Changes to tax benefits for conservation

Important new changes to the tax benefits for conservation have been passed at both the federal and the Virginia state level in August, 2006.  At the federal level, Congress has enacted a significant increase in the incentive for donating a qualified conservation easement.

The new federal law:

• Raises the maximum deduction a donor can take for donating a conservation easement from 30% of their adjusted gross income (AGI) in any year to 50%
• Allows qualified farmers and ranchers to deduct up to 100% of their AGI
• Increases the number of years over which a donor can carry deductions forward after the initial year from 5 years to 15 years.
• Is in effect only for 2006 and 2007.  After that, new legislation would need to be passed to continue these benefits. 

The changes passed to the Virginia Land Conservation Tax Credit reduce benefits for a qualified easement donation, as described below.  However, even with these changes, Virginia’s tax credit for conservation is still the most generous tax credit of its kind in the nation.  Additionally, for many landowners, the recent positive federal changes will more than compensate for the reduced state benefit.

The new state law:

• Reduces the value of the tax credit for a qualified easement donation from 50% of the easement’s fair market value (FMV) to 40%.
• Caps statewide tax credit registration at $100 million per year.  Credits will be registered based on the time a completed tax credit registration application is received.  The easements registered in excess of $100 million will be rolled over to the next year. 
• Increases the carry forward period for tax credits from 5 to 10 years.  This does not apply to easement donations before January 1, 2007.
• Institutes a new 2% or $10,000 (whichever is smaller) transfer fee on credits.
• Mandates that easements that result in more than $1 million in tax credits have their conservation values verified by the Department of Conservation and Recreation