A Good Incentive to Save Land
iTAKE ACTION: The enhanced tax incentive for conservation easement donations is at risk. Learn more about what’s at stake and how you can help.
Two years ago the Land Trust Alliance celebrated a victory two decades in the making: the passage of the permanent enhanced tax incentive for donations of conservation easements. The land trust community pulled together to get the incentive passed, knowing that it would help landowners and land trusts conserve many more acres. Beyond the numbers lie the stories of the landowners who are motivated to save their land through a conservation ethic and, with the help of the incentive, are able to complete their dreams.
“Many landowners I’ve worked with couldn’t have afforded to make a conservation easement donation without the incentive (paired together with state incentives), which offset some of the costs of the appraisal, baseline inventory, title work, mineral letter and having an attorney make sure everything is done correctly,” says Jessica Jay, an attorney with Conservation Law, P.C. in Colorado, who has years of experience with conservation easements.
Jay explains that “The major point of the incentive was that many agricultural landowners wanted to give easements but got virtually no federal tax benefits, given that they could deduct only 30% of their income for the year of donation plus five years. With 50% or 100% and 15 years, those cash-poor, land-rich landowners (with smaller incomes) have much more motivation to protect their land and make use of the tax benefits.”
She adds, “Often ranchers or farmers can’t predict what their income is going to be from year to year because they have good years and bad years, depending on market prices, the weather and such. So having 15 years to carry the benefit forward means they will likely have some good years where the deduction can really help them.”
As landowners all over the country explore making a conservation donation — on all types of landscapes — the enhanced deduction for conservation easement donations can be the factor that moves them from thought to action. Here are some examples.
Michigan
Ken Engle is a fruit grower in northern Michigan. He and his wife, Janet, have partnered with the accredited Grand Traverse Regional Land Conservancy to permanently protect nearly 83% of the 300-acre Engle Ridge Farm. Because they donated the three easements on their land, the Engles were able to utilize the enhanced federal tax incentive.
People have always felt strongly about protecting farmland in this part of Michigan. In 2004, Acme Township voters passed a 10-year purchase of development rights millage and began collecting tax revenue. However, it became clear after appraisals of development rights were completed that the projected millage revenues would not be enough to purchase development rights on all the farms. The solution came from the farmers themselves.
They agreed to do bargain sales with Acme Township, which essentially meant that they would be donating a portion of their development rights. Without the incentive for conservation easement donations, this solution likely would not have arisen.
In Engle’s case, he donated a quarter of the overall conservation easement’s appraised value and took advantage of the enhanced federal tax incentive deduction. As a qualified farmer, he can deduct up to 100% of his income in the year of the easement sale, up to the amount of the donated value. Any remaining value of the donation can be carried forward for up to 15 years.
The enhanced federal tax incentive deduction is realized as an itemized tax deduction. Engle says that because many farmers are most familiar with the standard tax deduction, they need to start working with their tax preparer the year of the bargain sale to maximize their income tax savings. “There is no single formula that you can apply to every landowner,” he says. For Engle, it made sense to itemize and take the income tax deduction. “Even though I donated 25% of the conservation easement on my property, it did not cost me 25% in the end. I made up a fair amount of the difference in tax savings.”
Georgia
In Hawkinsville, Georgia, Dr. Johnny Bembry and his sister, Amy Finleyson, own a 2,200-acre tree farm, Bembry’s Mill, which has been in the family since 1807. In 2009 the family donated a 145-acre easement to the Georgia Forestry Commission. The easement includes some of the most historically important and ecologically sensitive land on the property. The easement allows the family to continue to live and work on the farm and manage it according to sustainable forestry practices. Protecting the land, says Bembry, “seemed like the right thing to do from an environmental and historical point of view.”
Buford Sanders, a staff forester at the Georgia Forestry Commission, worked with Bembry to protect the property, calling Bembry one of the most altruistic, conservation-minded landowners in the state. He would know. Sanders’ agency holds 29 donated easements, consisting of just under 50,000 acres. “The number one reason people donate easements is a land ethic and the notion of legacy,” says Sanders. “But a close second is the financial consideration: How will it impact and/ or benefit me? Many of our landowners are motivated very strongly by the federal income tax deduction, as well as the state tax credits.”
Ohio
For the past few years, Ohio farmers Bob and Deb Bumb have worked with the Western Reserve Land Conservancy to protect their Ohio farmland from development. The couple has donated conservation easements on approximately 2,200 acres of land across several Ohio counties. “These acres around us are more than just land,” says Bob Bumb. “They constitute an important part of our identity.”
Because of the incentive, the Bumbs have been able to deduct the total value of their conservation easements from their federal income taxes going forward for 15 years. Bob Bumb calls this “the greatest opportunity we’ve ever come across; probably the number one best decision of my farming career. The money we have saved as a result of the tax incentive will go into buying equipment or drainage improvements for the farm—and that helps our local economy.”
