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Tax Breaks with a View: Conservation Easements

If you own property in the woods or the mountains, you may be in line for a unique tax break: You can claim a tax deduction for agreeing to preserve the land in its current state. Best of all, the deduction limit for these "conservation easements" has increased in 2007 due to a recent tax law change.

Background: As a general rule, you can deduct the full amount of your charitable deductions made during the year. However, for gifts of appreciated property to public charities, a limit of 30% of your adjusted gross income (AGI) is imposed. Tax advantage: The Pension Protection Act of 2006 increases the limit to 50% of AGI for qualified donations made after August 17, 2006. And there is no AGI limit at all for certain farmers or ranchers.

Furthermore, the Act enables you to carry forward any excess deduction for up to 15 years. Previously, the carryforward period was five years. Note: These tax breaks are currently scheduled to expire after 2007.

Caution: The 2006 Act also tightened the rules for appraisals to guard against overstated deductions. In addition, be aware that the IRS is targeting abusive arrangements where the land has little or no conservation value.

There are four types of conservation easements that may qualify for charitable deductions.

1. Preservation of land areas for outdoor recreation or the education of the general public. This category includes property preserved for fishing and boating or land that is set aside for a nature or hiking trail. Public use of the property must be "substantial and regular."

2. Protection of a relatively natural habitat of fish, wildlife or plants, or a similar ecosystem. The donation can include land that has been altered by human activities if the fish, wildlife or plants exist in a relatively natural state. Access by the public may be limited for environmental reasons.

3. Preservation of a historically important or a certified historic structure. For this type of contribution to be deductible, some public access is required.

4. Preservation of open space (including farmland and forest land) that is either for the scenic enjoyment of the general public or pursuant to a federal, state or local government conservation policy that will yield a significant public benefit. In this case, physical access to the property is not required; visual access is sufficient.

In effect, you do not have to deal with outsiders invading your land. By permitting the general public to view the scenery from afar, you can enjoy the tax benefits without any turmoil.

One potential drawback: A conservation easement gift must be made "in perpetuity." This means that your heirs (or any succeeding owners) cannot alter the land or use it for commercial purposes.

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