Tax savings

What are the tax savings generated by gifts and donations to a land trust?

Gifts to the Columbia Land Trust can help protect some of our region’s most beautiful lands while enabling the donors to realize tax benefits. Below is a summary of tax-saving gift arrangements and ideas that you may wish to consider in your financial and estate plans. Consult your attorney or tax planner for more details.

National, state and local endorsements.

Land trusts follow strict state and federal guidelines to organize and operate as nonprofit, tax-exempt, charitable corporations in order to provide tax benefits to donors. Federal policy recognizes that conservation of natural sites benefits the public. To support that activity, income tax deductions are allowed for the value of donated interests in real property such as conservation easements, provided that the donation is granted in HP Power To Change kit perpetuity and to a qualified nature conservancy organization—such as Columbia Land Trust. Federal estate tax guidelines also allow the reduction of the inheritance tax obligation of estates, after donation of a qualified conservation easement.

Outright gifts

Outright cash gifts are the simplest way of gaining tax deductions while supporting Columbia Land Trust. However, donations of other assets such as real estate, securities, closely held stock, life insurance or valuables such as artwork may be more appropriate to your situation.

Real estate that meets the land trust's acquisition criteria would be protected in its natural state, or according to terms and conditions outlined in a conservation easement. Other donated real estate such as homes, vacant lots, or commercial and industrial properties, may be sold (with development restrictions if appropriate) with the proceeds used to further the goals of Columbia Land Trust. Gifts of appreciated real estate held long-term may entitle you to a deduction for its full fair market value, subject to certain income tax limitations.

Donations of conservation easements

Potential federal income tax benefits vary with the particulars of each donation. Essential points to consider are the following:

QUALIFIED CONSERVATION ORGANIZATION: The easement must be granted to a qualified conservation organization, such as Columbia Land Trust, or a public agency charged with overseeing land conservation or historic preservation programs.

CONSERVATION PURPOSES: An easement must be granted exclusively for conservation purposes such as preservation of natural habitats or resource lands, historic sites, unique scenic landscapes wildlife corridors or connections to other preserved parcels, areas of concern for public education or recreation, or open spaces in the vicinity of intense land development. In general, the maximum allowable deductions arise from conservation easements donated over large tracts of open space in areas where development pressures are intense.

PERMANENCE: The easement must be granted in perpetuity.

AMOUNT OF DEDUCTION: The amount a property owner can deduct for a donated easement generally equals the reduction in the property’s value due to the easement (the difference between the property’s independently appraised value before the easement is granted and after the easement’s restrictions take effect).

APPRAISAL: The appraisal that determines the easement value must meet strict federal substantiation requirements as specified in federal tax law regarding conservation easements.

Limits on deductions

Taxpayers cannot eliminate all of their taxable income by making charitable donations, no

matter how large the donations. In general, the deduction for charitable donations of appreciated property cannot exceed 30 percent of the taxpayer’s adjusted gross income, although any excess amount may be carried forward and deducted over the five succeeding years. Under some circumstances, the donor may be subject to the alternative minimum tax (AMT).

An accountant or tax lawyer can determine whether the AMT will apply to your situation.

Estate taxes

Many heirs to large historic estates and large tracts of open space, farms, ranches and timberland face substantial estate taxes. Even if heirs wish to keep inherited property in its undeveloped condition, the federal estate tax is levied not on the current use value of the property, but on its "highest and best use"—the amount a developer or speculator would pay. The resulting estate tax can be so high that the heirs must quickly sell the property to pay the taxes.

A conservation easement can reduce estate taxes because the donation of the easement reduces the value of the property. This easement can be designed (donated) as part of a will, and then deducted from the taxable estate. The gift of a qualified easement must be included within the donor's will and cannot be modified after death.

Local real property taxes

Local real property tax assessments are based on a property's fair market value, which considers the property's development potential. If a conservation easement reduces the development potential of the property and limits its use, then the level of assessment and, accordingly, the amount of real property taxes may be reduced.

Tax laws change. You should consult your lawyer or tax planner for further details. Professional financial counsel is essential because each donor's tax situation is unique.

Parts of the above were excerpted from The Conservation Easement Handbook: Managing Land Conservation and Historic Preservation Easement Programs, by Janet Diehl and Thomas S. Barrett. Another outstanding reference is Preserving Family Lands. A Landowner Introduction to Tax Issues and Other Considerations, by Stephen J. Small.