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Landowners: Two years to donate for deductions
Tennessee Correspondent

NASHVILLE, Tenn. — Embedded in the Pension Protection Act of 2006 passed Aug. 17 is a provision allowing farmer landowners to possibly erase federal income tax payments for up to 16 years.

California Democratic Rep. Mike Thompson introduced the provision, which gives landowners more income tax credit for designating all or part of their undeveloped real property with a conservation easement. One does not have to be a qualified farmer, producer or rancher - earning 50 percent or more of annual gross income from ag operations - to benefit, but those people do receive more credit with the IRS.

Keep it private
“You are in no way opening your land up to the public,” explained Eileen Hennessy, director of land protection for The Land Trust for Tennessee (LTT), a nonprofit agency set up in 1999 to concentrate on middle Tennessee. “Some people think this means, ‘Now everyone can come in.’ Absolutely not.”

LTT is just one of a handful of trusts in Tennessee – and about 1,500 nationwide - dedicated to helping landowners designate their property for conservation and providing legal oversight of such agreements in perpetuity. Making this kind of donation does bind the donor and any subsequent owners of that property to a legal non-development agreement.

Those owners are not, however, giving up rights to or control of their land so long as they stick to the terms of the donor’s contract with LTT, Hennessy said. They can sell it, will it to their children, build a private home or outbuildings on it, continue to till it or use it for natural wildlife habitat - just so long as the primary purpose of the “vast majority” of the easement is farming or conservation.

“Most people who come to us, their commitment is to the land itself,” she explained, adding most do not designate their entire property for conservation.

“For the farmer, when they look at what they’ll be giving up, non-development in perpetuity, it means a lot more to them,” agreed Rhedona Rose, Tennessee Farm Bureau communications director.

Hennessy said while designating for conservation does not guarantee against eminent domain takeovers, “it’s a great deterrent.” The utilities and governments LTT has encountered in this vein are, more often than not, willing to seek other land because of the non-developmental nature of those tracts and the extra legal hoops involved in acquisition.

Full deduction
Michael Sanders, head of the tax department of law firm Powell Goldstein, LLP in Washington, D.C., said both individual farmers or ranchers and agricultural corporations can take advantage of this new law.

For example: If Farmer Smith has land appraised at $1 million in easement-donation value and earns $100,000 a year from farming and related activities, if he designates that land in 2006 or 2007, he is likely eligible for a full deduction. “Basically, that means you can wipe out all your taxable income in a year,” Sanders said.

What’s more, Farmer Smith can keep doing this for up to 15 more years, until he hits the land-value limit. If he earns $100,000 annually - at least half from farming - he can go until he reaches $1 million, or for 10 years.

Those earning less than half their gross income from farming may qualify for a 50 percent tax credit, Hennessy added. (The credit was previously set at 30 percent of income for any participating landowner, according to Thompson’s office.)

The law is in reaction to growing pressure on rural areas to develop for subdivisions and business complexes, Rose explained. In Tennessee particularly, she said farmers have been feeling the pinch outside sprawling cities such as Nashville and Knoxville.

A landowner designating a conservation easement may continue to claim the land even if they sell it within the 16-year deduction window, “because you made that sacrifice,” Hennessy said, pointing out such land will also probably sell for less than that which can be developed.

LTT does not charge registration or legal services fees, as it is supported by the communities in which it operates. Hennessy said she cannot speak for other trusts; landowners will have to check in their own regions.

That doesn’t mean prospective donors won’t spend money. Before committing to something like this, Hennessy advises a landowner to consult with their tax preparer and possibly an attorney. Too, the IRS requires specially-qualified appraisers to determine easement values.

LTT has nearly 11,000 acres in middle Tennessee under its protection, ranging in size from 40 to 1,700 acres. To learn more, call 615-244-5263, or locate a trust for your area through the Land Trust Alliance online at

This farm news was published in the Sept. 6, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.