Conservation Easement Tax Deduction
The Conservation Easement Tax Deduction is yet another example of the tax laws being used for a purpose other than the collection of government revenue.
Conservation Easement Tax Deduction
Congress has recognized the importance of preservation and conservation of the precious natural and historical resources of our country. One of the methods that has been used to further this purpose is the Conservation Easement Tax Deduction. A Conservation Easement is a legal agreement between a landowner and a qualified second party that restricts the development or other use of a certain piece of property. The property must have some scenic, recreational, historic, or even open space value that makes its preservation and protection worthwhile.
The qualified second party may be a municipality or a land protection agency, also known as a land trust. The purpose of the easement must be conservation. When these conditions are met, the difference between the value of the land before the easement and the value of the land after the easement may be taken as a tax deduction. The current law allows this deduction to be up to 50% of the adjusted gross income (AGI) of the taxpayer. The remaining balance may be taken over a period of 16 years until the entire value is deducted.
This method of taking the deduction was signed into law in August of 2006. The old method allowed only a deduction up to 30% of AGI and five years to take the balance. If congress does not renew the law after 2007, it will revert to this method of calculation.
The easement does not transfer ownership. It only sets restrictions on what can be done to the land. Basically, the scenic, historical, recreational, or open space nature of the land can not be altered. The easement sets strict restrictions on what can and what can not be done to the land. It is possible, in many cases, to live on the land and even make some changes to a home located on the land as long as the restrictions do not prohibit it. The owner can also sell the land, but the easement is transferred to the new owner. Once established, the easement is permanent.
Care must be exercised in the establishment of a Conservation Easement. In the past, some people have tried to take unfair advantage of this deduction. In some cases, this was done by overvaluing of the property. In other cases, historic sites or buildings that were all ready subject to restrictions by various historical zone restrictions were used for Conservation Easements. This was basically the donating of a right that the landowner did not actually possess. The IRS has cracked down on Conservation Easement deductions, but they still are a valuable method both of preserving our heritage for future generations and reducing both income tax and estate tax liability.