01 Mar Reducing Taxable Income by 50% through Conservation Easements
A business owner sold his business and was looking to reduce his tax liability. His current tax liability after the sale was $258,000.
His CPA recommended a firm that specialized in conservation easements. The firm was able to show the business owner how to capture $300,000 in conservation easements, thus cutting the tax liability in half, saving the owner $129,000. What could you do with $129,000?
Conservation easements are another effective way to reduce tax liability. Landowners and investors can use this as an estate planning tool and gain significant tax benefits. The total tax savings through this strategy can amount to hundreds of thousands of dollars.
Conservation easements enable landowners to preserve their land and to maintain ownership of it while potentially realizing significant economic benefits. Landowners may sell a conservation agreement or they may receive tax savings for donating a conservation agreement. Certain restrictions are placed on a portion of land for preservation, wildlife habitat, conservation, or a combination of those uses. For example, the land might be restricted for residential and commercial development or for drilling and mineral rights. The Federal government offers tax incentives to landowners that forfeit certain rights to all or a portion of the property. These rights are then given to a charitable trust that ensures enforcement of the restrictions mentioned in the conservation easement agreement. To realize the tax savings, the land must have important historic, agricultural, or natural resources reserves.
If you invest in land that meets conservation easement requirements, you can deduct up to 50 percent of your annual income. What’s more, farmers and ranchers can deduct 100 percent of their income from the property. And you may be able to carry forward any unused credits.
The great news is, you don’t have to be the landowner to realize the tax benefit. You can purchase the tax benefit derived from the conservation easement from an intermediary.