Chippewa Watershed Conservancy

New Tax Laws Encourage Donations of Conservation Easements

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Two recent pieces of legislation now are good reasons to consider donating a conservation easement (CE) in 2007. In December 2006 Governor Granholm signed into law Public Act 446 of 2006, eliminating the “pop-up” tax on the transfer of land enrolled in a permanent CE. Land (not buildings on the land) enrolled in a CE will not have the taxable value of the property “popped up” to the State Equalized Value upon transfer of ownership. This means a potential direct tax savings of hundreds or thousands of dollars per year for new owners of the land. In cases where land has been held in a family for years, this may mean the difference between heirs being able to hold on to the land or having to sell it. We have a fact sheet that provides additional information about this new law. In August the President signed legislation increasing the maximum allowable deduction for a charitable contribution of a CE and increasing the length of time over which a deduction may be claimed. The deduction may now be spread over 16 years rather than 6 years. For most landowners the maximum allowable deduction was raised from 30 percent of Adjusted Gross Income (AGI) to 50 percent. But for landowners who earn 51% or more of their income from farming, the maximum allowable amount is 100% of AGI. This law is effective for donations made from January 1, 2006 through December 31, 2007.  After that, it will revert back to previous provisions, unless Congress extends it before the expiration date. Additional details are contained in another fact sheet we have produced.

A conservation easement (CE) is a voluntary legal agreement between a landowner and a qualified nonprofit conservation organization or government entity that allows a landowner to limit the type or amount of development on their property while retaining private ownership of the land. It may apply to all or only a portion of the land owned by an individual. The easement is signed by the landowner, who is the easement donor, and by the qualified holder. Except for the purpose of monitoring the easement, the holder of the CE has no right to enter the property.  The holder accepts the CE with the understanding that it must enforce the terms of the easement in perpetuity. It is the value of the development rights the landowner gives up under a CE that may be claimed as a charitable contribution. The landowner still owns the land and enjoys all of the other rights and benefits of ownership.

            To learn more about how you may benefit from these new laws, call the Chippewa Watershed Conservancy at (989) 644-5045

Michigan Public Act 446 of 2006

A Powerful New Incentive for Private Land Conservation

(From the Heart of the Lakes Center for Land Conservation Policy)

What Does Public Act 446 Do?

Under current Michigan law, the taxable value of a parcel of property may not increase from one year to the next by more than 5% or the increase in the consumer price index, whichever is lower, until there is a transfer of ownership. When the property is sold or transferred, the assessment is “uncapped” and the parcel is taxed upon its state equalized value (SEV: 50% of its true cash value). This reassessment upon transfer creates a “pop-up” property tax. P.A. 446, introduced as Senate Bill 1004, eliminates the “pop-up” property tax on the transfer of lands enrolled in a voluntary conservation agreement (also known as “conservation easement”). 1

How Does This Benefit Conservation?

Until the signing of Senate Bill 1004 on December 7, 2006, property taxes on conservation lands, like developed lands, jumped dramatically upon their sale or transfer.

Property taxes on conservation lands rose significantly even though their development is

permanently limited. This provided a disincentive for landowners to enter into conservation agreements. To afford the higher taxes, new landowners needed the option of developing the land. The elimination of the pop-up tax on conservation lands means that both current and future landowners have a strong incentive to keep the affected lands intact with habitat, environmental and scenic benefits. This law gives protected conservation property the same tax treatment as protected farmland.

How Does This Benefit Private Landowners?

The Act prevents the taxable value of conservation property from "popping-up" to the

state equalized value when it is transferred. This means a potential direct tax savings of

hundreds or thousands of dollars per year for new owners of the land.

What’s an Example of How the New Law Works?

An 80-acre non-farm property with a current taxable value of $43,000 and a state

equalized value of $252,000 would have been subject to $4,395 in annual property tax

payments after transfer. Under the new law, if the 80 acres are all enrolled in a

conservation agreement, annual property taxes will remain at their current level after

transfer -- $750 per year. This means an annual savings of $3,645. Over a 50-year span,

the new landowner will realize an estimated $149,131 in value from the change.

How Do I Find Out More?

Contact your local land conservancy, accountant and tax advisor to learn how the new

law could benefit you.

1 Residences and buildings on the lands are still subject to reassessment to the current SEV. (Return to article)

        Chippewa Watershed Conservancy

New Federal Law Gives Better Tax Break for Voluntary Conservation Agreements

Congress recently passed a law to enhance the tax benefits of protecting your land by donating a voluntary conservation agreement. This was part of the pension plan bill, H.R. 4, which was signed into law by the President on August 17, 2006. The changes concerning conservation easements apply to all “qualified conservation contributions” under Section 170(h) of the Internal Revenue Code.  If you own land with important natural or historic resources, donating a voluntary conservation agreement can be one of the smartest ways to conserve the land you love and protect America’s natural heritage, while maintaining your private property rights and possibly realizing significant federal tax benefits.  

These new incentives make it easier to donate land.  The legislation allows:

• A conservation agreement donor to deduct up to 50% of their adjusted gross income in any year;

• Qualifying farmers and ranchers to deduct up to 100% of their adjusted gross income; and

• Donors to carry over deductions for their contribution for as many as 15 years.

What do you need to know to enter into a voluntary conservation agreement?  Here are the facts:

§         A voluntary conservation agreement, also known as a conservation easement, is a legal agreement between a landowner and a nonprofit land trust or government agency that permanently limits uses of the land in order to protect important conservation values. It allows you to continue to own and use your land and to sell it or pass it on to heirs.

§         When you enter into a voluntary conservation agreement with a land trust, you give up some of the rights associated with the land. For example, you might give up the right to subdivide your land or build additional houses, while retaining the full right to grow crops (provisions can be made for “carving out” future homesites while still protecting conservation values). Future owners also will be bound by the agreement’s terms. The land trust is responsible for making sure the terms of the agreement are followed.

§         Voluntary conservation agreements vary widely. An agreement to protect rare wildlife habitat might prohibit any development there, for example, while one on a farm might allow continued farming and the building of additional agricultural structures. An agreement may apply to all or just a portion of the property. Public access is not a requirement.

§         A conservation donation requires not only a willing donor, but a qualified conservation organization to accept the donation.  That organization needs to be able to show that the donation closely fits its particular charitable mission.  A land trust will not accept a donation that does not fit its mission and purposes.

§         A voluntary conservation agreement can help a landowner pass land on intact to the next generation. By limiting the land's development potential, the agreement lowers its market value, which in turn lowers estate tax. Whether the agreement is donated during life or by will, it can make a critical difference in the heirs' ability to keep the land intact.

§         If a conservation agreement benefits the public by permanently protecting important conservation resources and meets other federal tax code requirements, it can qualify as a tax-deductible charitable donation. The amount of the donation is the difference between the land's value with the agreement and its value without the agreement.

§         To qualify as a charitable donation, a conservation agreement must be permanent.  A landowner should get professional financial planning and legal advice before making such a major donation.

To learn more about protecting your land with a voluntary conservation agreement, call or email the Chippewa Watershed Conservancy at (989) 644-5045 or cbirdey1@earthlink.net.  

(Note: The Chippewa Watershed Conservancy cannot give tax advice. You should contact your attorney, accountant or tax preparer to learn how the new law may apply to your situation.) (Return to article)