Estate Tax Reform and Land Conservation

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 workign on estate tax solutions and we have a unique opportunity to improve incentives for conservation.

• How Estate Tax Incentives Work
• Help Create New Conservation Incentives
• 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)

2011 Update

Estate Tax Fix Leaves out Conservation Incentives

Senate Democrats had included both of our estate tax incentives for land conservation in their year-end tax bill, but they fell out of the final compromise.  We're hopeful these incentives will come back into play when the estate tax is reconsidered in 2012.  That package did extend the 2001 law that removed the geographic limitations from the section 2031(c) estate tax exclusion for land protected by a conservation easement, through December 31, 2012.  That means, even with a $5 million unified credit and 35% rate, landowners may still realize up to a $175,000 estate tax benefit for donating a conservation easement.

Important note: Only H.R. 390, S. 1901, H.R. 1593, H.R. 1964 and S. 339 have been reintroduced in the 112th Congress. Other bill numbers refer to the 111th.

How Estate Tax Incentives Work

In 1997, Congress passed a law 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.

Help Create New Conservation Incentives

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.

Please subscribe to our Land Trust Advocates alerts to be the first to know as this legislation progresses.

Estate Tax Fact Sheets

• Estate Tax Reform and Land Conservation
• Conservation Options for Heirs to Land
• Estate Tax Fact Sheet from Peconic Land Trust

Bills to Increase the Exclusion for Land Under Easement

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 Cantor
• S. 1901 -- 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.
• Fact Sheet on S. 3640 (last year's bill #)

Bills to Defer Estate Taxes on Family Farm, Ranch and Forest Land

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--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.
• Press Release on introduction of H.R. 4575 (111th Congress)
• 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. 1593 -- 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:
• Info Packet on H.R. 3524 (Similar to the new H.R. 390)
• Land Trust Alliance Letter to Rep. Thompson.
• Letter from 36 California Farm Groups to Speaker Pelosi
• Fact Sheet on H.R. 1328 from Peconic Land Trust (similar to the new H.R. 1593)

For more information about estate tax incentives for land conservation, please contact Russ Shay at 202-638-4725 x305 or e-mail policy@lta.org.