Retirement & Financial Planning Report

A change in federal law encourages donations of conservation easements to local nonprofit groups. With such easements, you agree to a restriction on future use of land you own. If you own a 50-acre parcel of land, for example, you might stipulate that commercial and industrial development never will be allowed there.

That would generate tax benefits:

Income tax: Before-and-after appraisals might indicate that the land has lost $500,000 in value, because of the easement. You can take a $500,000 income tax deduction.

Under prior law, deductions for conservation easements were limited to 30 percent of your adjusted gross income (AGI) per year; amounts you couldn’t deduct upfront could be taken over the next five years. For donations made through year-end 2007, though, you can deduct up to 50 percent of your AGI and carry forward excess deductions for up to 15 years.

Estate tax: Reducing the value of your real estate also reduces your taxable estate. In addition, donating an easement provides your estate with another tax exclusion, worth up to 40 percent of the value of the land (excluding structures). To get the full 40 percent exclusion, the easement must reduce the property’s value by at least 30 percent; the maximum exclusion is $500,000.