Tax Planning and Conservation Easements

Overview:

In 2015, Congress made permanent the federal tax incentives for conservation easement donations, and also raised the deduction limit from 30% of the taxpayer’s federal adjusted grow income in any year to 50%. So, is this a good option for higher than average income earner, and if so, how do the pieces come together to create the solid strategy this clientèle would expect? 

Topics of discussion will include: 

Details of the Tax Code and How it Applies

• To encourage the permanent preservation of land with significant conservation values, Congress enacted an income tax deduction to motivate land donation. When environmentally precious lands with true conservation and economic values are permanently conserved through the use of a responsible conservation easement, a resultant 170(h) charitable tax deduction can be claimed.
• The donation of a conservation easement allows for a significantly larger deduction of up to 50% of AGI, making the donation of conservation easements more valuable as a tax planning tool because of the greater tax savings permitted.
• The result is that, precious lands are protected from development or over-development, and the taxpayer has a powerful and effective tool for tax planning which simultaneously promotes the conservation of valuable privately held lands.

The Valuation Process: Calculation of the Land Value and Resulting Tax Deduction

• The use of specialized land appraisers and land planners make the difference to determine a solid, responsible conservation plan.
• A conservative view of the “highest and best use” of the land, as if it was developed to achieve its greatest economic return, results in the land’s valuation. ?The values of the land before and after the easement takes effect are compared to determine the value of the easement, and, the properly calculated value of the tax deduction determined.

The Profile of a Typical Client

• Investors typically are largely self-made, higher ordinary income without significant capital gains, C-suite/professionals, attracted to social giving and the idea of environmentally conscious investing.

Facts and Misconceptions

• Brief discussion of the misinformation in the marketplace regarding conservation easements, and why IRS oversight and scrutiny is not a bad thing.
• Professionals in the conservation community support responsible auditing and transparency of conservation easement deductions.
• IRS Notice 2017-10 reporting requirements – what changed and what remains unchanged.
• How to identify those who do it well for the benefit of your clients.