SALEM, Ohio – Recent changes to federal tax law are looking pretty good for farmers and rural communities.
So good, in fact, that the change has the potential to eliminate a good portion or all of a farmer’s federal income tax liability for up to 16 years.
It’s law. A section of the Pension Protection Act, signed into law by President Bush Aug. 17, will help protect thousands of acres of farmland by allowing greater tax deductions to farmers who donate property for easements.
Conservation easements allow farmers and ranchers to maintain ownership and management of the land, and at the same time protect it from future development.
Examples. Here’s how it works:
Under old tax standards, a farmer or landowner who donated property to a conservancy, land trust or other entity could deduct up to 30 percent of his or her adjusted gross income against federal income taxes, according to Krista Magaw, executive director of the Tecumseh Land Trust in Clark and Green counties in Ohio.
That means a deduction from taxable income, not a credit, which subtracts from the tax bill, she said.
For instance, a farmer with $100,000 in adjusted gross income who donated property for an easement could deduct $30,000 from his federal tax liability, she said. And that deduction could be taken for six years, she said.
The new law changes the deductible amount significantly.
Now, that same landowner can deduct up to 50 percent – $50,000 – from his taxable income for up to 16 years, Magaw explained.
There’s more. There are even more benefits for full-time farmers.
A farmer – defined as one whose gross income from agriculture is more than 50 percent of yearly household income – can deduct up to 100 percent of his tax liability, according to Kevin Joyce, executive director for the Black Swamp Conservancy based near Toledo.
In some cases, that zeroes a farmer’s federal income tax liability. And that deduction can be taken for 16 years, he said.
Corporations. The news affects family farms organized as corporations, too.
Farms set up as limited liability corporations (LLCs), as long as they’re wholly owned by a family and without stock shares or other outside interests, can take advantage of the 100 percent deduction, according to Larry Frimerman, executive director of the Three Valley Conservation Trust at Oxford, Ohio.
“As long as they’re treated as partnerships for tax purposes, they’re eligible,” he said.
Frimerman said farms set up as C or S corporations could also take advantage of the tax breaks, but only for one year. Succeeding years qualify those types of corporations to take standard 10 percent deductions, he said.
Reactions. “This is wonderful news. We’ve seen landowners interested in easements, but before now they weren’t really all that economically beneficial,” Magaw said.
“This will really help the financial picture for easements, and offer a better incentive for donations,” she said.
Joyce agreed, saying he hopes to see more landowners and farmers donating conservation easements locally, even if they can’t qualify for the state department of agriculture’s easement grant programs.
Fine print. The new provision applies only to contributions made Jan. 1, 2006 through Dec. 31, 2007, and eligibility requires the property is available for agricultural production.
For more information, contact your tax professional.
To find a conservation entity near you, Magaw suggests calling the Land Trust Alliance at 202-638-4725.
That group, based in Washington, D.C., can direct you to a conservation group with interests in your county.
(Reporter Andrea Myers welcomes reader feedback by phone at 800-837-3419 or by e-mail at email@example.com.)
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