By William B. Acker
Conservation easements are property rights that limit the use of real property to further a conservation purpose. Many conservation easements have been established to preserve natural habitats for endangered or threatened species of animals, fish, plants or other wildlife. They are also used to preserve open space for the scenic enjoyment of the general public, or pursuant to a state or local government conservation policy, or for other approved conservation purposes. Conservation easements have been used in both urban and rural settings, including coastal and inland areas in the State of Michigan. For example, they have been used by our clients for residential vacation property on Lake Michigan’s west coast. Others have been used to protect certified historic structures or for open space in urban areas.
Changes Increase Benefits
New provisions which provide tax benefits and encourage conservation easements have been enacted as part of the Pension Protection Act of 2006. Tax benefit limits have been expanded for owners of property who might otherwise be discouraged by more restrictive generally applicable federal tax charitable deduction limitations. Perhaps most important is the liberalization of the carryover of excess deductions from 5 years to 15 years, offering taxpayers greater assurance that deductions will be put to good use. For 2006 and 2007, the normally applicable limitation on income tax charitable deductions for contributions of capital assets (such as conservation easements) by an individual has been increased from 30% to 50% of adjusted gross income. Deductions are further expanded to up to 100% of adjusted gross income (or taxable income as adjusted, if the taxpayer is a corporation) for a qualified farmer or rancher, for as long as the property subject to easement will be available for farming or ranching.
New Restrictions
Perhaps the most noteworthy change in the law meriting caution and affecting all donors requires great care to avoid accuracy-related penalties for overstatements and understatements on appraisals. The new amended law underscores the importance of carefully selecting and communicating with your appraiser, by requiring professional credentials including applicable education and experience. For contributions of conservation easements, taxpayers are required to obtain a special “qualified appraisal” from a “qualified appraiser.”
Certain additional restrictions have been placed on conservation easements. First, so called “façade” easements for property located in registered historic districts are not available unless the entire exterior of the building is preserved. This will change rehabilitation practices to the extent that a conservation easement will be sought. Additionally, if the property has been subject to rehabilitation credits which have been taken by any taxpayer in the five previous years the deduction is reduced. Further, donations are not available for charitable easements on vacant land in registered historic districts.
To have adequate time to take advantage of the new liberalized charitable deduction limits, activity on conservation easements needs to begin soon or currently be underway. We can help you navigate the process of establishing a conservation easement and application of the new rules.
For further information regarding these matters, please contact Mr. Acker at 248.740.5665 or
click here to send an email.
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