20 Questions: Conservation and the Fiscal Cliff Deal
HELPFUL Answers from the Land Trust Alliance
Q. Was the enhanced conservation easement tax incentive extended?
A. Yes! Donors of conservation easements (and bargain sales) in 2012 and 2013 can now deduct 50% of their adjusted gross income (100% for farmers with 50% ag income) over a total of 16 years. See our frequently Asked Questions: www.lta.org/easementincentive/faq
Q. How can I spread the word to donors?
A. We’ve updated our grassroots toolkit with materials to spread the word to potential donors. It also includes a sample letter to notify 2012 conservation easement donors of this last minute change – it could significantly change the tax treatment of their donation. www.lta.org/policy/policy-toolkit
Q. How can we make the easement incentive permanent?
A. Start by saying thank you! The Toolkit contains sample materials to thank congressional co-sponsors for making this extension happen. Bills to make the incentive permanent will be reintroduced soon.
Q. Congress retroactively changed the law; can I retroactively make a 2012 donation?
A. No. This change came too late to encourage 2012 easements, which had to be recorded by December 31. Obviously, this is a terrible way to make policy and that’s why we’re working so hard to make the incentive permanent, but we now have certainty for easement donors in 2013.
Q. Did Congress limit charitable deductions?
A. We defeated proposals for a fixed cap or percentage limitation, but Congress did reinstitute the “Pease Amendment,” which reduces a taxpayer’s itemized deductions by 3% of the amount their Adjusted Gross Income exceeds $250,000 ($300,000 for couples, up from $145,950 when it was last in effect).
Q. So are charities out of the woods regarding further deduction limits?
A. Not by a long shot! Congress must negotiate new agreements on the federal debt limit and on the federal budget over the next 2-3 months, with the President insisting on new tax revenues. Limiting deductions is a theme we can expect the budget negotiators to return to, so it’s more important than ever than land trusts team up with other nonprofits in their community to defend the charitable deduction: www.lta.org/charitable-deduction.
Q. How much will “Pease” reduce giving incentives for a $1 million/yr earner?
A. Probably not at all. Pease would reduce his/her itemized deductions by 3% of $750,000, but odds are pretty good that somebody earning that much will already have well over $22,500 in deductions for non-discretionary things like mortgage interest and state/local/real estate taxes. Except for ultra-high income donors in low-tax states, the marginal benefit of giving to charity will rarely be reduced. Here’s a Forbes article you can give your donors to explain the limited impact: http://onforb.es/V5ucbO.
Q. Does the Pease limit on deductions apply to deductions for donations made years ago, but carried over into the 2013 tax year?
A. Yes. (Confirmed by Senate tax staff.)
Q. Is there any way I can still make a charitable gift for 2012?
A. Actually there is one exception: the IRA Charitable Rollover, but you must act by February 1. Congress extended, through 2013, a provision that allows individuals 70 ½ and over to donate up to $100,000 of appreciated assets from their IRA accounts without penalties or taxes. Read about the special opportunity to make a 2012 gift this month: bit.ly/13ipytZ.
Q. Did giving incentives for S corporations improve?
A. Yes! Congress extended through 2013 the S-corporation donation incentive, which allows S-corporations to deduct the full fair market value of charitable gifts, including gifts of land and easements, rather than just their basis: www.lta.org/policy/other-incentives#s-corp
Q. What happened to the estate tax and estate tax conservation incentives?
A. The fiscal cliff deal passed by Congress continues the current $5.12 million unified credit, indexed for inflation, but raised the top rate to 40%. It also permanently repeals geographic limitations on the Section 2031(c) estate tax exclusion for land under easement that otherwise would have excluded about half the country: www.lta.org/estatetax.
Q. What other tax changes could impact charitable giving?
A. For individuals earning over $400k and couples over $450k, income tax rates will rise from 35% to 39.6% and capital gains above those thresholds will be taxed at 20% rather than 15%. In theory higher rates increase the incentive for charitable giving, but others suggest that reductions in after-tax income will discourage giving. Here’s a summary of overall changes: http://bit.ly/13ivovh.
Q. Why isn’t there more enthusiasm about the Farm Bill extension?
A. Extending the Farm Bill through September does nothing to stop the budget clock from ticking forward on January 1, effectively taking $500 million (25%) from the Farm and Ranch Lands Protection Program (FRPP) baseline from the next decade. The bill will be renegotiated over the next year, so they could restore some of that – or cut more – but we’re in a weaker starting position. www.lta.org/farmbill.
Q. Was the Farm and Ranch Lands Protection Program extended?
A. FRPP had already been extended in a previous appropriations bill and is slated to receive $151 million under the latest continuing resolution.
Q. Is it true that Grassland Reserve Program and Wetlands Reserve Program were extended?
A. Contrary to our initial assessment, USDA now believes that the extension will allow new enrollment in GRP and WRP this year. The bill itself mentions neither program, but since they had not yet reached their acreage cap, it appears they may continue. It is not yet clear how much funding will be available.
Q. Will the Farm Bill delay give another chance to improve program details?
A. That could be a silver lining, but with new members comprising nearly half of the agriculture committees, we have many new relationships to build over the coming months.
Q. What happened to the “sequestration” cuts we’ve been hearing about?
A. The deal delays sequestration until March 1. Over the next two months Congress and the President will seek to replace these indiscriminant cuts with more targeted reductions. We’ll need to work hard to ensure that the cure isn’t worse than the disease!
Q. So how much funding goes to LWCF, Forest Legacy, NAWCA, etc this year?
A. We don’t know yet! The government is currently operating under a stop-gap “continuing resolution” through March 24. Agencies have been told to expect a slight increase over last year’s levels, but most agencies will be reluctant to obligate grants until they know whether Congress will reduce funding in March. Find a table of current levels at: www.lta.org/policy/public-funding.
Q. What else does my land trust need to be aware of?
A. If your organization has employees, there are several changes you should know about:
· Withholding tables have changed with the expiration of the payroll tax cut and increased rates.
· Allowable employee transit benefits have increased from $125 to $240.
· The exclusion for employer-provided education assistance is permanently extended
Read about these and other changes at: http://bit.ly/TIrGWx.
Q. Sounds like Congress will be busy! How can I get to know my legislators?