NC Conservation Tax Credit
North Carolina was the first state to establish a state income tax credit for donated conservation easements. Qualified landowners who donate land or permanent conservation agreements to a qualified organization (such as a land trust) may claim an income tax credit (as opposed to a tax deduction) equal to 25 percent of the fair market value of the donated property or easement (up to a maximum credit of $250,000 for individuals and $500,000 for corporations and partnerships). Any unused portion of the credit may be carried forward for 5 years and any remainder beyond that may be claimed as a regular charitable contribution deduction.
The NC Department of Environment and Natural Resources (DENR) must certify that the gift qualifies for conservation purposes in the public interest, such as fish and wildlife habitat conservation, or public access to beaches, public trails and waters. You can find out more at DENR’s website.
Over the years, the Conservation Tax Credit has helped landowners conserve roughly 200,000 acres of open spaces, forests, and habitat. Should tax reform measures be considered during the 2013-14 legislative sessions, the land trust community will fight hard to ensure that this successful program remains in effect.
Federal Tax Deduction
A federal income tax deduction is available to landowners who donate a permanent conservation easement on their land. This is a powerful incentive that makes it easier for landowners to conserve the land they love. As part of the “fiscal cliff” agreement, Congress renewed a set of expanded tax incentives for landowners who donate conservation easements, retroactive for 2012 and going forward for 2013. The incentives:
- Raise the deduction a landowner can take for donating an easement from 30 percent of adjusted gross income in any year to 50 percent,
- Allow qualifying farmers and ranchers to deduct up to 100 percent of adjusted gross income, and
- Increase the number of years over which a conservation easement donor can take those deductions from 5 years to 15 years (or until the eligible deduction had been used up).
(For example, a landowner who donates a permanent conservation agreement valued at $1 million and who has an annual adjusted gross income of $100,000 can deduct 50 percent of $100,000 ($50,000) in each year of years 1-15 for a total of $750,000 in deductions; the remaining $250,000 cannot not be carried over or used after year 15).
Land trusts across the country have been pushing Congress to pass a bill to make the expanded incentives permanent, and last year more than 300 House members (including 12 of 13 from North Carolina) cosponsored the bill. Because there is a new Congress, we need to start all over again to build support and secure cosponsors. Visit the Land Trust Alliance website for the most recent information about federal tax deductions.
To qualify as a charitable contribution for federal tax purposes, a conservation agreement must be perpetual and must:
- preserve of land for public outdoor recreation or education;
- protect relatively natural habitats of fish, wildlife, or plants;
- preserve open space including farm and forest land;
- preserve historically important land or buildings.
Federal Estate Tax
Conservation agreements can be ideal for landowners who want to protect their land permanently while reducing its taxable value by giving up certain development rights. This may help prevent the break-up of family farms or estates necessitated by otherwise heavy estate tax liability. If a landowner places a conservation agreement on his or her land, the “highest and best use” of the land is restricted by the terms of the agreement and estate taxes are assessed according to that lower value at the owner’s death. A landowner may also provide for a conservation agreement to be donated to a land trust in his or her will. If the land trust accepts, the donor’s estate may claim a charitable deduction for the value of the conservation easement.
We recommend that you consult an accountant or attorney to help you determine the tax advantages you may realize by donating land or a conservation easement.