President Obama’s most recent budget proposes several changes to the conservation easement deduction. The Internal Revenue Code allows taxpayers to claim a deduction for the contribution of a qualified real property interest to a qualified organization to be used strictly for conservation purposes. I.R.C. § 170(h). Individual taxpayers may generally claim a conservation easement deduction of up to 30% of AGI and corporate taxpayers may claim a deduction of up to 10% of taxable income. If the deduction exceeds the limitation, taxpayers may carry forward the excess deduction up to five years.
The Pension Protection Act of 2006 that temporarily raised the limitation for individuals to 50% of AGI, allowed certain farmers and ranchers to deduct up to 100% of AGI and allowed certain corporate farmers and ranchers to deduct up to 100% of taxable income. All of these donors could carry forward excess deductions up to 15 years. These enhanced provisions expired on December 31, 2014.
The President’s budget proposes to reform the conservation easement deduction to prevent abuse. For example, the proposal would require organizations receiving conservation easements to meet minimum requirements, such as having adequate assets and expertise to enforce the conditions of the easement. Additionally, conservation easements would have to advance a “clearly delineated Federal conservation policy…and yield significant public benefit.” Also, the donor must provide “a detailed description of the conservation purpose” of the easement and the donee organization must confirm the accuracy of both the description and the fair market value of the easement.
The president’s budget also enhances tax benefits for contributions of conservation easements. For example, the enhanced conservation easement deduction provisions that expired on December 31, 2014 would be extended permanently. Additionally, the budget proposes a conservation easement tax credit program that would allocate $100 million of credits to conservation organizations that would in turn allocate the credits to donors of conservation easements. Donors would receive a credit of up to 50% of the fair market value of the contributed easement and could use the credit to offset up to 100% of their income tax liability.
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