Incentives Watch: Farm Bill, Along With State Tax Credits, Encourage More Land Conservation Easements

On February 7th, President Obama signed the 2014 Farm Bill, which, among other things, supplements conservation tax credits and incentives offered at the state level.  To learn more about how the Farm Bill impacts state conservation incentives, Bloomberg BNA spoke with Russell Shay, Director of Public Policy at the Land Trust Alliance, a national organization of land trusts dedicated to promoting conservation.

Bloomberg BNA:  What impact does the Agricultural Act of 2014 (i.e., the 2014 Farm Bill) have on state tax credits and incentives for conservation?
Shay: At least 16 states have state tax incentives for land conservation, and the Farm Bill does two things that will help states achieve the goals they had when they passed those incentives.  First, there’s about $1 billion in the bill that is available to states, local government, and nonprofits to buy conservation easements from agricultural landowners to protect important lands.  These conservation easements are agreements that keep farmland and rangeland from being lost to development, while keeping the landowners on the land and working it.  That’s $1 billion (over 10 years) of additional firepower for conservation, to add to the state tax credits (and to state and local conservation funding, as well). 

Second, the new Agricultural Land Easement (ALE) program in the Farm Bill specifically acknowledges and encourages landowner donations toward easements.  That makes use of what are called “bargain sales” - where a landowner donates some of the value of their development rights, but receives some cash for them as well.

By the way, the most effective state incentives for land conservation have been transferable income tax credits, particularly those in Virginia, Colorado, Georgia and New Mexico.

Bloomberg BNA:  How will the Farm Bill affect states with strong conservation tax credit programs such as Colorado? 
Colorado was a big consumer of the Farm and Ranch Land Protection program, the previous Farm Bill’s version of ALE, and will be a big consumer of ALE.  The new bill will add new options that will allow a broader group of landowners to be able to participate in farm and ranch land conservation.

Bloomberg BNA:  Are there any downsides to the Farm Bill regarding conservation on the state level? 
  Well, the rulemaking will be important.  We’ll be working on that, and one of the things we will be trying to do is to make sure the U.S. Department of Agriculture’s requirements are consistent with those that the Internal Revenue Service requires, and that state tax authorities require, so this works for landowners.  It would be sad if landowners didn’t get the credit they deserve for donating part of their development rights because the USDA requirements didn’t line up with what the states and the IRS require.

Bloomberg BNA:  Do you have any other comments regarding the Farm Bill? 
The Land Trust Alliance worked hard to get this funding into the Farm Bill, working with land trusts across the country, and we put a special emphasis on getting lawmakers to allow more flexibility for USDA in accepting donations of value from landowners.  That’s going to help states that don’t have a lot of local funding for land conservation – the law used to have a hard and fast requirement for local governments to match the cash USDA puts in, but now there will be an option for allowing deals to be done without that match.  But it also helps states (like Colorado, Georgia, Virginia and New Mexico) that have already used state law to encourage those donations.

We had hoped the Farm Bill would renew an enhanced [federal] tax incentive for conservation donations that expired at the end of the year, but it didn’t.  We are still looking for a way to do that, as Senators Baucus and Hatch have proposed in S. 526 and Representatives Jim Gerlach (R-PA) and Mike Thompson (D-CA) have proposed in HR 2807.  Those bills allow working farmers and ranchers to take a larger share of their annual income as a deduction for donating a conservation easement – up to 100% of their adjusted gross income rather than the 30% that is now the limit.  That would help easement sales, too, because the larger deduction would allow farmers and rancher to offset the capital gains they would otherwise pay on easement sales – again, encouraging larger donations and increasing the buying power of both USDA funds and state and local conservation funding.  We’re still working on getting that done.

*Continue the discussion on LinkedIn at Bloomberg BNA’s State Tax Group:  Do you think the Farm Bill will in fact lead to increased land conservation in your state?

For more information about state conservation tax credits, check out Bloomberg BNA’s Credits and Incentives Portfolios.

In other developments . . .

New Mexico recently issued replacement regulations for the sustainable building credit, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

Follow me on Twitter at:  @katcaggiano .

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