“New Tax Incentives for Land Conservation”
On January 14, 2009, Massachusetts Governor Deval Patrick signed into law the Land Conservation Incentives Act (the Act), establishing a Massachusetts state income tax credit for landowners who donate qualifying conservation land to a municipality
Jay R. Peabody
On January 14, 2009, Massachusetts Governor Deval Patrick signed into law the “Land Conservation Incentives Act” (the “Act”), establishing a Massachusetts state income tax credit for landowners who donate qualifying conservation land to a municipality, the Commonwealth or certain private nonprofit corporations organized for the purpose of land conservation. The initiative goes into effect for tax years beginning on or after January 1, 2011.
The benefits to qualifying taxpayers under the Act are as follows:
Gifts of land may be made by deed or conservation restriction, as long as they are permanently protected;
Tax credit is valued at 50% of the appraised fair market value of the gift;
Tax credit is limited to $50,000 per gift;
Tax credit cannot exceed the donor’s annual state income tax liability; however, may be carried forward for 10 consecutive years; and
The tax credit is a Massachusetts tax credit that may be taken irrespective of any charitable deductions claimed on the taxpayer’s federal income tax return for the same qualified donations of certified lands.
The Commonwealth’s Executive Office of Energy and Environmental Affairs (the “EOEA”) will determine whether properties proposed for donation are “certified lands” pursuant to the Act, meaning such donations are determined to be in the public interest for natural resource protection, including, but not limited to: drinking water supplies; wildlife habitat and biological diversity; agriculture and forestry production; recreational opportunities; or scenic and cultural values.
The Secretary of the EOEA has been charged under the Act with promulgating regulations which further define the eligibility criteria for “certified lands.” These EOEA regulations are scheduled to be released within the next 180 days; however, it is not anticipated that such regulations will substantively change the provisions of the Act.
The Act provides a significant tax benefit to a Massachusetts taxpayer which, when coupled with other tax incentives, can significantly reduce personal income and estate taxes.
Gifts of conservation land can take two forms; outright gifts or transfers under a conservation easement. Currently, for federal income tax purposes, a person who donates conservation land outright to an organization that qualifies as a tax-exempt organization under the Internal Revenue Code receives an income tax deduction generally equal to the fair market value of the real estate. A person who restricts land through donating a qualified conservation easement to such a tax-exempt organization will receive a federal income tax deduction in an amount equal to the value of the easement as determined by a qualified appraisal. These deductions are generally limited to 30% of that individual's "contribution base" (oftentimes the individual's adjusted gross income). However, pursuant to recent federal legislation, a gift to charity of a “qualified conservation contribution” allows an individual to take a deduction of up to 50% of his or her contribution base through 2009. A qualified conservation contribution includes gifts of real estate (outright or under easement) for the purpose of preserving land for recreation or education by the public, protecting habitat, preserving open space or preserving historically important areas or structures.
In addition to these income tax benefits, a donation of real estate to charity or the grant of a qualified conservation easement provides an effective means to combat potential Massachusetts estate taxes by reducing the individual's federal and Massachusetts gross estate. In general, property given away outright during an individual's lifetime, as well as all future appreciation on that property, will be excluded from that person's gross estate. In the case of a grant of a conservation easement, a portion of the value of the land over which there is a qualified conservation easement will be excluded from a person’s gross estate at death. These estate tax benefits also come at no gift tax consequence since they also qualify for the unlimited charitable gift tax deduction.
The Act is a sea-change in environmental policy in Massachusetts in that it provides taxpayers with a tangible economic incentive for land stewardship and conservation efforts, and serves as an additional tax planning tool for a philanthropic individual.
If you are interested in learning more about fulfilling your philanthropic intentions through gifts of real estate, your counsel at Partridge Snow & Hahn LLP would be happy to discuss your options with you.
Click here for a full text version of the Act. Return