Gathering Waters Conservancy

Tax Incentives for the Donation Conservation Easements

Updated:  December 21, 2011

While Congress continues to debate a payroll tax cut extension, it appears that the enhanced easement incentive will expire at the end of this year. Landowners and land trusts for whom the enhanced deduction is essential should do whatever they can to ensure their easements are recorded by December 31.

290 Co-sponsors, Opportunities for Retroactive Renewal Early Next Year

This expiration comes despite a remarkable year-end push that secured an additional 24 co-sponsors for H.R. 1964, the bill to make the incentive permanent. That brings the support to a record 290 co-sponsors, including 32 out of 37 members of the House Ways & Means Committee. See the full list on the Land Trust Alliance's website.

A surge of new letters and constituent action created genuine buzz on the Hill regarding the incentive, and an extension was still on the table as recently as Friday. Unfortunately, none of the traditional "extenders" were included in the Senate's 2-month extension package on Saturday and even that bill's survival is now in serious doubt.

The silver lining of Congressional inaction in 2011 is that a number of tax items will require action early in 2012 -- any one of which could become a vehicle for renewing the easement incentive or making it permanent.  Senators and Representatives will be back home soon, and now is a great time to wish them happy holidays at events around the district. Thank them for co-sponsoring H.R. 1964 or S. 339, or for anything they've done to help your land trust! After a bruising year of partisan head-butting, a kind word will be appreciated. Don't forget to let them know that the incentive expiring -- even if only for a few months -- is a problem for the landowners you work with.

What Will Expire -- and What Won't

To be crystal clear, conservation easements donated in 2011 will continue to benefit from the enhanced incentive. Easements donated in 2012 will still be tax deductible and will be treated just like any other non-cash charitable donation -- deductable up to 30% of a donor's income for up to six years. The reforms enacted in the 2006 Pension Protection Act also do not expire.

What is expiring is the enhanced incentive that helps modest income donors, particularly agricultural landowners, deduct a larger share of their generous gift. Do run the numbers -- some donors, particularly those with larger incomes, will find that the incentive's expiration makes little difference. But for most farmers and ranchers, this expiration and the accompanying uncertainty are extremely frustrating, potentially reducing the tax benefit of an easement donation by 88%. That's why we've been working so hard to make the incentive permanent! The Land Trust Alliance has updated their Frequently Asked Questions and Conservation Donation Rules pages to reflect how the law is changing.

The S-corporation donation incentive and IRA Charitable Rollover are also set to expire at the end of this year:

• Charitable deductions by S-corporation shareholders will, again, be limited to their basis in the donated property. Given the long holding periods of many farm properties, this change could severely limit the ability for S-corporation shareholders to deduct the full value of donated land or easements.
• This month could also be the last chance for individuals aged 70 1/2 and older to donate up to $100,000 from their Individual Retirement Accounts (IRAs) to public charities without having to count the distributions as taxable income.

It's possible that all these provisions could be renewed retroactively, as they were in October 2008 and December 2010, but it's far from certain, and a good reason to solicit such donations before December 31.

Land and Water Conservation Fund (LWCF)

Updated:  December 21, 2011

This week we expect President Obama to sign an appropriations package for the remainder of fiscal year 2012 that includes funding for the Department of Interior and related agencies. In marked contrast to a House bill earlier this year that cut important conservation programs by 46 to 95 percent, most of the programs we follow will receive essentially level funding -- a significant achievement in this tough fiscal climate. Here are some highlights:

• Overall, the Land and Water Conservation Fund (LWCF) will INCREASE by $21.9 million, to $322.9 million.
• The Forest Legacy Program (FLP) will increase slightly to $53.4 million, a vast improvement from the $3 million proposed in the House bill.
• The North American Wetlands Conservation Act (NAWCA) gets $35.6 million and State Wildlife Grants gets $61.4 million. These are just slight cuts for programs that had been proposed for elimination in H.R. 1.
• For details on other programs, we've created a NEW summary table of recent appropriations levels. We'll keep this chart updated as Congress begins work on Fiscal Year 2013 in February.

We owe a debt of gratitude to the Interior Subcommittee chairmen Rep. Mike Simpson (R-ID) and Senator Jack Reed (D-RI) for restoring funding for these important programs. We'd also like to thank the hundreds of land trusts that signed the conservation funding letters circulated by The Nature Conservancy and the America's Voice for Conservation, Recreation and Preservation coalition. These efforts made a big difference!

Farm Bill Programs

Farm Bill conservation programs are the single largest source of federal funding for private lands conservation.  Unfortunately, early on the process of setting federal appropriations for fiscal year 2012, appropriators in the House have voted to withhold nearly $1 billion in conservation funding.

Among programs that directly fund the purchase of conservation easement by land trusts, the House bill would cut the Farm and Ranch Lands Protection Program (FRPP) to $150 million, $50 million less than promised in the 2008 Farm Bill and $25 million less than the current fiscal year.  The acreage cap of the Grassland Reserve Program (GRP) would also be reduced by 96,000 acres – or about a third.

Fortunately, we’re still early in the process and the Senate has successfully blocked such cuts in the past.  Senator Kohl will be a particularly important voice in this debate as he is the Chair of the Agricultural Appropriations Subcommittee.

Forest Legacy Program

The Forest Legacy program is administered by the U.S. Forest Service and provides grants to states for the purchase of conservation easements and fee simple acquisition of environmentally-sensitive or threatened forest lands.  The U.S. loses more than half a million acres of privately-owned timberland to development each year.

The Forest Legacy program provides an alternative to selling timberland for development.  As of February 2006, 1.1 million acres have protection through this program.  A list of projects can be found here: http://www.fs.fed.us/spf/coop/programs/loa/flp_projects.shtml

The Forest Legacy Program provides grants to enrolled states to purchase conservation easements or fee acquisition on environmentally important forest lands that are threatened with conversion to non-forest uses.  Land trusts can provide invaluable assistance with their experience bringing landowners and projects to the table, negotiating and monitoring easements, and participating in many other ways.

In Fiscal Year 2010, Forest Legacy funding grew by 60% to $79.5 million.  The Fiscal Year 2011 Continuing Resolution then cut funding to $53 million, a 31% cut from last year.