Special Tax Incentives for Landowners Extended Through 2009!

Are you a landowner with an interest in keeping your land undeveloped? If so, take a serious look at the current federal and state income tax deductions for land conservation. Recently extended incentives may be too good to ignore. But you will have to move fast – these incentives will expire on December 31, 2009!

Under these special incentives, a farmer or rancher would be able to offset 100% of his income with the charitable deduction generated by the granting of a conservation easement. A typical easement limits development, but the land remains private property. Under this program a “farmer” is defined as someone who derives at least 51% of his income from agriculture (If you aren't a farmer, keep reading -- there's some for you, too!).

It works this way: In 2009 you, the farmer, decide to grant a permanent conservation easement on 100 acres of your land, which has a current appraised value of $1,500,000. After granting this easement, the land appraises for just $500,000. You have just qualified for a $1,000,000 income deduction! As with all charitable deductions, this $1,000,000 can be used to offset your income. Usually charitable deductions like this can be used to offset only 30% of your income and unused amounts can be carried forward for only five additional years. But these limitations don’t apply to you -- read on!

If you earn, say, $71,000 per year (at least 51% from farming in the year you grant the easement) you would not pay any federal income tax for about 12 years. You read it right: NO federal taxes for 14 years! (Fourteen years at $71k is how long it takes to use up a $1,000,000 deduction.) Of course, you can realize the deduction sooner if you earn more money. And you can carry the deduction forward up to a total of 15 years if you need to. In addition, the state of North Carolina will give you an income tax credit of up to $250,000 which you can use over a six year period.

What if you aren’t a farmer under this program’s definition? Well, you too have every reason to move quickly. You can still use your deduction to offset 50% of your income, and you can use the deductions over 16 years, plus you can still get the $250,000 NC income tax credit, using the land values above. This is still a dynamite deal that all landowners who are attached to their land should consider, whether they farm or not.

Why the rush? Though there is a push to make these incentives permanent, as of now, they expire in 2009 and we go back to the old rules that allow only 30% of income to be offset in any given year with easement-generated deductions. In addition, you will have only a six-year window in which to use the deductions as compared to the 16 years now available under the temporary incentives.

And don’t forget the other tax. Easements provide tremendous gift/estate tax savings that could make the difference between your family’s being able to retain ownership of the farm after your death, or having to sell it to pay Uncle Sam.

By the way, the conservation easement is a wonderful way to preserve your land today and beyond your lifetime. Development is limited but the land remains yours, where you and future generations can farm, hunt, and relax in a quiet place that nobody can ever destroy. Land like that is a disappearing commodity in these parts. And yes, the rules under the easement apply to future landowners. The result: you and your family will always enjoy the fact that your land will be preserved in perpetuity. You’ve created something more permanent than yourself!

After all, there are only two types of land: land that will be developed and land that will never be developed. You say you do not want to develop your land but, so far, you have been unwilling to look into conservation easements. These tax incentives are meant to light a fire under folks like you. Take a look! Call your local land trust or check out www.lta.org. There are 23 land trusts in North Carolina. The six counties around Charlotte are served by the Catawba Lands Conservancy. Call 704 342-3330 and don’t forget to consult your tax and financial advisors!
– Phillips Bragg

This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.