QUALIFICATIONS - To qualify for a conservation contribution for federal tax purposes, you must grant an easement on the property in perpetuity to a charitable organization or governmental unit that is committed to protecting the gift’s conservation purpose and has the resources to enforce the restrictions. The gift must be exclusively for ONE of the following conservation purposes:
- Preserving land areas for outdoor recreation by, or the education of, the general public.
- Protecting a significant natural habitat of fish, wildlife, plants, or a similar ecosystem. Public access may be restricted, e.g. to protect the habitat.
- Preserving open space (including farmland and forest land) for the general public’s scenic enjoyment or under a governmental policy. The public must receive a significant benefit.
- Preserving an historically important land area or a certified historic structure.
Beginning in 2013, to qualify for a conservation contribution for Georgia tax credit purposes, you must grant an easement on the property in perpetuity to a charitable organization or governmental unit that is committed to protecting the gift’s conservation purpose and has the resources to enforce the restrictions. The gift must be exclusively for TWO of the following conservation purposes:
- Water quality protection for wetlands, rivers, streams or lakes;
- Protection of wildlife habitat consistent with state wildlife conservation policies;
- Protection of outdoor recreation consistent with the state outdoor recreation policies;
- Protection of prime agricultural or forestry lands; and
- Protection of cultural sites, heritage corridors, or archaeological and historic resources
You can continue to use the property, as long as the conservation easement restrictions aren’t violated.
CHARITABLE DEDUCTION - The amount of the charitable deduction is equal to the value of the donated easement. This may be determined by comparing the value of the property without the conservation restrictions to its value subject to the restrictions. The difference will generally be the value of the charitable gift.
You should hold qualified real estate for at least one year before contributing to a charitable organization (long-term capital gain property). If the property is owned less than one year, your deduction may be limited to your basis in the property.
First enacted temporarily in 2006 and made permanent in 2015, donations of qualified conservation easements can be claimed as an itemized deduction of up to 50% (previously 30%) of the donor’s adjusted gross income (AGI). NOTE - The 2017 Tax Cuts and Jobs Act increased the limitation for strictly CASH contributions from 50% to 60% of AGI. This increase does not apply to real property or appreciated property.
SPECIAL PROVISIONS FOR FARMERS - Individuals who were able to qualify as a farmer or rancher and make a donation of a qualified conservation easement are allowed a deduction up to 100% of AGI, after taking into consideration other allowable charitable contributions. To qualify as a farmer or rancher, more than 50% of the taxpayer’s gross income for the tax year must be from the trade or business of farming or ranching. Hunting and fishing activities are not farming activities described in IRC Sec 2032A(e)(5). This favorable provision related to qualified conservation easement donations was made permanent in 2015. For an easement to qualify for a farmer or rancher, the easement must contain a restriction requiring that the land remain available for agriculture.
When a pass-through entity such as a partnership or S corporation makes a qualified conservation contribution, the determination as to whether an individual who is a partner or shareholder is a qualified farmer or rancher for the tax year of the contribution is made at the partner or shareholder level.
CARRYOVER - Taxpayers who make a donation of a qualified conservation easement are allowed an income tax deduction for the current year, as well as a 15-year carryover of unused conservation contributions, for a total of 16 years to utilize the deduction. This favorable provision related to qualified conservation easement donations was also made permanent in 2015. The carryover period for other charitable donations is five years.
PHASE-OUT OF ITEMIZED DEDUCTIONS, prior to 1/1/2018 - For higher income taxpayers, a portion of the conservation easement charitable contribution may be lost. The reduction of itemized deductions basically increases the tax liability of higher income taxpayers without increasing their marginal tax rate. The reduction of itemized deductions is computed as the lesser of Adjusted Gross Income (AGI) times 3% or non-exempt itemized deductions times 80%. The threshold amount is indexed for inflation, and for 2017 begins with adjusted gross incomes of $261,500 or more for single taxpayers and $313,800 for married couples filing jointly. Non-exempt itemized deductions are all itemized deductions except medical expenses, investment interest expense, casualty and theft losses, and gambling losses. Note – The phase out of itemized deductions was repealed by the 2017 Tax Cuts and Job Act.
ORDERING RULE - Excess contributions are carried over and are used on a first-in, first-out basis. However, for any tax year, all current-year contributions are deducted first. Therefore, if you make qualified conservation donations in consecutive years, you are required to deduct the current year contribution before claiming any remaining carryover from a previous year.
TAX BASIS - You must adjust your tax basis in the property by subtracting the portion allocable to the gift. The amount of basis allocable to the conservation easement bears the same ratio to the total basis of the property as the fair market value (FMV) of the conservation easement bears to the FMV of the entire parcel before the granting of the conservation easement. For example, if you make a qualified conservation contribution valued at $100,000 with respect to a property whose fair market value is $1 million, your basis in the property will be reduced by 10%, reflecting the fact that you have donated 10% of the property to charity.
ESTATE TAX BENEFITS - In addition to the income tax benefits, qualified conservation contributions can also provide estate tax benefits. The conservation easement will lower the property value taxed for estate tax purposes. Also, your estate may receive a qualified conservation easement exclusion of up to 40% of the value of the land subject to a qualified conservation easement. This exclusion cannot exceed $500,000.
