Now that the dust has finally settled from the much-publicized “Fiscal Cliff” battle, landowners and ranch buyers can begin to understand the implications that the resulting legislation will have on ranch ownership and their conservation properties for sale. While the effects of the deal are far-reaching and affect many aspects of owning and operating a western ranch, one of the most frequent questions we have received from buyers and landowners is: How does this Fiscal Cliff deal affect charitable deductions for conservation easements?
The Basics: The Fiscal Cliff deal that was passed on January 2, 2013 successfully renewed the “enhanced income tax deduction” for conservation easements. Under this legislation, a landowner who donates a conservation easement can deduct up to 50% of his or her adjusted gross income, or, if the donors are qualified ranchers or farmers, they may deduct 100% of their income. In either case, if the total value of their deduction is greater than their adjusted gross income, they will be allowed a “carry-forward period” to continue taking the deductions for up to 15 years into the future.
An Example: In 2013, if a landowner with an income of $100,000 donates a conservation easement valued at $500,000, she may deduct $50,000 from her 2013 income. Assuming her income remains constant over the coming years, she may continue deducting $50,000 per year for the following 9 years, until she has realized the full value of her donation: 10 years of deductions x $50,000 per year = $500,000 Total Federal Tax Deduction.
Additional Information: So what defines a landowner as a “qualified” rancher or farmer, allowing him or her to deduct 100% of the adjusted gross income? As with all things related to the federal government, it can become convoluted and confusing, but, basically, a landowner who receives 50% of his or her income from ranching or farming is considered “qualified.” Internal Revenue Code Provision 2032A(e)(5) describes in detail exactly which activities constitute farming or ranching. With this, and all other matters related to federal income tax, it is important to always consult with a Certified Public Accountant.
Another important note is that the tax incentives mentioned above are for landowners who donate conservation easements or other partial-interests in land. These deductions do not apply to those donors who give a gift of undivided interest in their land (fee simple) to a charitable organization. Donors who choose to simply give away their land will only be allowed to deduct 30% of their gross adjusted income with a maximum 5-year carryover. Therefore, if the donor’s goal is to help conserve land while simultaneously enjoying maximum tax benefits, a conservation easement may be the most effective method to accomplish both goals.
Resources: The Land Trust Alliance, the national representative of more than 1,700 land trusts throughout the United States, is an excellent source of information on the current Fiscal Cliff deal, as well as all matters related to land conservation. For more information on how Fiscal Cliff legislation will affect land conservation, check out the following resources from LTA:
- Conservation and the Fiscal Cliff Deal
- 20 Questions: Conservation and the Fiscal Cliff Deal
- Frequently Asked Questions About the Enhanced Easement Incentive
- Land Trust Alliance Policy Program
Mirr Ranch Group Conservation Expertise: This blog was written by ranch broker Ed Roberson. Ed and Mirr Ranch Group owner/broker, Ken Mirr, have extensive experience with ranches for sale that offer conservation values.
Since moving to the Rockies in 2005, Ed’s personal passion for responsible land stewardship and his deep professional knowledge of ranch brokerage have allowed him to successfully broker the sale of recreational, conservation, and legacy ranches throughout Colorado, Wyoming, Montana, and Idaho. Ed offers years of experience in the real estate and finance sectors, an MBA from Wake Forest University, and an impressive record of mountaineering, having climbed some of the highest mountains in the world.
Ken began his career as a public lands attorney who assisted ranchers, conservation groups, natural resources companies, ski areas, telecommunication companies and others in handling specialized land transactions with State and Federal land agencies throughout the Rocky Mountain region. In 2005, he founded Mirr Ranch Group, a ranch real estate brokerage specializing in legacy and sporting properties with conservation values. Over his career, he has brokered open space and land conservation transactions and consulted on conservation easements, exchanges, grazing issues and special use permits. Ken was recently President of the Board for the Colorado Coalition of Land Trusts, an organization dedicated to promoting high-quality land preservation on behalf of its member land trusts and open space programs in Colorado.
With this depth of experience, Mirr Ranch Group is the go-to source for information on the ever-changing climate of conservation easements and conservation properties for sale.