Tax Information
General Summary of Available Tax Benefits for Individual (non-corporate) North Carolina Landowner
The individual donor of qualifying conservation lands or easements may claim the value of his/her gift as a deduction for income, gift, estate, and property tax purposes.
Federal Income Tax Incentives
Donations of land and conservation easements and sales of land or conservation easements at below fair market value (“bargain sale”) that qualify under Section 170(h) of the Internal Revenue Code as conservation contributions to qualified holders (such as PLC) are deductible as charitable contributions. The amount of the deduction is determined by the following:
For a gift of land, the deduction is the fair market value of the property.
Deduction = fair market value (as determined by appraisal)
For a bargain sale, the deduction is determined by subtracting from the fair market value the price paid by the purchase. The difference is the deductible amount.
Deduction = fair market value minus sale price
For a donation of a conservation easement, the deduction is determined by an appraiser using the “before and after test”. The value of the property as restricted by the conservation easement is subtracted from the value of the property before restrictions were granted. The difference between the two numbers is the value of the conservation easement and the deductible amount.
Deduction = Property value without easement minus Property value with easement
For a bargain sale of a conservation easement, the deduction equals the difference between the fair market value of the unrestricted property and the sum of the property value with the conservation easement and the easement sale price.
Deduction = Unrestricted fair market value minus [property value with easement +easement sale price]
(Note: the Alternative Minimum Tax, if applicable, may reduce any deduction. Its provisions are complex and should be examined on a case-by-case basis by the landowner’s qualified accountant or tax advisor.)
To keep the donor from escaping tax liability completely in any given year, the tax code limits the amount of the deduction that can be claimed in the year of the gift to 50% of the individual’s adjusted gross income (The amount of deduction that can be claimed by a qualifying farmer/rancher is 100% of the individual’s adjusted gross income). However, any portion of the deduction not allowed in the year of the gift may be carried over for 15 years and claimed as a deduction in each of those years (subject to the same 50% AGI limitation). *** This tax code is only applicable until December 31, 2007.
North Carolina Income Tax Incentives
If the property is certified by the NC Department of Environment and Natural Resources as suitable for one or more valid public benefits (for example, fish and wildlife conservation), the donor may claim a tax credit in an amount equal to 25% of the fair market value of the donated property interest, up to $250,000 maximum credit for individuals and $500,000 maximum credit for corporations. Any unused credit may be carried over for five years. Any remaining portion of the gift may still be taken as a deduction. The portion of the value of the property for which the credit is claimed, however, may not be taken as a deduction for North Carolina income tax purposes. In other words, you cannot get both a credit and deduction for the same donations.
Estate and Inheritance Tax Incentives
Donations of land or conservation easements, or bargain sales of land can serve as important estate planning tools. Landowners can reduce estate and inheritance taxes by reducing the value of property they hold. Life estate, charitable remainder trusts, bequests by will and other methods provide a variety of options for landowners to reduce estate and inheritance taxes. Benefits can be retained for the remaining life of the landowner and/or the heirs depending on the method chosen to convey the property interest.
Under the Taxpayer Relief Act of 1997, if a landowner dies after 1997, his or her estate may be able to exclude from estate taxation up to 40% of the taxable value of land subject to a qualified conservation easement. This exclusion is in addition to the reduction in taxable value due to the conservation easement itself. In 1998, there is a $100,000 limitation on the exclusion that will increase by increment sundial the limitation reaches $500,000 in 2002.
Local Property Tax Incentives
North Carolina requires county tax assessors to consider the reduction in property value in cases where conservation easements are granted. Therefore, landowners who have granted easements on property should apply for a change in the tax assessment of that property. However, county tax assessors may make independent determinations of value, and are not bound by the appraisal of the owners, even if the federal tax authorities have allowed an income tax deduction in the amount of the appraisal.
This information is provided as a general guide and is not a substitute for tax advice from a qualified attorney or accountant regarding your specific situation.