In
January 1999, the Virginia General Assembly passed a new tax credit for
conservation easement donors. This state income tax credit applies to Virginia
landowners that donate an easement on or after January 1, 2000. The new provision allows for easement donors
to claim a credit against their Virginia State income tax liability of 50% of
the value of the donated easement.
However, the amount of the credit may not exceed $50,000 for the year
2000, $75,000 for the year 2001, and $100,000 for 2002 and thereafter. In any one year, the amount of the credit
used may not exceed the amount of state income tax otherwise due. Any portion of the credit that is not used
up in the year the easement is donated can be carried over for an additional 5
years.
Mr.
and Mrs. Brown live on Greenacres, a 200-acre farm in Culpeper. They currently have an income of about
$150,000 a year. They pay income taxes
of $8,625 to the State of Virginia yearly (based on a 5.75% state income tax
rate). In February of 2000, they give a
conservation easement on Greenacres to the Virginia Outdoors Foundation. A qualified appraisal of the property shows
the property to be worth $500,000 before the easement, and $350,000 after the
easement. Thus the value of the
easement itself is $150,000.
Their
total tax credit will be capped at one-half of the value of the easement or
$50,000, whichever is less. In their
case, $50,000 will be the total credit they can use. As stated above, they can not claim the entire credit in the year
they give the easement. They can only
use the credit to offset income tax owed – $8,625. Thus, they can claim a tax credit of $8,625 in the year 2000, and
in each of the years from 2001 to 2004.
The remainder of their credit to be used up in 2005 is $6,875. Their total Virginia State income tax
savings over six years will be $50,000.
Note
that this state income tax credit is additional to the federal income
tax benefits that an easement donor would receive. Assuming a 31% federal
income tax bracket, total federal and state income tax savings for the Browns
could be as much as $200,000 over six years.
For more information about
conservation easements, please contact Babette Thorpe, Land Conservation
Specialist, 804.977.2687, or e-mail bthorpe@pecva.org. Further information is also available on
PEC’s web site -- www.pecva.org.