8283 ATTACHMENTS AND SUBSTANTIATION - The donor must attach IRS Non-cash Charitable Contribution Form 8283 to his or her tax return with other supporting documentation. If the donation is $500,000 or more, the appraisal must be submitted with the income tax return. A supporting statement must be attached to the return that provides the following information:
- Description of contributed property, referring to attachments included with the return, including
- Entire recorded easement and
- Baseline documentation report;
- Identification of conservation purposes furthered by the donation;
- The fair market value of the underlying property before and after the gift;
- A statement detailing whether you made the donation in order to get a permit or other approval from a local or other governing authority and whether the donation was required by a contract, and
- A statement detailing whether you or a related person has any interest in other property nearby, describing that interest.
The Land Trust Alliance strongly suggests inclusions of the following documentation in addition to Form 8283 and the required documentation above:
- Copy of recorded deed or easement
- Accurate and complete, executed baseline documentation report
- Contemporaneous written acknowledgement of the gift from the donee organization
- Executed mortgage subordination
The IRS Conservation Easement Audit Techniques Guide (Jan 2018) also lists the items above as required documentation. Inclusion of these documents with the tax return when originally filed may allow an IRS agent to limit their inquiry regarding the easement in the event of an audit.
If the donation originates from a flow-through entity, the partner or shareholder who receives an allocation of the contribution must attach a copy of the flow-through entity’s appraisal summary (Form 8283) to the tax return on which the deduction is first claimed. Treas. Reg. 1.170A-13(c)(4)(iv)(G)
In appropriate cases, the IRS will disallow deductions for conservation easement transfers if the taxpayer fails to comply with the substantiation requirements, so fulfilling this portion of the donation process should not be taken for granted.
SUBSTANTIATION REQUIREMENTS – from IRS Conservation Easement Audit Techniques Guide
| Due Date
| Attach to Return
|All $250 or more
|Earlier of Return filing date or Due Date
| Form 8283
|All >$500 Part A
All >$5,000 Part B
| Return filing date
Also attach statement
per Form 8283 Instructions
| Qualified Appraisal
|No earlier than 60 days prior to date of
contribution but no later than
original/amended return filing date
If over $500,000 or an
easement on a building in
a registered historic district
| Façade Filing Fee
|All easements on
buildings in registered
historic districts >$10,000
|Return filing date
Mail in with Form 8283V
Required to be given to
donee organization to
establish condition of property
CONTEMPORANEOUS WRITTEN ACKNOWLEDGEMENT - A contemporaneous written acknowledgement by the qualified donee organization is required for all contribution deductions of $250 or more in cash or property.
“Contemporaneous” means that the taxpayer must obtain the acknowledgement by the earlier of the date on which the taxpayer files his or her tax return claiming the charitable contribution deduction, or the due date (including extensions) for the return. IRC Section 170(f)(8) and Treas. Reg. Section 1.170A-13(f)(3).
This acknowledgement by the qualified donee organization must contain:
- Amount of any cash contribution,
- Description (but not the value) of the conservation easement granted,
- Statement that no goods or services were provided by the organization in return for the contribution (if this was the case),
- Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution, and
- A statement that goods or services (if any) that an organization provided in return for the contribution consisted entirely of intangible religious benefits (if this was the case).
Form 8283, Non-cash Charitable Contributions, executed by the donee organization is NOT a substitute for the contemporaneous written acknowledgement – BOTH are required!
GEORGIA CONSERVATION EASEMENT CREDITS:
The Georgia Conservation Tax Credit Act allows donors of qualifying conservation lands or easements to earn a state income tax credit up to $250,000 for individuals, couples filing jointly, estates, trusts, and each member of a pass-through entity which are individuals, trusts or estates. The maximum credit is $500,000 for C-corporations, S-Corporations and partnerships.
Credits exceeding the above limitations are lost and cannot be sold or carried forward.
The law provides for a credit on Georgia state income taxes calculated at 25% of the donated value of the qualifying lands.
Taxpayers are allowed a credit for the current year, as well as a 10-year carryover, for a total of 11 years to utilize the credit.
Donations must be certified by the Department of Natural Resources to receive the tax credit. Beginning in 2013, appraisals must be submitted with the application and approved by the State Properties Commission. An appraisal fee of $5,000 must accompany the application.
Effective in 2013, taxpayers must add back the value of the federal charitable deduction on their Georgia income tax return before claiming the tax credit.
The taxpayer must file a Georgia return to claim the credit even if they are not a Georgia resident.
The phasing of multiple easement donations made by the same landowner on the same tax parcel, is now limited to once every five years.
Beginning January 1, 2014, land trusts and non-profit organizations that accept donations must be accredited by the Land Trust Alliance in order for the donation to qualify for the state tax credit.
The Official Code of Georgia Annotated was amended by adding a new paragraph to subsection (d) of Code Section 48-7-29.12, relating to qualified donations of real properties, to read as follows:
“(3) Beginning on January 1, 2016, the aggregate amount of tax credits allowed under this Code section shall not exceed $30 million per calendar year. The Department of Natural Resources shall accept no new applications for the tax credits allowed under this Code section after December 31, 2016” H.B. 464
HB 1014 – revised –
“Beginning on January 1, 2016, the aggregate amount of tax credits allowed under this Code section shall not exceed $30 million per calendar year. The Department of Natural Resources shall accept no new applications for the tax credits allowed under this Code section after December 31, 2021
SALE OF TRANSFERABLE TAX CREDITS
The sale of a transferable state tax credit is a taxable transaction.
A taxpayer selling credits has no basis in the credits, thus the gain from the sale of tax credits is generally the entire amount realized from the sale. A taxpayer acquiring credits is taxed on the difference between the face value and the purchase price of the credits.
The state tax credits are capital assets, qualifying for long-term capital gain treatment if held greater than one year.
The holding period begins when the credits are granted.