Conservation Tax Incentives

Introduction

One of the important tools that states use to protect fish and wildlife habitat is a state-level tax credit for conservation easements, reduced fee title, and/or donated land for conservation. Such tax credits complement the available federal conservation tax deductions to make conservation options more attractive to landowners. Because state tax rates are low, most state tax incentives are structured as tax credits to provide dollar-for-dollar write-offs against the landowner’s state income tax liability. Landowners with relatively little taxable income, including many agricultural producers, can benefit from carry-forward provisions that allow them to apply their credit to their state income taxes over several years, or from transferability – the ability to sell their tax credit to another taxpayer.

History

• Arkansas, Iowa, Massachusetts, California, Colorado, Connecticut, Delaware, Georgia, Maryland, New Mexico, South Carolina, and Virginia provide a tax credit equal to a percentage of the value of the conservation easement or land donated to be applied to state income taxes (subject to various limitations; easements only in AR, CO & MD).
• Colorado, New Mexico, South Carolina, and Virginia allow landowners to transfer their credits in order to allow realization of the full potential of their tax credits. Transferring credits can often result in an immediate cash benefit for a landowner.
• New York allows 25% of the property taxes paid on land protected by a conservation easement to be used as a credit against state income tax liability each year.
• Mississippi allows a landowner’s expenses in a conservation transaction (recording, document preparation, transfer taxes, etc.) to be used as a credit against state income taxes.
• Florida has no state income tax; however, state law allows for a 50-100% property tax exemption for land protected by a conservation easement.
• Arkansas, Idaho, and Oregon allow expenses of managing land for conservation to be used as a credit against state income tax liability.
• Comparing the six years before Virginia began its conservation credit program to the six years after enactment, both the average number of conservation easements donated, and the average acreage donated nearly quadrupled.
• Colorado has invested nearly $1.1 billion in conservation easements since 1995. According to a Colorado State University analysis, the related benefits of that investment to Colorado residents total around $13.7 billion and 2.1 million acres of protected land.

Points of Interest

Effective legislation passed by the states mentioned above:

• Often includes that the interests donated meet legitimate conservation purposes (by a process of review and approval of proposed transactions).
• Describes the eligible interests (e.g. easements, fee title) or activities (e.g. habitat restoration, ownership costs, and conservation sales) that would qualify for the credit.
• Describes the entities to which such gifts may be made to qualify for the credit (e.g. qualified land trusts, government agencies).
• Identifies the financial aspects and benefits that could arise from the gift:
  • Appraisal substantiation requirements to assure that valuation abuses are avoided.
  • Percentage of the fair market value of the gift eligible to qualify for the credit.
  • Carry-over period (if the value of the credit exceeds the taxpayer’s tax liability in any one year).
  • Coordination with other conservation transactions (e.g. how would the credit work in coordination with a conservation sale).

Moving Forward

As a valuable tool to ensure that critical land is conserved for future generations and for providing financial benefits for constituents, legislators should consider exploring and supporting legislation that provides for conservation tax incentives.