Land donations conservation easement

ALERT: Property donation can offer dual benefit: tax deduction and continued land use

July 31, 2017

Property donation to a qualified entity delivers tax deduction while allowing continued use of the land via conservation easement.

What you need to know

Property owners who donate land to qualified charitable organizations can continue to enjoy use of the land while also reaping tax benefits through use of a conservation easement. This opportunity arises because Congress recognizes the need to preserve land for future generations, and allows an income tax deduction for owners who give up certain rights in order to do this.

A conservation easement is a contribution of property to a qualified organization exclusively for conservation purposes. Taxpayers who donate a conservation easement to either a qualified organization or governmental entity may continue to use the property as long as the use falls within the conservation easement restrictions. Because a conservation easement restricts development of the property, it lowers the property’s market value, which is why a current tax deduction is allowed. The amount of the deduction is generally the difference in the market value immediately before and after the contribution. Here’s an example to demonstrate:

John owns 100 acres of land he uses for hunting and fishing. He grants a qualified organization a perpetual easement for conservation purposes that restricts any development. The fair market value of the land before the easement was $300,000. The value after the easement is $240,000. That allows John to deduct $60,000 as a charitable contribution, subject to limitations.

Property owners interested in conservation easements as both a land preservation tool and a tax strategy should work closely with their tax professional to ensure that all requirements are met for the transaction to qualify for an income tax deduction. This will also include qualified valuation professionals, who value the property before and after the donation to determine the amount of the income tax deduction. In some instances, a conservation easement may also provide estate tax benefits.

Next steps

This is a momentous ruling that could have a significant impact on businesses of all sizes. Companies need to begin outlining the impacts for those already in place and be aware of additional changes likely to come. This could mean revising business models, IT systems and internal processes for calculating tax obligations.

Your AGH tax advisor and AGH tax senior vice president Jerry Capps are available to discuss how this ruling could impact your business. Jerry can be reached using the information below. We will continue to provide updates as new information becomes available.

Gerald Capps, JD

Senior Vice President
State & Local Tax Services

Jerry Capps and the State and Local Tax (SALT) team provide sophisticated state and local tax planning, strategic advice and advocacy to numerous mid-market, Fortune 100 and industry-leading companies. The team has returned many millions of dollars in one-time and recurring tax savings to companies.

In addition to planning and compliance, the SALT practice includes legislation and policy, litigation, and controversy matters involving income, franchise, sales and use and property taxes. Jerry's work involves critical questions on nexus, apportionment, the Multistate Tax Compact, and the equal protection, due process and commerce clauses of the United States Constitution. He is a respected advocate on issues of tax policy and he represents clients in all phases of state and local tax controversy, including audit assistance and administrative hearings. He also provides counsel on state and local income and transactional costs for mergers, acquisitions and corporate reorganizations.

Jerry is a member of the Institute for Professionals in Taxation, the Kansas Society of Certified Public Accountants, the American Bar Association and the Kansas Bar Association. He has been engaged as a keynote speaker for organizations such as the Institute for Professionals in Taxation, state and local CPA societies, university and professional accounting conferences, and chambers of commerce.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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