Enhanced Easement Incentive and Estate Tax Expire, Our Outlook for 2010
The U.S. Senate remained in session until December 24th, and they did manage to pass a health-care bill, extend the nation's debt limit (for two months or so), and pass the Defense Appropriations bill. But they didn't extend the enhanced easement incentive or resolve (even temporarily) the estate tax issue.
As of January 1, 2010:
- The enhanced tax incentive for donations of conservation easements has expired. All requirements for donations of conservation easements (and historic preservation easements) remain the same as they were in 2009, but the maximum deduction for such a donation is limited to 30% of an individual's adjusted gross income (AGI) in the year of the donation, with the remainder of the donation being carried forward for a maximum of 5 additional years. Deductions by C-corporations are limited to 10% of AGI. Our Frequently Asked Questions have been updated to reflect the expiration of the incentive.
- The "S-corp fix" has expired. Charitable deductions by S-corporation shareholders will, again, be limited to their basis in the donated property. Given the long holding periods of many farm properties, this change could severely limit the ability for S-corporation shareholders to deduct the full value of donated land or easements. A one-year extension of the "S-corp fix" was included in the House "extenders" package and we're hopeful it will be extended, along with the easement incentive, in early 2010.
- There is zero estate tax. Democratic leaders of the House and Senate say they will try to reinstate an estate tax early this year, and that they will make it retroactive so that it covers the estates of people dying in January. But when they might be able to actually do this (over substantial Republican opposition), what it will look like, and whether it is a long-term or short-term solution, is anyone's guess. Unless Congress acts prior to 2011, the estate tax will return with a $1 million unified credit and a top rate of 55%. In addition, without congressional action, the geographic limits that were removed from the 2031(c) exemption, for lands protected with a donated easement, will return. Click here for more details.
- For those of you into the details of tax policy, there is now a limited carryover basis for inherited property. In the past, when one inherited real property, its basis was reset to the value at the time of inheritance. If you sold it the next day, you did not pay any capital gains tax. Now, at least temporarily, there are some complicated rules that mean that sales of expensive inherited property may leave the seller with a substantial capital gains tax. As noted above, Democrats say they will get rid of this.
We fully expect the Congress will try to reinstate the enhanced deduction for easement donations in 2010, and to make the incentive retroactive to January 1st. Both House and Senate leaders say they will do this early in 2010 -- but, as we have seen, the Congressional schedule is not predictable, particularly in the bitterly partisan atmosphere we can expect to continue for some time. This is why we need to keep up our work to make this deduction permanent, so that Congress understands the importance of getting this done, and so that potential easement donors know what the law will be during the long time it takes them to plan a donation.
If someone donated an easement sometime in 2006-2009, they can continue to deduct 50% of their AGI per year (or, if they are a qualified farmer or rancher, 100%), and carry over unused amounts of their donation for 15 years. What counts is what the law was at the time they made their donation. So, if you donated in 2009, and you are filling out your tax forms in 2010, you get the 50 or 100% AGI deduction and 15 year carryover. Make sure your tax preparer gets this right, because the folks who write computer programs for tax professionals (as well as for you and me) have a hard time keeping up with changes in the law!
Our Bills Remain In Play and Still Need Your Help
Our basic legislative strategy remains unchanged and we still need help educating your Senators and Representatives. Our bill to make the enhanced easement incentive permanent is still alive, with the same co-sponsor lists and bill numbers. Additional co-sponsors for S. 812 and H.R. 1831 help! So does thanking existing co-sponsors and encouraging them to get a permanent incentive included in legislation renewing expired tax provisions, the estate tax package, or another tax bill, ASAP. For the latest information and resources, please visit: www.lta.org/easementincentive.
We also remain committed to enhancing estate tax incentives for land conservation as part of an overall estate tax package. Please visit www.lta.org/estatetax for more information about H.R. 3050, H.R. 3524 and H.R. 1328, bills to increase the estate tax exemption for lands under easement or agricultural lands generally. We're working with friends in the House and Senate to explore creative approaches that would combine these measures and reduce their cost.
Thank you for all you have done so far to help make the conservation easement tax incentive permanent. Is this harder than it ought to be? You bet! We will be working hard in 2010 to get it done, so stay tuned for ways you can help to increase the pace of conservation.
Thanks for helping!
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