Property Law: Farm Bill extends conservation tax deduction. Measure is a key way to keep ag, ranch land in continuing production

Press Democrat

Congress has passed a two-year extension to a provision of the Farm Bill enabling owners of family farms and ranches to continue to take advantage of an expanded tax incentive rule that encourages contributions of property for conservation purposes.

Since 2006, this easement incentive, which expired on Jan. 1, 2008, has increased the pace of conservation of farmland, forest and rangeland by perhaps a million acres a year.

The new law raises the percentage of the donation landowners can take on their federal tax returns and extends the carry-forward period an additional 10 years for a donor to take tax deductions for voluntary conservation agreements. The rule extension allows landowners to donate conservation easements to local, state or national land trusts and save their property from development.

The renewal is retroactive to Jan. 1 and remains in effect until the end of 2009. Once property is donated, the conservation land-use restriction becomes part of the deed of trust for all subsequent transactions.

These voluntary agreements can protect working farms and ranches and make it easier for families to leave the land to the next generation through irreversible, permanent property donations. They give individuals a nongovernmental way to conserve natural areas and traditional ways of life that are important to them and their communities.

This bill was supported by a broad-based coalition of sportsmen, outdoor enthusiasts, farmers, ranchers and national conservation groups. The legislation was initiated by Sens. Max Baucus, D-Mont., and Charles “Chuck” Grassley, R-Iowa, along with Representatives Mike Thompson, D-St. Helena, and Dave Camp, R-Mich.

“I really have to take my hat off to Congressman Thompson, who did an extraordinary job of building support for this bill,” said Russ Shay, director of public policy for the Washington, D.C.-based Land Trust Alliance, an organization representing 1,700 conservation groups across America. “Rep. Thompson recruited members of the Ways and Means Committee and even approached personal friends in the New York State delegation 3,000 miles from his home state, and he won all but one of them over. We've never seen even a quarter of this many sponsors behind a piece of similar legislation.”

Congressmen Thompson and Camp also introduced legislation HR 1576 in an attempt to lift the current time restriction on the easement incentive as did their colleagues across the aisle - Sens. Baucus, Grassley and 27 cosponsors - who drafted a similar Senate bill, SB 469. A bipartisan group of about 174 Congressional supporters will work to make this incentive permanent over the next two years.

“With agricultural lands disappearing at an alarming pace, this incentive to keep land usage for farms and ranches rather than see property owners sell to developers is a very positive move in the right direction,” said Anne Warden, communications director for Rep. Thompson. “This measure is especially important in the North Bay as well as throughout the Bay Area and other parts of California where the value of land is high and where vineyard owners, other agricultural producers and ranchers have become a dominant economic resource. Now these landowners can continue to exercise the option of protecting their unique property in a way that conserves the environment while allowing them to continue to grow crops or graze livestock on these easements.”

Ms. Warden said that another provision of the Farm Bill enables landowners to take a tax deduction for creating recovery plans for endangered species through improvements to habitat and other preservation actions.

John Hoffnagle, executive director of the Land Trust of Napa County, said, “We're absolutely thrilled with the passage of this extension designed to help us conserve agricultural land, vineyards and open spaces. Today there is a total of 50,000 acres in our land trust representing about 10 percent of Napa County. Some 22,000 acres in 125 parcels were set aside as a direct result of the conservation-easement tax incentive program. Landowners need certainty. We shouldn't have to restart this program every two years. It is disruptive to the planning process - especially when it comes to estate planning.”

The conservation tax incentive applies to a landowner's federal income tax and will raise the deduction an owner can take for donating land through a voluntary conservation agreement from 30 percent of their income in any year to 50 percent.

If a landowner qualifies as a farmer or rancher - those who receive 50 percent of their income from the trade or business of farming and ranching - he can deduct up to 100 percent of the income. The qualified farmer or rancher provision also applies to farmers who are organized as C corporations. For an easement to qualify for the special treatment, it must contain a restriction requiring that the land remain “available for agriculture.”

Under previous rules, a landowner earning $50,000 a year who donated a $1 million conservation easement could take a $15,000 deduction for the year of the donation and for an additional five years for a total of $90,000 in tax deductions.

The new rule allows that landowner to deduct $25,000 for the year of the donation and then for an additional 15 years, for a total of $400,000 in deductions. If the landowner qualifies as a farmer or rancher, he can virtually zero-out taxes. In that case, the owner could take a maximum of $800,000 in deductions for a million-dollar gift.

No taxpayer can deduct more than the fair market value of a gift. This change simply allows landowners who previously could not deduct the full value of their gift to deduct more of that value.