana Boernstein is an attorney and a trustee of the Warwick Conservancy.