Conservation and Tax Summary

Land Conservation and Personal Tax Planning

We are in an economic and cultural environment that we believe includes an ever-increasing tax burden.   Going forward, we believe this tax burden will fall disproportionately on those who have applied themselves, and thereby developed significant income and assets.  With this increasing income comes not only an increasing tax burden, but also significant opportunities to effectively mitigate federal and state income taxes.  This is the case whether income is deemed ordinary income or long-term capital gain income.  One meaningful way of reducing the income tax burden is by participating in real estate opportunities that can have substantial benefits related to preserving and protecting meaningful land for future generations.

Landowners have multiple options in their land ownership, including development and simply holding for the long term.  A conservation strategy can make the most sense for a number of potential reasons, and can contribute significant economic value as well, by preserving these lands for the enjoyment of future generations.

In simple terms, a conservation strategy involves the grant of a conservation easement to restrict forever the future development of portions or all of the property. This easement would extinguish certain development or other rights in perpetuity, restricting future use to agricultural endeavors, passive recreation and certain other reserved rights defined within the Conservation Easement. A proposed easement is typically donated to a qualified land trust, which will regularly monitor the property to enforce the easement if it is executed. 

By doing so, the taxpayer (landowner, often times a partnership entity such as an LLC) is entitled to deduct a qualified conservation contribution for the value of the easement, in the tax year in which it is donated.  If the land owner is an LLC, then the tax benefits will specifically be allocated to members of the LLC in accordance with its operating agreement.  This deduction functions as a non-cash charitable deduction, as further described below.

Conservation Strategy Member Benefits

By choosing to transfer certain rights to a land trust, this transfer and conservation strategy, upon approval by the members and as implemented by the Managing Member, will give members the right to receive allocated tax benefits in proportion to their respective ownership interests, as established by its operating agreement, and for the tax year in which such easement is granted.

These tax benefits will be proportionately allocated to the members of the LLC via a Form 1065 Schedule K-1 as a Charitable Non-Cash Contribution to a Qualified IRS Organization.

U.S. Federal Income Tax Benefits

The available charitable contribution deduction for calendar year 2016 relating to conservation easements can be used to reduce AGI by up to 50% for individuals or 10% for corporations for such year.  Any excess deductions can be carried forward for up to an additional fifteen years for individuals and five years for C-corporations. 

Note: The Protecting Americans from Tax Hikes Act of 2015 was passed in December 2015.  In this legislation, both chambers of Congress demonstrated strong support for, renewed, and made permanent important tax incentives, including land conservation, through the charitable deduction of contributions of real property for conservation purposes.

State Income Tax Benefits

In many states, a state taxpaying member can receive additional tax benefit deductions or credits based on the associated income tax regulations of the state thus creating even a greater total economic benefit.

Conservation Opportunities and Annual Tax Planning

We have found that those with AGI’s of about $225,000 and greater can benefit from using such conservation deduction benefits, with the greater the AGI, the greater the benefit.  This is the case whether income is derived from W2’s, or other sources. With good planning early enough in the year, the possibility exists of reducing federal withholding or estimated tax payments, given the reduced liability, thereby increasing current cash flow.

In any form, meaningful lands are preserved and protected, and members receive the associated benefit of partnering in these conservation efforts.