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Landowners Want to See Expired Tax Breaks for Land Conservation Reinstated and Made Permanent

Supporters of a generous federal tax deduction for landowners who, in essence, donate property for conservation or preservation are trying to persuade Congress to make the tax break permanent. First, though, they have to get it back on the books; it expired at the end of 2013.

These conservation, wildlife and agriculture groups had some allies on the Senate Finance Committee, but its members approved only a two-year renewal of the “enhanced” conservation easement deduction. They are hoping for better results from the House Ways and Means Committee, where Chairman Dave Camp, R-Mich., appears to be for the tax break, since he proposed to make it permanent in the tax platform he released in February.

The tax break applies to those who grant a government agency or a nonprofit such as a land trust a conservation or preservation easement for a piece of property. With the easement, the owner gives up the right to develop the land in the future, in return for a tax deduction for the lost market value of the land. The owner retains the title, though.

Backers of the tax break say that tax deductions for conservation easements have protected rural land from suburban and city sprawl and provided habitat for wildlife.

“Having that tax provision,” Dale Moore, policy director for the American Farm Bureau Federation, said, “is basically an incentive for farmers and ranchers to invest in a conservation practice that is going to have the co-benefit of helping to improve production on the land in all the ways that conservation does and at the same time there is a public good to it.”

The tax break that is in permanent law allows those donating easements to deduct up to 30 percent of their adjusted gross income, spread over 5 years. The “enhanced” provision that has expired allowed landowners to deduct up to 50 percent of their adjusted gross income for their donations. Qualified farmers and ranchers could deduct 100 percent of their adjusted gross income spread over 16 years.

Questions have been raised in the past about the loss of taxable income to the government versus measurable benefit to the public. In particular, the use of the tax break by golf course owners has drawn scrutiny with allegations that deductions claimed for the donated land value have been excessive in some cases.

The IRS and others also have raised concerns about preservation easements in which owners win tax deductions by promising not to make changes in a building, when the changes already are forbidden by local zoning laws or restrictions.

The View of the Green

The Obama administration recommended making the conservation easement permanent in its 2015 budget, but called for eliminating the deduction for golf course owners and tightening requirements on the historic preservation claims. The administration estimated that the modified deduction would cost the government $522 million between fiscal years 2015 and 2024. Last year, Montana Democrat Max Baucus, then chairman of the Senate Finance Committee, excluded golf course owners from a stand-alone bill (S 526) to make the conservation easement permanent. The committee’s ranking Republican, Orrin G. Hatch of Utah, co-sponsored the bill.

Baucus had been behind the revision that raised the deduction levels for farm and nonfarm land donors in 2006, and to him having a permanent deduction seemed a logical step.

In the House, Ways and Means members Jim Gerlach, R-Pa. and Mike Thompson, D-Calif., have a measure (HR 2807) similar to the Senate bill that has 186 co-sponsors, including Michigan Democrat John D. Dingell, who wrote the original conservation easement tax deduction nearly 40 years ago.

In April, the Finance Committee, under new chairman Ron Wyden of Oregon, approved a two-year renewal of the conservation easement without the administration’s modifications. It is part of the committee’s tax extender package (S 2260). The relatively obscure tax provision would be extended through 2015 at a 10-year cost of $268 million to the U.S. Treasury, according to the Joint Committee on Taxation. The first two years account for $87 million of the cost.

Under the current committee version, golf course owners could continue to donate land and claim the deduction.

“I’m thinking logic prevailed,” said Mike Hughes, chief executive officer of the National Golf Course Owners Association.

“Golf has just as much right to be included as any other business,” Hughes said. “It’s an important economic driver for many areas. It accounts for 2 million jobs. They are stable businesses, sustainable businesses. They are good land uses.” The average 18-hole golf course covers about 150 acres.

The Land Trust Alliance, the lead group campaigning to make the tax credit permanent, took no position on the golf course question. Instead, the alliance is touting the tax deduction as an attractive financial planning tool for farmers and ranchers that also delivers environmental benefits.

Russ Shay, public policy director for the Land Trust Alliance, said he remains optimistic about winning permanent status for the deduction. He said the Senate has approved the idea several times. The House has been a question mark.

The higher deduction level, he said, is more important to property owners of modest income. “Sen. Baucus was approached by people from his state who were involved in land conservation and working with the ranching community. What they found was the ranching community there had relatively modest income. The development rights to their land was 10 or 20 times what their annual income was or maybe even more” because of developers interest in building homes for the well-to-do in scenic parts of Montana.

They would take a financial deduction in donating land that might easily be worth $1 million or more, Shay said.

An earlier version of this story misstated how long the permanent tax break allows for deductions.

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