Estate Tax Reform and Land Conservation
Fiscal Cliff Update
Congress Extends Relief, Eliminates Geographic Limits
The fiscal cliff deal passed by Congress permanently extends the current $5.1 million unified credit, indexed for inflation, as the top rate rises to 40%. It also permanently repeals geographic limitations on the Section 2031(c) estate tax exclusion for land under easement that otherwise would have excluded about half the country.
This agreement averts a return to estate tax levels that would have hampered intergenerational transfers of productive working landscapes, forcing many farm and ranch families to sell land for development, clear cut timber, and/or sell equipment and livestock critical to farm viability.
- See the geographic limitations that were eliminated
- Information on the estate tax benefits of land conservation
Simple Changes Can Protect Family Farms & Important Natural Resources
Some of our most important wildlife habitats, watersheds, forests, farms and prairies are held by private landowners. Estate taxes can lead to the break-up, sale and development of family-owned farm, ranch and forest lands, even when landowners would prefer to keep these lands intact, and we all lose if they’re forced to sell. Congress is working on estate tax solutions and we have a unique opportunity to improve incentives for conservation.
- How Estate Tax Incentives Work
- Bills to Increase the Exclusion for Land Under Easement
- Bills to Defer Estate Taxes on Family Farm, Ranch and Forest Land
- Guidance on Using Existing Estate Tax Incentives (link)
Important note: Just one of the bills below, H.R. 47, has been reintroduced in the 113th Congress. All others are from earlier years; the session for each bill is indicated below.
In 1997, Congress passed that encourages land conservation by providing an estate tax exclusion under Section 2031(c) of the Internal Revenue Code. This provision provides an estate tax exclusion of up to 40% of the restricted value of land protected by a conservation easement. That exclusion is capped at $500,000 and is further reduced in cases where the easement reduces a property’s value by less than 30%.
Problems with Current Law
While this benefit has been enormously helpful for conservation, rising farmland values have made the $500,000 cap increasingly inadequate. Consider that:
- In 1997, the average farm real estate value was $926 per acre; today it is $2,160 (USDA-NASS). This 133% increase in farmland value requires a significant increase in the easement exclusion so farmers can preserve their land and pass it on.
- Approximately 1% of all estates owe estate taxes, but 4% of all farm estates owe estate taxes (USDA, November 2005).
- Larger farms and ranches – those most likely to be affected by the estate tax – are both more likely to be economically sustainable, and more likely to have resources important to the public.
Land trusts are currently working with coalition partners and supporters in Congress on a variety of proposals that would exclude land under easement, or agricultural lands in general, from the estate tax.
One such proposal would increase the 2031(c) exclusion to 50% with a cap of $5 million. Another proposal would indefinitely defer all estate taxes for all lands that remain in agriculture or are protected with a conservation easement. We believe these proposals would help keep important natural and historic resources intact, and would be valuable contributions to land conservation.
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Estate Tax Fact Sheets
- Estate Tax Fact Sheet from Peconic Land Trust
These bills would expand the 2031(c) exclusion for land protected by a conservation easement from 40% to 50% and from $500,000 to $5 million, while ensuring quality easements by decreasing the benefits for less protective easements:
- H.R. 3050 (111th Congress, not yet reintroduced) -- American Family Farm and Ranchland Protection Act, introduced by Reps. Earl Blumenauer (D-OR) and Eric Cantor (R-VA), would provide targeted estate tax relief for land under easement at a cost of just $132 million.
- Fact sheet on H.R. 3050 from Piedmont Environmental Council
- Land Trust Alliance Letters to Reps. Blumenauer and
- (112th Congress, not yet reintroduced) -- American Family Farm and Ranchland Protection Act, introduced by Senators Mark Udall (D-CO) and Mike Crapo (R-ID) would provide targeted estate tax relief for land under easement at a cost of just $132 million.
These bills would provide an indefinite deferral of estate taxes on family farm, ranch and forest land, until those lands are taken out of production or sold out of the family:
- H.R. 390 (112th Congress, not yet reintroduced) -- Family Farm Preservation and Conservation Estate Tax Act, introduced by Rep. Mike Thompson (D-CA), combines the estate tax deferral from H.R. 3524 (below) and the easement exclusion from H.R. 3050 (above), while reducing their combined cost from $16.2 billion to just $4.2 billion. Urge your Rep. to co-sponsor by contacting Carla McGarvey in Rep. Thompson's office.
- S. 3664 (111th Congress, not yet reintroduced) -- Family Farm Estate Tax Deferral Act, introduced by Senators Dianne Feinstein (D-CA) and Mike Crapo (R-ID) is very similar to H.R. 5475, combining an ag land deferral with the easement exclusion from S. 3640.
- H.R. 47 (Already reintroduced in 113th Congress) -- Farmland Preservation and Land Conservation Act, introduced by Tim Bishop (D-NY) and Richard Hanna (R-NY), provides estate tax deferrals for family farms without an increased exclusion for lands under easement. While we believe the combined approach of S. 390 improves on this kind of stand-alone exclusion bill you may find their supporting materials helpful:
For more information about estate tax incentives for land conservation, please contact Russ Shay at 202-800-2230 or e-mail email@example.com.