Both the Federal government and the State of Georgia offer financial incentives to landowners who voluntarily conserve their land in perpetuity. In some Georgia counties, local governments also provide incentives for land conservation. The financial incentives include deductions from Federal and state income taxes, a state tax credit and potentially property tax and estate tax savings.

The amounts of these incentives differ from landowner to landowner depending on the circumstances and the landowner’s tax situation. The most reliable way to calculate the amount of the incentives is for the landowner to work with professional tax and legal advisors and “run the numbers.” If you do not have such professional advisors, the Oconee River Land Trust (ORLT) may be able to recommend some. For both ethical and legal reasons, ORLT cannot run the numbers for you.

Given these cautions and ORLT’s strong recommendation for professional advice, a hypothetical example can be used to illustrate how the incentives can work:

Mr. Smith is a businessman; he and his wife have an annual adjusted gross income of $100,000. They also own 200 acres of farm and forest land worth $2 million. The Smiths decide that they want to permanently protect their land, restricting its future uses to agriculture, forestry and natural habitat protection. They enter into a voluntary land conservation agreement with the Oconee River Land Trust to permanently protect the land. This legally-binding agreement is called a conservation easement.

By placing a conservation easement on the land and restricting its future uses, the value of the land has decreased. A professional appraiser hired by the Smiths determines that the restricted land is now worth $1,200,000 (remember, this is a hypothetical example). The difference between the land’s Fair Market Value before and after the restrictions is $800,000.

Because the conservation easement meets the requirements for a Federal tax deduction including the permanent protection of conservation land by a qualified land trust, the ORLT, the Smiths are eligible for a deduction from their Federal income taxes. 

For tax year 2007 only, the deduction is 50% of their adjusted gross income (AGI), or $50,000. The unused portion of the deduction may be carried forward for up to 15 years. 

Assuming the Smiths’ income remains the same, their deduction will be used up by the year 2023. Georgia allows a similar deduction on the Smiths’ state income tax.

The State also offers a tax credit incentive for qualified donations. To qualify, the donated conservation easement must be certified by the Georgia Department of Natural Resources as having significant conservation value. For individuals, the tax credit is 25% of the fair market value of the donation up to $250,000 (for corporations, its 25% up to $500,000). In this example, the Smiths earn a tax credit of $200,000 (25% x $800,000). Any unused portion of the tax credit may be carried forward for up to five years. If the Smiths’ state tax bill is $10,000 a year, they will be able to reduce their taxes owed by $60,000 over six years.

The Smiths may also be eligible for a property tax reduction. State law requires the re-appraisal of property when it is restricted by a permanent conservation easement. Again, depending on the county assessor and the Smith’s total land holdings, the conservation easement may reduce property taxes by as much as 50% or more.  

The extent of estate tax savings are also highly variable, depending on both the Smiths’ total financial worth and Congressional action from year to year. The savings can range from being inconsequential to being enough to help the Smith’s heirs keep the family land in the family.

The deductions (50% of AGI over 16 years) and tax credits (25% of donation value up to six years) are available now, in 2007 only. Unless Congress acts, the Federal deduction will be reduced next year to 30% of AGI over 6 years. So now is the time to take pencil to paper and run the numbers!

It is important to remember that there are subtle yet important differences between the requirements for a Federal tax deduction and the requirements for the State tax credit program. The Oconee River Land Trust can help you navigate through the requirements for deductions and credits so you can be eligible for both.

For details, contact Steffney Thompson, Executive Director, ORLT, at 706-552-3138 or by email.