Info for Landowners :
Tax Incentives
FEDERAL TAX INCENTIVES
According to the Land Trust Alliance website, as of January 1, 2010:
- The enhanced tax incentive for donations of conservation easements has expired. All requirements for donations of conservation easements (and historic preservation easements) remain the same as they were in 2009, but the maximum deduction for such a donation is limited to 30% of an individual's adjusted gross income (AGI) in the year of the donation, with the remainder of the donation being carried forward for a maximum of 5 additional years. Deductions by C-corporations are limited to 10% of AGI.
- The "S-corp fix" has expired. 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 oreasements. A one-year extension of the "S-corp fix" was included in the House "extenders" package and we're hopeful it will be extended, along with theeasement incentive, in early 2010.
- There is zero estate tax. Democratic leaders of the House and Senate say they will try to reinstate an estate tax early this year, and that they will make it retroactive so that it covers the estates of people dying in January. But when they might be able to actually do this (over substantial Republican opposition), what it will look like, and whether it is a long-term or short-term solution, is anyone's guess. Unless Congress acts prior to 2011, the estate tax will return with a $1 million unified credit and a top rate of 55%. In addition, without congressional action, the geographic limits that were removed from the 2031(c) exemption, for lands protected with a donated easement, will return.
- For those of you into the details of tax policy, there is now a limited carryover basis for inherited property. In the past, when one inherited real property, its basis was reset to the value at the time of inheritance. If you sold it the next day, you did not pay any capital gains tax. Now, at least temporarily, there are some complicated rules that mean that sales of expensive inherited property may leave the seller with a substantial capital gains tax. As noted above, Democrats say they will get rid of this.
We fully expect the Congress will try to reinstate the enhanced deduction foreasement donations in 2010, and to make the incentive retroactive to January 1st. Both House and Senate leaders say they will do this early in 2010 -- but, as we have seen, the Congressional schedule is not predictable, particularly in the bitterly partisan atmosphere we can expect to continue for some time. This is why we need to keep up our work to make this deduction permanent, so that Congress understands the importance of getting this done, and so that potential easementdonors know what the law will be during the long time it takes them to plan a donation.
If someone donated an easement sometime in 2006-2009, they can continue to deduct 50% of their AGI per year (or, if they are a qualified farmer or rancher, 100%), and carry over unused amounts of their donation for 15 years. What counts is what the law was at the time they made their donation. So, if you donated in 2009, and you are filling out your tax forms in 2010, you get the 50 or 100% AGI deduction and 15 year carryover. Make sure your tax preparer gets this right, because the folks who write computer programs for tax professionals (as well as for you and me) have a hard time keeping up with changes in the law!
SOUTH CAROLINA STATE TAX CREDITS
South Carolina offers tax credits to those who make a donation of land for conservation. In general, a tax credit is more valuable than a similar tax deduction. A tax credit reduces the tax you pay, dollar-for-dollar.
South Carolina’s tax incentive comes in the form of a tax credit equal to 25% of the fair market value of the conservation gift. The tax credit is limited to a maximum of $52,000 per year, and to $250 per acre. The South Carolina tax incentive allows the landowner to carry the unused portion of the credit forward indefinitely until the full credit is claimed. The South Carolina conservation easement tax credit applies in addition to federal tax benefits.
For more information, please read the South Carolina Department of Revenue's third edition of the Local, State, and Federal Tax Incentives for Conservation Easements: http://www.sctax.org/NR/rdonlyres/2CC8B3D0-B026-4739-833C-656A941DF100/0/coneas.pdf
Also, South Carolina is one of only two states where tax credits can be bought or sold on the open market. Please visit http://www.conservesc.com/ for more information on buying and selling tax credits.
