• Landowners may choose to place conservation easements on property and ask OPS to act as the land trust agent for that property. Valuable natural areas or scenic views, historic, or non-historic may be protected using tax incentives and a range of conservation techniques. Example: the Meeker Conservation Easement.

• Landowners may choose a bequest to OPS as part of their will and estate planning. Bequests qualify as charitable deductions in computing inheritance taxes and ensure the preservation of land and real property for future generations.

• Landowners may choose to negotiate with OPS for the direct sale of real estate. This would allow the seller to qualify for income tax deductions and, in turn, allow OPS to keep and maintain or use real estate for re-sale in accordance with the OPS mission. Example: the David Williams House which is now the Ocracoke Preservation Museum.

• Other preservation ideas are possible and OPS welcomes the opportunity to discuss them.

Exciting News for the Ocracoke Land Trust!

On August 17, 2006, President Bush signed a bill which significantly expands the federal tax incentive for conservation easement donations. Law H.R. 4 makes preserving properties on Ocracoke more enticing. The following excerpts, taken from an article written by Russ Shay and Christen LinkeYoung for the Fall 2006 National Journal of Land Conservation, gives more information:

The new law raises the deduction a donor can take for donating a conservation easement from 30 percent of his or her income in any year to 50 percent, allows qualifying farmers and ranchers to deduct up to 100 percent of their income and extends the carry-forward period for a donor to take tax deductions for a voluntary conservation agreement from 5 to 15 years. This is a powerful tool for allowing modest income donors to receive greater credit for donating a very valuable conservation easement on property they own. For land trusts, this translates to the possibility of protecting much more land through conservation easements. 

The new legislation also includes reforms that affect the appraisal process for all donated property and tighten the rules for easements on historic buildings. It is important to note that the new incentive only applies to easements donated in 2006 and 2007.

Frequently Asked Questions

Expanded Tax Incentive: Can you give me an example of the difference the new change makes?  Under the 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 5 years —a total of $90,000 in tax deductions. The new rules allow that landowner to deduct $25,000 for the year of the donation and then for an additional 15 years. That’s $400,000 in deductions. If the landowner qualifies as a farmer or rancher, he could take a maximum of $800,000 in deductions for his million dollar gift.

Can anyone deduct more than the value of his or her gift?  One can never deduct more than the fair market value of the gift. This change simply allows landowners who previously could not deduct the full value of their gift to deduct more of that value.

Do these changes apply to gifts of land?  This expanded incentive does not apply to gifts of land in fee; it only applies to gifts that qualify under IRC 170(h)(2), such as conservation easements. A landowner considering donating his land should consult with an attorney to determine whether he should consider changing the structure of his gift to take advantage of this new incentive.

Does this only apply to conservation easements? The expanded incentive applies to all donations covered in IRC section 170(h)(2), which includes donations of the entire interest of the donor other than a qualified mineral interest; a remainder interest; or a permanent conservation or historic preservation easement.

What is the timeline for this expanded incentive?  The new law applies to all easements donated in 2006 and 2007... If a donor qualifies under this provision, she can continue to apply its formulas to the amount of her contribution that she carries over into years beyond 2007.

What other restrictions apply? Conservation easement donations are subject to the same restrictions as they were before. For example, easements must meet the “conservation purposes” test defined in the existing law; they cannot be donated as part of a “quid pro quo” agreement; and they must be donated to a qualified organization—a governmental unit or a publicly supported charity that has “a commitment to protect the conservation purposes of the donation, and . . . the resources to enforce the restrictions.” See the conservation easement article at The Land Trust Alliance website for the Treasury Regulations on conservation easement donations.

Will donors who use this provision be audited? Taking advantage of this new law will not necessarily affect one’s likelihood of being audited. All donors should note, however, that the IRS has been increasing the number of tax returns it audits—the number has doubled in the last two years. The IRS has also indicated that high value donations of property—including donations of conservation easements—will receive more attention from the IRS than most tax returns. That makes it particularly important for a donor to know and follow the law, and utilize a reputable professional appraiser who has experience in the appraisal of conservation easements.

Reforms to the Rules for Easement Donors

How does the new law prevent abuse? Under the new law, the definitions of substantial and gross misstatements of value have been changed. Previously, a taxpayer whose donation was finally determined to be worth $200,000 would have been guilty of a substantial misstatement if he had claimed a value of $400,000, and guilty of a gross misstatement if he had claimed a value of $800,000. Now, he would be guilty of a substantial misstatement for claiming a value of $300,000, and of a gross misstatement if he claimed a value of $400,000. There are substantial additional tax penalties for such misstatements for the taxpayer, and they make the appraiser subject to penalties of up to 125 percent of his or her fee plus potential disbarment from working on federal tax matters. The law also redefines who is a “qualified appraiser,” and gives the IRS the power to issue new regulations on appraiser qualifications. This is important: as of August 17, appraisers will need to show donors that they are qualified under the new law and any new Treasury Regulations or guidance that may follow from it. Lastly, the law states that a qualified appraiser must “demonstrate verifiable education and experience in valuing the type of property subject to the appraisal.” These new rules apply not just to conservation easements, but to all charitable donations of property.

Will this make appraisals more expensive? It is possible that appraisals for conservation easements will be more expensive. But these reforms are important steps towards ensuring that appraisals accurately reflect the value of charitable gifts.

How does the new law affect easements that protect both conservation and historic preservation values? The new law tightens the rules for easements on “certified historic structures.” If you are protecting a property that includes such a structure (e.g., a farm with a historic stone barn that is listed in the National Register) these new regulations may apply to you. Donors and donees of easements protecting historic structures need to understand the new rules, which include a filing fee for donors and specific appraisal requirements. Some of the new rules apply to historic structure easements donated as early as July 25, 2006. Any donor who has donated a historic preservation easement since that date should be made aware of the new rules.

What about land with historic value, like battlefields and Native American burial grounds? There is no change in the law for easements covering battlefields or other land with historic value. IRC 170(h)(4)(A)(iv) distinguishes between “historically important land areas” and “certified historic structures.” Only easements protecting the latter should be affected by the new law.

What is the timeline for the reforms? The new law applies to all donations made after August 17. The law makes these reforms permanent. As noted above, sections of the legislation applying to historic preservation easements are retroactive and apply to easements donated since July 25, 2006.

Have there been other changes besides this tax bill? Yes! The IRS has changed the instructions for Form 8283, and now asks for additional information from easement donors. In addition, the IRS has revised Form 990—the tax return all charities complete. This informative article at the Land Trust Alliance may be of use: How to use the Federal Tax Incentives for Conservation. This Exchange article can be downloaded from http://www.ltanet.org/.

Contact us at mailto:[email protected] or (252) 928-7375 if you are interested. 

Information about the OPS Land Trust Management Committee can be found HERE.