The House of Representatives is set to vote Thursday on a bill to make permanent the enhanced tax incentive for conservation of farmland, rangeland, woodlands an open spaces first passed in 2006.
The incentive allows people who derive most of their income from agriculture or forestry to deduct up to 100 percent of their adjusted gross income annually from income taxes for 16 years.
“The incentive gives farmers and ranchers, in particular, an opportunity to be able to afford a conservation easement on their land,” said Russ Shay, director of public policy with Land Trust Alliance.
He said it has resulted in the conservation of an additional 250,000 acres a year, helping to increase the pace of conservation to more than 1 million acres annually, and has the potential to do a lot more if made permanent.
The problem has been the incentive has been temporary, repeatedly expiring and requiring congressional action to extend it, he said.
“Congress has gotten into the nasty habit of waiting until a year after the incentive expires and then reinstating it retroactively and for another year. That’s why we need to do long-term reauthorization,” he said.
A conservation easement takes a long time to work out. If landowners can’t count on what the law is, why would they even start the process, he posed.
Making the incentive permanent would be a “real game changer,” allowing farmers and ranchers to receive an appreciable tax benefit over time from donating an easement on their land. That’s important to conservation because farmers and ranchers “own the landscape,” Shay said.
The ability to take a tax deduction on conservation easements was initiated in the 1970s, but there was little benefit to landowners with modest income who could sell the development rights to the land for a lot more, he said.
“The 100 percent of income deduction came about specifically to help farmers and ranchers who weren’t high-income people to get tax deductions that were closer to the value of the development rights they were retiring to protect farmland and other important resources,” he said
Under the previous incentive, ag landowners didn’t receive much reward for donating development rights, only a tax deduction of 30 percent of their annual adjusted gross income for a period of six years. The enhanced incentive allows a deduction of 100 percent of their income for a period of 16 years, he said.
For example, under the previous incentive, a farmer or rancher with $50,000 annual income with land worth $1 million would only be able to deduct $15,000 annually for a total of $90,000 over the six years. Under the enhanced incentive, he can deduct $50,000 annually for a total of $800,000 over the 16 years.
The $90,000 is not insubstantial but it’s a hard sell in exchange for $1 million in development rights, he said.
“Now at least the tax reward is commiserate with what he’s giving up,” he said.
The incentive also increases the non-ag tax deduction from 30 percent to 50 percent and the deduction period from six to 16 years.
Shay thinks the chance of House passage is excellent, although Democrats are hesitant because the billdoesn’t include tax increases to cover the cost of the tax breaks, he said.
If passed in the House, it would move to the Senate where there are some strong champions of the incentive and where legislation to make it permanent has passed twice, he said.