Other farmers have watched the Bumbs protect their land and now want to collaborate with the Western Reserve Land Conservancy, as well. They initiate projects because they love the land and want to permanently protect it, but, says Bumb, “Having federal tax incentives in place makes the transactions all the more attractive.”
Montana
Near Helena, Montana, lies a 2,900-acre ranch that was originally homesteaded in 1864 by the Gehring Family. Bill Gehring recently put his family’s ranch under a conservation easement because he grew weary of seeing local properties sold and turned into housing subdivisions. “I wanted to keep our ranch close to the same thing that it’s always been,” he says.
The conservation easement worked because of a “tapestry” of funding. Although the easement was valued at $2.6 million, Gehring was only compensated for $1 million through Lewis and Clark County’s open lands program, an initiative that allows the county to issue bonds to protect land from development. Gehring donated the remaining portion of his conservation easement to the accredited Prickly Pear Land Trust. However, the “cost” of the donation will be offset by the federal tax incentive that will allow Gehring to deduct 100% of his income, going forward for 15 years, until the value of the deduction for the easement donation has been reached.
“When you donate or partially donate a conservation easement on your land, you are losing a lot of value, so it’s only fair to get compensated. Most people don’t do conservation easements for the money per se. But the tax relief is actually important. You just might not be able to do the deal at all without it.”
Alaska
The Bristol Bay Heritage Land Trust recently closed a deal with Koliganek Natives LTD, an Alaska Native village corporation, to put a large conservation easement in place at the confluence of Harris Creek and the Nushagak River in Southwest Alaska. A total of 570 acres will stay under Native ownership and be permanently protected from development.
An important component of this project was the incentive, which now specifically allows Alaska Native corporations established under the Alaska Native Claims Settlement Act of 1971 to apply the full value of donated conservation easements against their federal corporate tax obligations.
The project involved two parcels: the first, a 40-acre Native allotment at the mouth of Harris Creek that came up for sale several years ago, which the land trust was able to purchase. The discussion point, according to Tim Troll, executive director of Bristol Bay Heritage Land Trust, was how to return this allotment to Native ownership but leverage its value for a conservation deal on Koliganek Natives’ adjacent 530-acre tract that encompassed valuable salmon habitat.
According to Troll, “The land trust doesn’t seek to own property to protect it; rather, we just want to conserve it. We can do that through a conservation easement as easily as we can through ownership.” He explains that a secondary goal is to “retain Native ownership of property whenever possible. We talked about doing a deal where we would exchange the allotment we purchased with the Native corporation for a conservation easement on its larger parcel.”
To complete the deal, the land trust transferred ownership of its 40-acre tract to Koliganek Natives LTD, but retained the easement. The difference in property values was made up with a $100,000 cash payment from The Conservation Fund (accredited) and a bargain sale donation from the Native corporation appraised at $60,000. In the first use of the new conservation incentive for Alaska Native Corporations, Koliganek Native LTD applied the bargain sale donation value to its 2016 corporate tax return.
New Hampshire
Tom and Sally Wilkins, eighth-generation New Hampshire foresters, have protected more than 520 acres of land in several New Hampshire towns. In recent years the couple has conveyed five conservation easements on 14 different parcels of land to the accredited Society for the Protection of New Hampshire Forests (SPNHF). The donated easements will allow the family to continue harvesting timber for its family owned and operated sawmill while guaranteeing that the land remains undeveloped and open to the public.
These protected areas are home to diverse wildlife, such as songbirds, amphibians, deer, moose and bears. By ensuring that the lands remain intact, the easements help to safeguard the wildlife’s habitat. This is particularly important because the Wilkinses live in a part of the state with the highest population and some of the strongest development pressures.
“We are keenly aware that the world we grew up in is vanishing,” says Sally Wilkins. “This is a place where you can go into the woods and not hear cars out on the highway. It is natural habitat for animals to call home. We are also continuing to do sustainable harvesting of timber, which is a dying industry in New Hampshire.”
According to Brian Hotz, vice president of land conservation at SPNHF, the Wilkinses were committed to protecting their land, but the enhanced federal tax incentive sweetened the deal. “For us it was a bonus but not the incentive,” says Sally Wilkins. For other landowners, however, the incentive truly is the “make or break” factor. “The enhanced tax incentive is absolutely encouraging people to put land under easement,” says Wilkins, who also serves on the board of the Amherst Land Trust. “I know of one example in which the donation of the conservation easement literally hinges on whether the tax benefits will be favorable enough. The key is making land protection affordable to people.”
Edith Pepper Goltra is a frequent writer for Saving Land.