North Carolina has an incentive program to assist landowners who want to protect their land and the quality of life it offers to the community. The North Carolina Conservation Tax Credit is a tax benefit offered to landowners who either donate their property to a qualified conservation organization, like Foothills Conservancy, or keep the property and give up the right to develop the land by implementing and donating a conservation agreement. In exchange, the state may give that landowner a credit towards his or her state income tax. The landowner may also quality for federal and state income tax deductions, lower property taxes and estate tax benefits.
For additional information, visit The Open Space Protection Collaborative.
North Carolina Income Tax Credit
Qualified landowners who place conservation agreements on their property receive the N.C. Conservation Tax Credit, which gives a credit on their state income tax based on the appraised value of the conservation agreement. The credit is 25% of the value of the donated agreement up to $250,000 for individuals and $500,000 for corporations.
In addition, North Carolina allows individuals to count the donation of a conservation agreement as a charitable contribution for income tax purposes.
To qualify for the N.C. Conservation Tax Credit, the land or conservation agreement must be donated to a North Carolina governmental entity or a qualified land trust. Donations to the federal government do not qualify for an N.C. tax credit.
For more information, visit http://www.onencnaturally.org/pages/conservationtaxcredit.html
Federal Income Tax
If a landowner donates a permanent conservation agreement on his or her land, which serves conservation purposes specified by law and the Internal Revenue Service, the donor may claim a federal income tax deduction for the fair market value of the conservation agreement as determined by a licensed appraiser.
To prevent a donor from using the deduction to avoid paying any tax, the IRS limits the deduction that can be claimed in the year the donation is made.
How the Deduction Works:
Property owned more than one year is long-term property. Individuals may deduct the market value of the gift up to 30% of his or her contribution base (usually adjusted gross income) for the year and can carry forward the unused balance for up to 5 years.
Property owned less than one year is short-term. Individuals may deduct the cost basis of the gift up to 50% of his or her contribution base for the year with the remainder carried forward for up to 5 years.
A taxpayer may elect to treat 30% property as 50% property. This may be advantageous when there is little capital gain on the property.
Corporations may deduct up to 10% of taxable income with a 5-year carryforward.
For ordinary income property, the deduction is limited to the property’s basis. Examples of ordinary property are:
- Property held primarily for sale to customers in the ordinary course of trade or business
- Depreciable business property
- Real property used in the taxpayer’s trade or business
From 2006 through December 31, 2011, Congress extended enhanced tax incentives for conservation easement donors. The enhanced incentives:
- Raised the deduction a landowner can take for donating a conservation agreement from 30% of their adjusted gross income in any year to 50%
- Allowed qualifying farmers and ranchers to deduct up to 100% of their adjusted gross income, and
- Increased the number of years over which a conservation agreement donor can take those deductions from six years to 16 years (or until the eligible deduction has been used up).
For example, an owner who donated a permanent conservation agreement valued at $1 million and who had an annual adjusted gross income of $100,000, could deduct 50% of $100,000 ($50,000) in each year of years 1-15 for a total of $750,000 in deductions; but the remaining $250,000 could not be carried over or used after year 15.
IMPORTANT NOTE: Efforts are underway to secure legislative support for renewing these enhanced incentives and making this retroactive to January 1, 2012. Unless renewed or made permanent by new legislation during 2012, the enhanced tax benefits for conservation easement donations are not in effect for 2012. Please contact Foothills Conservancy staff for latest information.
Every conservation agreement donation must meet the requirements of Section 170(h) of the IRS tax code and every deduction must be based on a thorough, honest, realistic and independent appraisal by a qualified and licensed appraiser.
For more detailed information on current federal tax law governing either land or easement donations, visit http://www.landtrustalliance.org/policy/tax-matters/rules/conservation-donation-rules.
County tax assessors are required under N.C. law to consider the reduction in land value that a conservation agreement brings.
Landowners already taxed under the present-use valuation method may not see a further reduction in their taxes, but they no longer may have to meet the income requirements of the program
By reducing the value of your land, you also reduce the value of your estate, potentially protecting your heirs from paying high estate taxes – or, worse yet, from being forced to sell your land to pay taxes.
Foothills Conservancy and other land trusts are experts at helping landowners find ways to protect their land. We are happy to help you understand everything involved in conserving your property.